Andersen Tax Review — 1 May to 9 June 2021

Author: Ernest Marais

Service: Andersen Tax


Notable Tax Law updates covering South African case law, legislation, SARS and global tax developments.

Case Law

Clicks Retailers (Pty) Limited v Commissioner for the South African Revenue Service [2021] ZACC 11

The issue to be dealt with was the taxation treatment of loyalty rewards programmes and whether an allowance under section 24C of the Income Tax Act is offered to Clicks Retailers (Pty) Limited (“Clicks”), the applicant, a business which runs a loyalty programme. Clicks deducts from their taxable income amounts spent by customers. In this case the quantum of the amount deducted is founded on a cost of sales percentage of about 75%. For example, if a customer redeems a loyalty reward of R500, the amount claimable in terms of a section 24C allowance is R378.10. Clicks argued that this is allowed since when a customer swipes their ClubCard, then the business finances an obligation on future expenditure that will be incurred by the business when a customer redeems their points. This is in line with section 24C because a contract to purchase future goods with loyalty points between Clicks and the customer is agreed when a customer enters into Clicks loyalty program.

SARS argued that the future expenditure incurred by Clicks and the customer redeeming their points are different contracts, which does not meet the definition of a Section 24C deduction. The SCA agreed with SARS view and the decision was appealed by Clicks in the Constitutional Court. The Constitutional Court found that the contracts were not the same as per the definition of section 24C. The appeal by Clicks was dismissed. The full case can be found here.

Commissioner for the South African Revenue Services v Tourvest Financial Services (Pty) Ltd (Case no 435/2020) [2021] ZASCA 61 (25 May 2021)

Tourvest wished to claim back VAT that it paid to SARS for acquiring goods and services for its branches. In terms of Section 17(1) of the Value-Added Tax Act 89 of 1991, Tourvest wished to claim back the VAT goods and services rendered for the branches, as these were used by Tourvest wholly in the course of making taxable supplies. The Tax Court agreed with Tourvest and dismissed SARS assessment. SARS appealed the decision in the SCA. A taxable supply is defined as ‘any supply of goods or services which is chargeable with tax under the provisions of section 7(1)(a), including tax chargeable at the rate of zero per cent under section 11’. The SCA ruled that the supply was partly exempt and partly taxable supply. The appeal of SARS was upheld. The full judgment can be accessed here.

Legislation

Income Tax Act, 1962

Interpretation Note 115 – Withholding Tax on Interest

When raising foreign debt capital, the interest incurred on this debt will result in an interest expense. This interest can qualify as a deduction depending on if the legislative requirements are met. The interest that will be received by the non-resident will be exempt as per section 10(1)(h). Such an exemption takes away from the country’s tax base and decreases the overall fiscus of the republic. Therefore, a withholding tax on interest paid abroad was introduced in March 2015. This withholding tax is at a rate of 15% and is specific to interest from a South African source and can be reduced by a tax treaty. The relevant sections dealing with this taxation is section 50A to 50H. The full interpretation note can be accessed here.

Interpretation Note 116 – Withholding Tax on Royalties

This note contains clarification on application and interpretation of withholding tax on royalties. Royalties are any monies receivable for use of another entity’s intellectual property. The withholding tax applies to a person in SA (resident or not) that pays royalties to a foreign person for the use of the foreign person’s intellectual property. The applicable rate of withholding tax is 15%. The full interpretation note can be accessed here.

Interpretation Note 117 - Taxation Of The Receipt Of Deposits

This Note offers advice on the phrase “received by” in the description of “gross income” in section 1(1) and the management on receiving a deposit in the ordinary course of business. Payments received will be included in the gross income calculation if received by the taxpayer “for his own benefit on his own behalf”. For a payment to be omitted from gross income the sum can be kept in trust and in an individual bank account that is separate from the business the full interpretation note can be accessed here.

Binding Private Ruling 362 - Transfer of Assets Between Share Incentive Trusts

The BPR gives guidance on the tax consequences of a transfer of shares and cash from established share incentive trusts to subsequent newly created share incentive trusts. The full BPR can be accessed here.

Binding Private Ruling 363 - Value of A Supply Of Services

The BPR provides a ruling for the VAT and Income tax consequences of provision of certain services to employees. The full BPR can be accessed here.

Binding Private Ruling 364 - Extraordinary Dividend Followed by The Dilution of Shareholders’ Interest

The BPR gives guidance on the CGT effects of a proposed special dividend, followed by a dilution of shareholders’ interest. The BPR can be accessed here.

South African Revenue Services Developments

Annuitisation on benefits on retirement

SARS have released a guide on applications for emigration withdrawals of retirement funds. In order to withdraw the fund the former taxpayer must have broken their South African tax residence for an uninterrupted period of three years. The full guide can be accessed here.

Home Office Expenses

SARS has given guidance on Home Office Expenses. It states that if you are an employee that conducts trade from home and have set aside a room for the purpose of work and more than 50% of work activities are conducted in this room, a deduction can be made. Expenses associated with working from home include rent; cost of repairs; telephone costs, internet subscription, stationery, cleaning, rates & taxes, wear-and-tear, etc. The full media release also includes methods on how to calculate your home office expenses and can be accessed here.

Cease to be a Resident

Deciding if a person ceases to be a tax resident in South Africa is determined on how they have been a tax resident in the country. A factual analysis must be conducted to determine if the individual intended to make South Africa their home. If the individual ceases to be an ordinarily tax resident, it will commence on the day the person ceases their residence. A comprehensive guide can be accessed here.

Returns To Be Submitted by A Person In Terms Of Section 25 Of The Tax Administration Act

A notice has been released by the Government Gazette indicating who is required to submit tax returns. Employees with a single income that does not exceed R500 000 or interest that does not exceed R23 800 over the year of assessment are just some of the notable mentions. The full notice can be accessed here.

Contact Ernest for assistance with corporate and commercial tax matters