South African tax expectations for 2012
14 February 2012

Author Trevor Baptiste

The Taxation Laws Amendments Act No. 24 of 2011 (TLAA), was signed by the President on 10 January 2012, and makes certain amendment to the Income Tax Act, 1962.  Below are a number of tax issues that you should bear in mind for the near future.

Dividends Tax
Dividends tax of 10% comes into effect on 1 April 2012. The dividends tax will replace the current Secondary Tax on Companies regime and will shift the charge on dividends from the company declaring the dividend, to the recipient of the dividend.

Dividends on certain shares deemed to be interest
Various amendments come into effect from 1 April 2012 and 1 October 2012 that expand the circumstances in which a dividend declared by a company on certain equity instruments may be deemed to be interest accruing to the recipient.

Transfer Pricing and thin capitalisation
There are various significant proposed changes to the South African transfer pricing rules that will come into operation on 1 April 2012. These will apply in respect of years of assessment commencing on or after that date.

The proposed amendments introduce modernisations to the transfer pricing rules which are more closely aligned to the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines for multi-national enterprises and tax administrations.

The proposed changes to the current transfer pricing rules combine the specific transfer pricing and thin capitalisation rules, which were two separate sections in the existing section 31 of the ITA.

Limitation of deductions for reorganisation transactions
A new section 23K has been inserted into the Income tax Act, 1962 which limits deductions in respect of certain reorganisation transactions. Section 23K came into operation on 3June 2011. It applies to any amount of interest incurred in terms of a debt instrument where that debt instrument was issued or used for the purpose of procuring, enabling, facilitating or funding the acquisition, by an acquiring company, of an asset in terms of certain rollover relief transactions entered into from that date.

Interest deductions for debt used to procure, enable, facilitate or fund these reorganisations or acquisitions will be closely controlled.  More specifically, interest associated with debt will no longer be automatically deductible.

Disposal of residence held in a company or trust
Amendments have been effected to the roll-over relief provision for the disposal of a residence by a company or trust before 31 December 2012. These changes enable the transfer of holiday homes and of residences situated in companies whose shares are owned by trusts.

Mutual administrative assistance on tax matters
South Africa signed the Convention on Mutual Administrative Assistance on Tax Matters at the end of last year.  The convention is a multi-lateral international treaty that facilitates international co-operation to assist the efficient operation of national tax laws and a wide range of other taxes.

The Convention deals amongst other things, with the flow of information between parties

The Convention must still be ratified by Parliament.

Tax Administration Bill
The Tax Administration Bill was passed by the National Assembly on 24 November 2011 but will come into effect on a phased in basis  

The Tax Administration Bill aims to provide effective and efficient collection of tax, alignment of administration provisions of various tax acts and the consolidation of the provisions into one piece of legislation to the extent practically possible.  

Significant provisions of concern in the Tax Administration Bill include -

• the extensive powers and duties of SARS and officials;
• the delegation of powers by the Commissioner; and
• provisions for the establishment of the office of a tax ombud and to determine the powers and duties of the tax ombud.

Customs and excise
The former Customs & Excise Act will be replaced by two separate pieces of legislation,  the Customs Duty Act and the Customs Control Act.  These two separate pieces of legislation form part of a new legal framework that seeks to modernise South Africa’s customs control in line with international trends and practices.

This legislation will come into force on dates to be set by the Minister of Finance.

Carbon tax
On 3 October 2011, the Minister of Finance announced that a revised policy paper would be issued by the end of 2011. In view of the public comment received on the discussion paper, a revised policy paper is expected early this year which will provide more detail on design options and give an opportunity for a second round of comments.