The reportable arrangement provisions are set out in sections 34 to 39 of the Tax Administration Act ("TAA"). In terms of section 37(1) of the TAA, the information required to be disclosed, in terms of the reportable arrangement provisions, must be disclosed by a person who is a "participant".
A "participant" is defined as in relation to an arrangement:
- a "promoter" (ie, in relation to an arrangement, the person who is principally responsible for organising, designing, selling, financing or managing the arrangement);
- a person who directly or indirectly will derive or assumes that the person will derive a "tax benefit" or "financial benefit" in relation to an arrangement; or
- any other person who is party to an "arrangement" listed in a public notice as referred to in section 35(2).
It must therefore be determined whether the transactions constitute a reportable arrangement in order to determine whether any participant has any reporting obligations in respect thereof. In this regard, the definition of an "arrangement", as contained in section 34 of the TAA, includes any transaction, operation, scheme, agreement or understanding (whether enforceable or not).
An "arrangement" is a reportable arrangement if:
- it is listed in terms of section 35(2) of the TAA or
- in terms of section 35(1) of the TAA, inter alia, if a person is a "participant" in the arrangement and certain requirements set out in section 35(1)(a) to (e) are met; and
- it is not an excluded arrangement referred to in section 36 of the TAA.
Section 37 of the TAA deals with the disclosure obligations. In this regard, the information referred to in section 38 in respect of a reportable arrangement must be disclosed by a person who is a "participant". In terms of section 37(1), a person who is a participant must disclose the information referred to in section 38 in respect of a reportable arrangement. In terms of section 37(2), a participant need not disclose the information if the participant obtains a written statement from any other participant that the other participant has disclosed the reportable arrangement.
If any entity or person constitutes a person who is "principally responsible for organising, designing, selling, financing or managing the arrangement" then it would constitute a "promotor". This is a question of fact. Any party to the abovementioned transactions who directly or indirectly will derive or assumes that it will derive a tax benefit or financial benefit in relation to an arrangement will also constitute a "participant" as defined.
A "tax benefit" is defined in section 34 of the TAA as including the "avoidance, postponement, reduction or evasion of any liability for tax".
A "financial benefit" is defined in section 34 as meaning "a reduction in the cost of finance, including interest, finance charges, costs, fees and discounts on a redemption amount".
It should also be considered whether an arrangement may be reportable as a result of the application of section 35(2) of the TAA. In terms of section 35(2), an arrangement will be reportable if the Commissioner for the South African Revenue Service ("SARS") has listed the arrangement by public notice.
SARS published a notice as contemplated in sections 35(2) and 36(4) of the TAA listing certain arrangements which are deemed to be reportable (refer Government Notice 140, published on 3 February 2016, GG No 39650) ("Notice").
Paragraph 2.1 of the Notice lists as a reportable arrangement:
"An arrangement that would have qualified as a "hybrid equity instrument" in terms of section 8E of the Income Tax Act, 1962, if the prescribed period in that section had been 10 years, but does not include any instrument listed on an exchange regulated in terms of the Financial Markets Act, 2012 (Act No. 19 of 2012)"
Paragraph 2.2 of the Notice provides that the following arrangement has been identified to be a reportable arrangement:
- a company buys back shares on or after the date of publication of this notice from one or more shareholders for an aggregate amount exceeding ZAR10-million; and
- that company-issued or is required to issue any shares within 12 months of entering into that arrangement or of the date of any buy-back in terms of that arrangement.
From the definition of a reportable arrangement is excluded any excluded arrangement contemplated in section 36 of the TAA. Accordingly, transactions will not be reportable if they fall within the exclusions listed in section 36.
Section 36(4) of the TAA provides that the Commissioner may determine an arrangement to be an excluded arrangement by public notice.
The Notice lists as an "excluded arrangement" as:
- "An arrangement referred to in section 35(1) of the Tax Administration Act, 2011, is an excluded arrangement if the aggregate tax benefit which is or may be derived from that arrangement by all participants to that arrangement does not exceed ZAR5-million.
- An arrangement referred to in section 35(1)(c) of the Tax Administration Act, 2011, is an excluded arrangement if the tax benefit which is or will be derived or is assumed to be derived from that arrangement is not the main or one of the main benefits of that arrangement."
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.