Recently news headlines about SARS were dominated by spy allegations, golden handshakes for the officials at the centre of these allegations and most recently a defamation suit. While these stories may have temporarily distracted our attention, SARS has not been resting on its laurels.
Following concern raised by Judge Dennis Davis about the SARS’ distressing lack of capacity to deal effectively with companies that shift profits to low tax jurisdictions through transfer pricing illegitimately, it was announced that SARS will significantly increase its capacity to deal with base erosion and profit shifting (BEPS).
Beyond our borders, the United Nations, the International Monetary Fund, the World Bank and the G20 all have independent but complementary tax transparency initiatives in the works, which means corporate tax avoidance and BEPS are unlikely to disappear from the radar. And it’s not just globally recognisable brands that are at risk according to Grant Thornton’s Global Tax Leader, Francesca Lagerberg, but also mid-sized businesses transacting across borders. Read more about her views on why you need to future-proof your tax practices to stand up to the scrutiny that bigger organisations are currently facing.
SARS also recently announced that it achieved a 92% conviction rate in cases it handed over for prosecution‚ involving tax and customs-related crimes of 256 individuals / entities in the past year. It issued fines totalling R9.6m and those convicted collectively face 555 years of imprisonment, 258 months of correctional supervision and 2480 hours of community service.
Tax Director, Barry Visser, has compiled a list of new reportable arrangements you need to be aware of to help avoid the fate of these 256 individuals / entities.
Another positive announcement from SARS amid the distracting headlines is that it has established 138 Small Business Desks in 50 of the 52 SARS branches nationwide. The aim of this service is to support SMEs (small- to medium-sized enterprises) and make it easier for them to meet their tax commitments. The expectation is that the service will help these smaller companies survive and thrive so that they can help with much needed job creation.
For many of these SMEs, VAT is a complete mystery and Tender da Gama, who works as Tax Compliance Consultant at Grant Thornton Johannesburg, lifts the veil on one such mystery. He explains the requirements VAT vendors must meet whenSARS waives the need for them to issue a tax invoice.
Now for some the frying pan in South Africa might just be getting too hot and despite the good work from institutions like SARS, they are swayed by plummeting local business optimism levels as we reported in our most recent IBR report. If you are considering relocating, or expanding your business beyond South Africa’s borders to new territories, look at Grant Thornton’s 2015 Global Guide to Business Relocation for pragmatic global advice.
SARS wants to know about your arrangements
By Barry Visser, Tax Director Grant Thornton Johannesburg
It was widely anticipated that SARS would add to their list of reportable arrangements and it did just that. Here is a list of new reportable arrangements you must know about or risk falling foul of the requirements of the Tax Administration Act (TAA) and potentially be subjected to massive penalties.
What is a reportable arrangement?
A reportable arrangement is one that has certain characteristics (as listed in s35(1) of the TAA) or is listed by SARS in a public notice (in terms of s35(2) of the TAA). In these instances, the person who promotes the arrangement (called a promoter) and the person who may derive a tax benefit from the arrangement (called the participant) must report the arrangement to SARS.
New reportable arrangements
From 16 March 2015, these are reportable arrangements in addition to the arrangements with the features set out in s35(1) of the TAA:
Hybrid equity instruments
Any arrangement that would previously have qualified as a hybrid equity instrument for purposes of sections 8E or 8F of the Income Tax Act, with the exceptions for certain listed instruments, where the prescribed period of redemption is 10 years.
Where a company enters into a share buy-back arrangement, for an aggregate amount exceeding R10million and that company issues the shares within 12 months after the arrangement becomes effective or the date of the buy-back.
Contributions or payments made by a South African resident, who has a beneficial interest in a non-resident trust or acquires such an interest, and the aggregate amount of contributions and payments to such trust, before and after 16 March 2015, exceeds or is reasonably expected to exceed R10million.
However, certain non-resident trusts, with portfolios comprised in any investment scheme in bonds or listed securities, qualify as REITs or are a foreign investment entity as defined in section 1(1) of the Income Tax Act, and are therefore excluded.
Where a controlling interest is held directly or indirectly, or the controlling interest is acquired in a company on or after 16 March 2015, and that company has carried forward or reasonably expects to carry forward a balance of assessed loss or expects to have an assessed loss in respect of the year of assessment during which the interest is acquired, that exceeds R50million.
Where a South African resident pays an aggregate amount exceeding R5million to a foreign insurer and any amount payable to a beneficiary is determined mainly with reference to the value of particular assets or categories of assets held by, or on behalf of, the foreign insurer.
An arrangement in terms of which a local tax resident pays more than R5 million to an offshore insurer and the return of the insurance policy is determined mainly with reference to the value of particular assets held by the insurer.
Taxpayers must notify SARS of any reportable arrangements 45 business days from the date that a transaction qualifies as a reportable arrangement, after which the taxpayer will be regarded as a participant in the reportable arrangement.
SARS may levy penalties if parties fail to report such arrangements. Where the promoter of the arrangement fails to report the arrangement the penalty amount is R 100 000 for each month while the arrangement remains unreported, subject to a maximum of 12 months. In the case where there is no promoter or if the promoter is a non-resident, and a participant fails in his obligation to report the arrangement, the penalty amount is R 50 000 for each month.
