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Supreme Court of Appeal – XO AFRICA SAFARIS CC v C:SARS (395/15) [2016] ZASCA 160

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XO AFRICA SAFARIS CC v C:SARS (395/15) [2016] ZASCA 160: Supreme Court of Appeal case dealing with whether the supply of services are to be standard rated or zero rated in terms of section 11(2)(l) of the VAT Act, following services being supplied to a non-resident of South Africa but being supplied directly to other persons who were present in South Africa at the time that the services were rendered.”

For access to the entire case, please click here.

Supreme Court of Appeal: CSARS V Morula Platinum Mines

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A Supreme Court of appeal case was ruled between CSARS and Morula Platinum Mines which determines whether certain mined ore should be included in trading stock or be classified as mining operations in terms of the deductibility of the costs thereof.

For access to the entire case, please click here.

Donations Tax and Capital Gains Tax Consequences of the Part Waiver of a Loan and Reduction of the Interest Rate

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Binding Private Ruling 252 was issued and determines the donations tax and capital gains tax consequences of the waiver of part of a loan to an employee share trust and the reduction of the interest rate on the remaining balance of the loan to 0%.

For access to the entire ruling, please click here.

Recent Ruling of Masango v RAF

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The recent ruling of Masango v RAF deals with the Contingency Fee Act and how to charge VAT on fees for services rendered.

For access to the entire ruling, please click here.

Tax Court Case No: IT 13164

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The recent Tax Court case 13164 gives clarity on the applicability of section 103(2) of the Income Tax Act to assessed losses carried forward.

For access to the entire case, please click here.

Beverage Industry’s Scare Tactics Against Sugar Tax ‘Shocking’

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THE “fear-mongering” tactics employed by the beverage industry against the proposed sugar tax have been “shocking” and “more than the norm”.

This is according to Ismail Momoniat, deputy director-
general of the National Treasury, who was commenting on the 
industry’s reaction since Finance Minister Pravin Gordhan announced the tax earlier this year.

The tax will result in all 
sugar-sweetened beverages being taxed by 20 percent from April.

The tax is an effort to combat the country’s growing non-communicable diseases (NCDs) epidemic, including obesity, diabetes and heart disease.

By their August 22 deadline this year, the Treasury had received 190 written submissions on the tax.

Apart from the submissions, the beverage industry has held media briefings, and gone into communities to speak to local spaza shop owners in an effort to increase the voices of dissent against the tax.

BevSA argued that the 
proposed tax could lead to between 60 000 and 72 000 job losses, and would reduce the industry’s contribution to the country’s GDP by R14 billion.

“Industry backlash is inevitable… The process to impose or increase tax is always deeply 
contested, but it seems the scare tactics here have been more than the norm,” Momoniat said 
during an obesity-prevention workshop in Parktown, Johannesburg, yesterday.

Last month, the South African Institute of Race Relations (IRR) said the tax would do “almost nothing” to improve the health of South Africans, but rather was an attempt to raise more money by 
“a desperate government” that was running short of revenue.

But Momoniat denied this. He said while the Treasury had not yet put an estimate on how much revenue would be generated by the proposed tax, even if it had, the main aim of the tax was not to generate revenue but to deal with obesity and to discourage poor diets.

However, no health-related programmes have been earmarked for the revenue from the tax.

“Our main fiscal tool to prevent illnesses in this case is tax… The estimated revenue from the tax is R4 billion, which is not a Treasury figure.

“But even then, that wouldn’t be much compared to the trillions we raise through the three major taxes (personal tax, VAT, corporate income tax),” he added.

Source: Cape Times 

SARS Basic Guide to Income Tax Exemption for Public Benefit Organisations

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SARS has issued their second basic guide to income tax exemption for Public Benefit Organisations to assist organisations in obtaining and retaining approval as a public benefit organisation.

For access to the entire guide, please click here

The Status of SARS’ Interpretation Notes

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A recent case before the Supreme Court of Appeal (CSARS v Marshall NO and Others (816/2015) [2016] ZASCA 158 (3 October 2016)) involved the question of whether or not actual supplies by a designated entity to the Western Cape Department of Health qualified for the zero rating under section 11(2)(n) read with section 8(5) of the VAT Act. The court, in arriving at its decision that the actual supply does not qualify for the zero rating and that only unrequited or gratuitous payments could qualify, refers to SARS’ Interpretation Note 39 which explains the reasoning behind section 8(5) and section 11(2)(n) of the VAT Act.

After quoting extensively from the Interpretation Note, the following statement is made Dambuza JA in delivering the unanimous decision of the SCA (at 33):

“These Interpretation Notes, though not binding on the courts or a taxpayer, constitute persuasive explanations in relation to the interpretation and application of the statutory provision in question. Interpretation Note 39 has been in circulation for years and has not been brought into contention until now.”

