Most Read Contributor in South Africa, September 2016
In the 2015 Budget Speech presented to the
National Assembly on 25 February 2015 the Minister of Finance
announced that amendments will be proposed to change the
rules for the digital economy in line with the latest
guidance issued by the Organisation for Economic Co-operation and
Development ("OECD") in its report on base erosion and
profit shifting ("BEPS").
The changes proposed for South Africa are based on the interim
report of the Davis Committee (the
"Report") which submitted that there is
limited scope for South African residents to shift profits
to offshore tax haven jurisdictionsvia e-commerce
transactions, however, the opposite holds true with
respect to e-commerce transactions conducted by non-residents with
South African customers.
Non-residents are only subject to tax in SA on income derived
from a source in South Africa however, the source rules do
not deal specifically with e-commerce transactions. As a
result,non-residents can avoid paying tax in
South Africa because the source of their income is not in South
The Report makes the following recommendations in respect of the
proposed design of the new direct tax legislation
relating to e-commerce transactions:
new source rules that deal with e-commerce transactions
should be enacted to provide that digital goods or
services are sourced where consumption takes place, however, these
rules must only tax a portion of the profits as the country of
residence of the supplier would also have a legitimate claim to tax
the South African Revenue Service should isolate and
focus on foreign multi-nationals and compel them to submit tax
rules should be implemented that require non-residents
with South African sourced income to submit income tax returns even
if they do not have a PE in South Africa
to ensure that such non-residents register for tax, a
withholding tax system should be implemented where a
resident that enters into an e-commerce
transaction with a non-resident should withhold tax on
payments made to the non-resident
the legislation should allow for the provisions of the
Electronic Communications and Transactions Act to be utilised
to detect and identify taxpayers since the main
challenge that e-commerce poses relates to identifying the location
of taxpayers and their transactions
a level playing field should be created so that South African
companies dealing with digital goods and services are able to
compete with big multinationals
The Report also provides considerable
recommendations in respect of the design of the
indirect tax (i.e. Value-Added Tax) legislation
related to e-commerce transactions.
Based on the recommendations in the Report, all
non-residents who are involved in e-commerce transactions
with South African customers should expect to pay tax in South
Africaon these transactions in the
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The expansion of the West African regional market to foreign investors, and the search for emerging markets has led to a continuous increase in business mobility and cross border investments with Nigeria.
Effective collaboration amongst government agencies, automation of processes and capacity building by tax authorities have always been identified by stakeholders as strategies for achieving an efficient tax system.
The major objective of the waiver is to promote voluntary compliance and consequently generate revenue for government which otherwise, could have been lost.
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