Most Read Contributor in South Africa, September 2016
Section 35(2) of the Tax Administration Act No. 28 of 2011 (the
"TAA") currently provides that an
arrangement will be reportable, inter alia,if it is listed
as such by the Commissioner for the South African Revenue Service
"SARS") by public notice, and if the
Commissioner is satisfied that the arrangement may lead to an undue
tax benefit. Such inclusions are, however, subject to the
provisions of section 36 of the TAA, which inter alia
provides that the Commissioner may determine an arrangement to be
an excluded arrangement by public notice if he is satisfied that
the arrangement is not likely to lead to an undue tax benefit.
We set out below a brief overview of the current notices issued
for purposes of sections 35(2) and 36(4) of the TAA, as well as the
proposed amendment thereto.
The Commissioner issued a notice in terms of the reportable
arrangement rules previously contained in the Income Tax Act No. 58
of 1962 (the "Act") in terms of which an
arrangement will be an excluded arrangement, inter alia,
if the tax benefit which is or will be derived is not the main or
one of the main benefits of the arrangement (which notice should
remain in force for purposes of section 36(4) of the TAA, in terms
of section 269(1) of the TAA).
The Commissioner published a notice for purposes of section
35(2) of the TAA on 28 December 2012 (Government Gazette Notice No.
36038, the "Notice"), which includes as
a reportable arrangement, an arrangement which is or would have
constituted a "hybrid equity instrument" for purposes of
section 8E of the Act had the prescribed period for determining
this been ten years as opposed to three. A "hybrid equity
instrument" for purposes of section 8E of the Act is defined,
inter alia, as including "any share, other than
an equity share if the issuer of that share is obliged to redeem
that share in whole or in part...within a period of three
years from the date of issue of that share".
The Notice further includes as a reportable arrangement, an
arrangement which is or would have constituted a "hybrid debt
instrument" as defined in section 8F of the Act if the
prescribed period in that section had been ten years as opposed to
three, excluding any instrument listed on an exchange regulated by
the Securities Services Act No. 36 of 2004 (the
"SSA"). A "hybrid debt
instrument" is defined as, inter alia, "an
instrument that is convertible into or exchangeable for a share in
the issuer thereof at the option of the holder thereof within three
years from the date of issue of that instrument."
A draft notice on reportable transactions for purposes of
sections 35(2) and 36(4) of the TAA (the "Draft Notice")
was released for comment on 12 June 2014, and is set to replace all
previous notices for purposes of sections 35(2) and 36(4) of the
TAA. Various specific transactions are listed as reportable, to the
extent that same take place after the date of publication of the
draft notice (which has not yet occurred).
The exclusion discussed above will furthermore be replaced by a
de minimus rule which excludes arrangements in terms of
which the tax benefit derived or to be derived does not exceed R5
Careful consideration will accordingly have to be given to the
reportability of transactions following the date of publication of
the Draft Notice, having due regard to its final form.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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