South Africa

South Africa issues guidance on VAT on non-executive director fees

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The South African Revenue Service issued guidance on the value added tax (VAT) treatment of fees paid to non-executive directors. On 10 February 2017, SARS issued binding general ruling (BGR) 41 which confirms that a non-executive director (NED) who carries on an enterprise in or partly in South Africa is required to register and charge VAT in respect of any director’s fees earned for services rendered as an NED if the value of such fees exceeds R1 million in any consecutive 12-month period.

A NED is required to register and charge VAT on fees with effect from 1 June 2017. In addition, a NED may also choose to register for VAT on a voluntary basis where the fees earned are a minimum of R50 000 in a 12-month period. SARS has been receiving several operational queries regarding the VAT registration process and in particular, practical considerations for non-resident NEDs.

South Africa and U.S. sign an agreement on the exchange of country-by-country reports

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The competent authorities of South Africa and the U.S. have concluded an arrangement on the exchange of Country-by-Country Reports. On June 5, 2017 the South African Revenue Service (SARS) released the text of the arrangement. According to SARS the agreement was signed on May 8, 2017 in Pretoria and May 26, 2017 in Washington D.C.

Both countries desire to increase international tax transparency and improve access of their respective tax authorities to information regarding the global allocation of the income, the taxes paid, and certain indicators of the location of economic activity among tax jurisdictions in which multinational enterprise groups (“MNE Groups”) operate through the automatic exchange of annual country-by-country reports (“CbC Reports”), with a view to assessing high-level transfer pricing risks and other base erosion and profit shifting related risks, as well as for economic and statistical analysis, where appropriate.

The first fiscal year for which the U.S. and South Africa intend to exchange CbC Reports is for the fiscal years of MNE Groups commencing on or after January 1, 2016. Such CbC Report is intended to be exchanged as soon as possible and no later than 18 months after the last day of the fiscal year of the MNE Group to which the CbC Report relates. CbC Reports with respect to fiscal years of MNE Groups commencing on or after January 1, 2017 are intended to be exchanged as soon as possible and no later than 15 months after the last day of the fiscal year of the MNE Group to which the CbC Report relates.

The Competent Authorities intend to exchange the CbC Reports automatically through a common schema in Extensible Markup Language (XML). The Competent Authorities intend to work toward and decide on one or more methods for electronic data transmission including encryption standards.

South Africa: SARS publishes draft notice on BEPS related compliance

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On June 1, 2017, the South African Revenue Service (“SARS”) published a draft public notice requiring the submission of country-by-country (“CbC”) reports, a master file and a local file by groups with turnover above a specified threshold.

The draft public notice is to be issued under section 25 of the Tax Administration Act, 2011, which enables the Commissioner to require specified persons to submit returns as provided in the public notice.

A Reporting Entity (other than a Surrogate Parent Entity) resident in South Africa must submit a return in the form and containing the information specified in the BRS: CbC and Financial Data Reporting relating to the CbC Report, master file and the local file.

In accordance with the Draft Regulations, it is proposed that where the ultimate parent entity of an multinational enterprise is a South African tax resident and has a consolidated group turnover of more than R10 billion it must file a CbC report with SARS.

The CbC report must be filed submitted electronically using the SARS eFiling platform, no later than 12 months after the financial year end of the multinational group. The Draft Regulations are effective for financial year ends commencing on or after 1 January 2016 and accordingly, the first CbC reports should be filed with SARS from 31 December 2017.

Comments on the draft notice must be submitted on or before 22 June 2017.

South Africa: SARS introduces improvements to the dispute management process

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On 15 May 2017 the South African Revenue Service (SARS) introduced important changes and improvements to its current dispute management process as part of its ongoing commitment to delivering a better service to taxpayers.

The following changes have taken place regarding the dispute management process;

Request for Reasons: SARS has, for the first time, implemented an electronic Request for Reasons via eFiling or via the SARS branches. The Request for Reasons automated functionality has been implemented for Personal Income Tax (PIT), Company Income Tax (CIT) and Value-Added Tax (VAT). The Request for Reasons functionality allows taxpayers to request reasons for an assessment where the grounds provided in the assessment do not sufficiently enable a taxpayer to understand the basis of the assessment and to formulate an objection if the taxpayer is aggrieved by the assessment.