It should be noted that if the anticipated tax benefit for the participant exceeds R5 million the penalty is doubled and if the tax benefit exceeds R 10 million the penalty is tripled. Up to R100 000 of the penalty may be remitted in the case of a first incidence of non-compliance or non-compliance that endures for less than 5 business days.
However, if a participant obtains a written statement from the promoter or any other participant confirming the arrangement was reported, then the participant need not report the arrangement and also where the aggregate tax benefit which may be derived by all the participants to the arrangement is less than R 5 million.
Contact your tax adviser for a detailed list of reportable arrangements or if you help to assess your arrangements and to report any arrangements.
The devil is in the detail – New VAT requirements for certain contracts
By Tender da Gama, Tax Compliance Consultant Grant Thornton Johannesburg
To claim an input tax deduction, the VAT Act requires vendors to issue a tax invoice containing a prescribed set of information about the product or service supplied and the parties to the transaction. However, in circumstances when this requirement is waived to claim the input VAT deduction, SARS has clarified their requirements. Do you comply?
Under certain circumstances, SARS may relax their requirements so that one or more of the information fields can be excluded on the tax invoice, or that another document, such as a contract, may replace a tax invoice. The contract or other document will then be regarded as sufficient documentary proof to entitle the recipient vendor to claim an input tax deduction for VAT charged on all future supplies related to the contract.
For a contract to suffice as replacement for a tax invoice, the Commissioner needs to be satisfied that there are sufficient records available to establish the full details of a supply or category of supplies. Additionally, that it is impractical to require a full tax invoice, credit or debit note to be issued or that the relevant document is not required to be issued. Therefore, the vendor’s unique circumstances must demonstrate why it is impractical to issue a full tax invoice, credit or debit note, or to exclude some information that is usually required, or not issued at all.
These circumstances will generally be evidenced in, but not limited to, the nature of the vendor’s supplies, confidential agreements that require certain details to be disclosed in code form or accepted industry practice.
SARS issued Binding General Ruling (VAT) No. 27 and Interpretation Note No. 83, which provide that the Commissioner’s direction to waive the need for a vendor to issue tax invoices, debit notes or credit notes, is on condition that the recipient is in possession of the contract. This contract must contain the names, addresses and VAT registration numbers of both the supplier and recipient (if applicable), a description of the goods or services supplied and the applicable tax rate charged. Similar to an abridged tax invoice, the requirements for this arrangement are slightly less onerous where the amount in question is less than R5 000. The supplier and the recipient should also retain proof of payment of each amount paid where the relevant contract does not contain the amount payable.
At face value, these requirements are similar to previous conditions, but there is an important new twist. An additional requirement was added that the contract should contain a statement that confirms the contract complies with the Commissioner’s direction under either section 20(7) or 21(5) of the VAT Act. It is therefore important that vendors ensure this clause is included when the contract is concluded.
As always, vendors must retain all the relevant information for a minimum period of 5 years.
Grant Thornton’s Instinct
It is almost safe to assume that SARS issued BGR 27 and IN 83 their view on the specific requirements in response to a recent case where SARS assessed a taxpayer on its income only based on a specific contract but the court accepted the appellant’s argument that SARS should then also allow the taxpayer to claim an input tax deduction based on the same contract.
The A-Z of Global Business Relocation
Many companies from large multinationals to entrepreneurial businesses are choosing to relocate part or all of their operations to new territories. There are many cost and commercial reasons, driven by a series of global economic factors, which may prompt a group to consider relocating:
Globalisation: the disparity in growth rates between emerging markets and mature economies is accelerating the pace of globalisation, as companies seek to access capital, goods or markets in different regions of the world. There is also a growing pool of internationally mobile employees willing to relocate for these opportunities.
Slow economic recovery: pressure on businesses to reduce costs continues as they continue to respond to the last global recession. There can be significant operational and administrative benefits arising from centralising functions and relocating them offshore to an appropriate location, while tax cost might also be lower.
Increased compliance burdens: Increasingly complex compliance systems to control behaviour and discourage loss of tax revenue across borders are being implemented locally and in other economies. This is creating a huge compliance burden for groups and arguably is accelerating the migration of businesses away from jurisdictions that are perceived to be more complex in its requirements.
Competitive advantage: as more corporate groups take advantage of the opportunities arising from relocation, it is important to maximise value by reducing costs, thereby keeping a competitive advantage
Tax incentives: many governments are adjusting their tax regimes to help encourage companies to relocate and create jobs within their markets. Particular areas of focus include IP management and other high-value functions. Where commercial activities are located in these jurisdictions, overall effective tax rates might benefit from such incentives.
Other: a number of other factors can also be considered when relocating including, local business environment; government incentives; personal and corporate liability; culture; governance; language; political reasons, social stability and ease of inward investment amongst others.
However lucrative relocation may appear, it is also important to understand the consequences.
The key to successful business relocation is early planning, clear commercial objectives and careful execution. The Grant Thornton relocation guide provides pragmatic advice for executives, including outlining the drivers of relocation, the types of activity commonly relocated and the commercial, cost and tax factors of popular relocation destinations.
Grant Thornton member firms around the world have significant experience in advising clients on how their businesses can benefit from relocation. The highest profile cases involve full corporate migrations or inversions – the head office and holding company structure transferring to a new jurisdiction. However the options are numerous and the right answer may be much simpler, from setting up a regional hub to offshoring support services.
We hope you will find this guide useful in assessing whether business relocation is right for you. If you would like to discuss the next steps please contact your own Grant Thornton adviser.