On 16 March 2015 the South African Revenue Service published a public notice (No. 212) in the Government Gazette (No. 38569) (Notice) in terms of section 35(2) and section 36(4) of the Tax Administration Act, 2011 (TAA), which lists specific arrangements which are reportable. With effect from 16 March 2015, the Notice replaces all previous notices issued under section 80M(2)(c) and 80N(4) of the Income Tax Act, 1962 (ITA), as well as under section 35(2) of the TAA.
The Notice contains a number of significant amendments to the draft notice which was published for comment during 2014. Important changes in this regard are noted below, together with salient features of the Notice.
Recent amendments to the TAA
The scope of section 35 of the TAA has recently been expanded to specifically include natural persons as a "participant" in respect of reportable arrangements. Furthermore, the "tax benefit" requirement has been removed from section 35, but has been retained in the section 34 definition of a "participant" that is not a "promoter". Accordingly, if a person derives a tax benefit from an arrangement which meets any of the requirements listed in section 35(1), or an arrangement listed in any public notices issued in terms of section 35(2), such arrangement will be reportable.
The Notice lists the following as reportable arrangements:
- a share buy-back by a company from one or more shareholders for an aggregate amount exceeding ZAR10 million, if the company issued or is required to issue any shares within 12 months of entering into the buy-back arrangement or of the date of any buy-back in terms of that arrangement;
- a "hybrid equity instrument" in terms of section 8E of the ITA, if the prescribed period in that section had been 10 years;
- a "hybrid debt instrument" in terms of section 8F of the ITA, if the prescribed period in that section had been 10 years. Any instrument listed on an exchange regulated in terms of the Financial Markets Act, 2012 is excluded in this regard;
- any contribution or payment to an offshore trust, where the contributor has or will obtain a beneficial interest in that trust, and the value of that interest or the total of all contributions or payments (made before or after the publication of the Notice) exceed ZAR10 million. This excludes any contributions to or beneficial interest acquired in any portfolio comprised in any investment scheme contemplated in paragraph (e)(ii) of the definition of "company" in section 1(1) of the ITA or a foreign investment entity as defined in section 1(1) of the ITA;
- any arrangement in terms of which a person directly or indirectly acquires the controlling interest in a company (including by means of acquiring shares, voting rights or a combination of both) that has carried forward or reasonably expects to carry forward a balance of assessed loss exceeding ZAR50 million (ZAR20 million in the draft notice) to the year in which the controlling interest is acquired, or has or reasonably expects to suffer such an assessed loss during the year that the controlling interest is acquired; and
- any arrangement between a resident and a foreign insurer in terms of which an aggregate amount that exceeds or is reasonably expected to exceed ZAR5 million has been paid or becomes payable by the resident to that foreign insurer, and the policy benefits relate to specific assets.
A reportable arrangement will qualify as 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 (previously ZAR1 million). Furthermore, there is no longer a safe haven available where a tax benefit is the main or one of the main benefits of the arrangement.
Important change between the draft notice and Notice
The following arrangements were included in the draft notice as reportable arrangements, but are not included in the Notice, and are therefore not reportable unless they fall within the specific provisions of section 35:
- arrangements in terms of which fees exceeding R5 million are or will be paid by a resident to a non-resident in relation to services rendered in South Africa; and
- arrangements which will give rise to foreign tax rebates exceeding R5 million.