Once the system has identified that a valid Request for Reasons has been submitted, the period within which an objection must be lodged will be automatically extended for the period permitted by the Dispute Resolution Rules. The Request for Reasons case management workflow further allows SARS to improve its tracking and management of the Request for Reason process.

Request to allow late submission of an objection or appeal for PIT, CIT and VAT: The new dispute management process introduces a separate workflow whereby the taxpayer is now allowed to submit the Request for Reasons, Notice of Objection (NOO) or Notice of Appeal (NOA) after the periods prescribed by the Dispute Resolution Rules have lapsed. Prior to the introduction of the separate workflow, this process was included in the actual dispute process. Where the request for late submission of a Request for Reasons, NOO or NOA was not successful, the previous dispute process caused confusion regarding the outcome of the dispute and regarding what would be the next available step in the dispute process.

The new automated process allows SARS to attend to the request for late submission before the Dispute or Request for Reasons case can be created and considered by SARS. If the Request for Reasons, NOO or NOA is submitted late, the taxpayer will be prompted to provide reasons for the late submission. The new process will ensure that the request for late submission is aligned with the legislation as SARS will now inform the taxpayer upfront that the submission is late instead of classifying the dispute as invalid.

Suspension of VAT payments: Taxpayers are now able to request suspension of payments pending the outcome of a VAT dispute via eFiling or at a SARS branch. This is in line with the suspension of payments that was already implemented for PIT and CIT in 2015.

e-Filing Guided Process (PIT, CIT and VAT): To assist taxpayers in following the correct dispute sequence and completing all the information required, eFiling has been made an entirely guided process. The eFiling guided process will ensure that the dispute is submitted according to legislative requirements thereby eliminating any invalid disputes from being submitted to SARS.

South Africa-Grenada TIEA enters into force

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The Tax Information Exchange Agreement (TIEA) between South Africa and Grenada entered into force on 10 March 2017, following publication in the Official Gazette of the Republic of South Africa on 13 April 2017.

The agreement provides for the effective exchange of information regarding tax matters between the tax authorities including automatic exchange of information which is necessary for the exchange of financial account information based on the international standards formulated by the OECD, and is expected to contribute to the prevention of international tax evasion and tax abuse.

Hong Kong: Government signed AEOI agreement with Portugal and South Africa

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The government of Hong Kong has signed agreements with Portugal and South Africa for conducting automatic exchange of financial account information in tax matters (AEOI). A Government spokesman said on 03 April 2017 that they have been seeking to expand Hong Kong’s AEOI network with their tax treaty partners. The signing of agreements with two more jurisdictions, bringing up the number of Hong Kong’s AEOI partners to a total of eleven (including Belgium, Canada, Guernsey, Italy, Japan, Korea, Mexico, the Netherlands and the United Kingdom).

On March 2017, the government introduced the Inland Revenue (Amendment) (No. 3) Bill 2017 into the Legislative Council which seeks to include Hong Kong’s newly confirmed AEOI partners as well as prospective ones in the list of “reportable jurisdictions” under the Inland Revenue Ordinance.

South Africa: SARS issues ruling on MFN clause in a treaty with Sweden

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On 1 March 2017, the South African Revenue (SARS) issued a private binding ruling no. BPR 267 regarding dividends tax and the ‘most favoured nation’ clause in a tax treaty concluded with Sweden. The ruling determines whether dividends tax must be withheld when a dividend is paid to the beneficial owner that is a resident of the Kingdom of Sweden. Sweden and South Africa concluded the SA/Sweden tax treaty which, when read with the Protocol, includes a ‘most favoured nation’ clause.

The ruling is mainly issued on the basis of an application from a company incorporated in and a resident of South Africa that is a wholly-owned subsidiary of a company incorporated in and a resident of Sweden. According to ruling, applicant will not be required to withhold dividends tax from the dividend payments to parent company if parent company complies with the documentary requirements in section 64G(3). The ruling describes that the MFN treatment under the treaty with Sweden was triggered by the South Africa – Kuwait Income Tax Treaty (2004).

This binding private ruling is valid for a period of three years from 7 December 2016.