It is unclear what exactly is meant with the words “persuasive explanations” but at the very least, it suggest that SARS’ Interpretation Notes does carry some form of weight in legal proceedings. The exact legal basis for this is, however, not clear from the judgment, despite the footnote reference to “P de Koker and RC Williams Silke on South African Income Tax [Service Issue 57, 2016] at § 18.270”. It may be argued that this statement by the Supreme Court of appeal does to some extent elevate a SARS opinion on the correct application of the law in the form of an Interpretation Note above that of, for example a taxpayer.

There definitely appears to be a trend in our courts to place reliance on SARS’ Interpretation Notes.  This year alone, the Tax Court in ABC (Pty) Ltd v C:SARS (13539/ 13673) (dealing with the income tax treatment of grants) and RTCC v C:SARS VAT1345 (dealing with input tax claims on a motor vehicle) placed reliance on SARS’ Interpretation 59 and Interpretation Note 82 respectively in delivering judgment.

While it is accepted that SARS’ Interpretation Notes indeed go out for comment by the public and before they are published, it begs the question as to whether what is in essence a peer review process is sufficient to elevate an opinion to have weight in law.

It is, further, trite that SARS is not bond to their own Interpretation Notes. Taxpayers are accordingly in a very uncertain position as to whether or not , when and to what extent reliance should be placed on SARS’ interpretation notes.

Taxpayers would be well advised to exercise caution when relying on SARS’ Interpretation Notes.

Launch of Special Voluntary Disclosure Programme (SVDP)

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National Treasury released the following media statement on the special VDP for offshore assets.

For access to the entire media statement, please click here.

SARS have also updated the guide for special VDP, please click here to access the guide.

Interestingly, the last version of the bill that proposed to include to the special VDP required a 50% inclusion of the highest market value of the offshore assets prior to 2015. Both the SARS guide and the National Treasury Media release refers to a 40% inclusion rate. In addition, the current version of the bill that seeks to introduce the special VDP into law states that the window period for applications will be 1 October 2016 to 31 March 2017, while the SARS guide indicates that the window period will be 1 October 2016 to 31 June 2017.

While the functionality for the special VDP is available  on e-filing, the law is not yet in place to back it up. These are uncertain times and taxpayers would be well advised to proceed with caution.

Input Tax Without Valid Tax Invoice

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The South Atlantic Jazz festival case (“Jazz festival case”) put into a motion a series of changes to the VAT legislation, more specifically, as to when an input tax claim can be made without a proper tax invoice. In short, the taxpayer in the South Atlantic Jazz festival case was successful in a dispute against SARS to claim an input tax credit without a valid tax invoice.

It came as no surprise when the legislation was subsequently changed in 2015 by section 25 of the 2015 Taxation Laws Amendment Act to effectively delete the provision successfully relied upon by the taxpayer in the Jazz Festival case. Not all was however lost – consolation was left for taxpayers seeking the same relief as was offered to the taxpayer in the Jazz Festival case. The consolation, however, came on SARS’ terms as taxpayers seeking an input tax deduction without a valid tax invoice can continue to seek an input tax deduction, provided:

• Certain circumstances prescribed by SARS exists; and
• The taxpayer is in possession of certain documents prescribed by SARS.

During 2016, SARS published two draft binding general rulings setting out (a) what the circumstances are that must be present and (b) what the prescribed documents are to claim an input tax credit without a proper tax invoice.

The circumstances under which taxpayers could seek this special relief would, based on the draft binding general ruling exist if:

• The taxpayer exhausted all remedies to obtain a valid invoice;
• All taxes and returns must be up to date; and
• The period in which the claim is sought falls on or after 1 April 2016

The documents prescribed per the other draft binding general ruling were essentially documents allowing all elements of a valid tax invoice to be identified.

The 2016 Draft Tax Administration Laws Amendment Bill however proposed to delete the above consolation and replace it with, what is arguably, a more restrictive one.

Per clause 24(1)(b) of the Draft Taxation Laws Amendment Bill, a taxpayer seeking an input tax deduction without a valid tax invoice must apply for a ruling from SARS before the taxpayer can claim an input tax credit and further states that SARS can only issue a ruling if:

• The taxpayer has taken reasonable steps to obtain a valid tax invoice; and
• No other provision in the VAT Act allows a deduction of the input VAT.

If the proposed change makes it into the final Act, which seems likely at this stage, it is evident that taxpayer’s will, with effect from 1 April 2016, need to apply for a ruling to get an input tax deduction if not in possession of a valid tax invoice.

Comments submitted on the proposed section to the effect that rulings are often administratively burdensome and the ruling process takes long were met with reassurance in the SARS and National Treasury Response Document that SARS has capacity to deal with applications in this regard. In addition, it would appear that rulings of this nature will be processed by SARS within 2 months, a somewhat shortened period.

Given our experience with ruling applications, we are skeptical that a ruling process will be practical in this space, however, we understand the policy rationale for the proposed change.

Taxpayers will be well advised to seek professional advice should they wish to rely on the new provision going forward.