Revenue Laws Amendment Bill: Treasury's Response to Submissions

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Finance Standing Committee

10 March 2003
Chairperson: Ms B Hogan and Ms Q Mahlangu
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Meeting Summary

National Treasury and the South African Revenue Service outlined through their response to each of the public submissions on the draft Revenue Laws Amendment Bill. A new Section 76A for Act 58 of 1962 was inserted into the Bill regarding reportable transactions. SARS believed that this new provision is a workable arrangement that has the focus in the right places. Issues raised by commentators included concerns about foreign and administrative provisions, lending arrangements,  VAT and research and development. The Bill is to be tabled in the National Assembly on 18 November 2003.

Meeting report

Mr F Tomasek (SARS Assistant General Manager: Law Administration) explained that the response document presents an overview of all submissions and responses from SARS.

Insertion of section 76A in Act 58 of 1962
Provisions relating to reportable transactions have been narrowed and more closely targeted.

Sub-clause 1
The definition of “reportable transaction” has been narrowed with the focus on transactions where there is a tax benefit to be passed through and a variation which permits one party to recover tax benefits if it these are not forthcoming. Another development is the threshold of R5 million so that more attention is focused on the more substantial arrangements to avoid the exploitation of the tax base. A provision has been made for the Minister to promulgate a regulation for transactions which are not of interest, thereby reducing the compliance burden on SARS and the reporting institutions. Transactions where a right to confidentiality has been asserted have been deleted because a great deal of tax advice in South Africa is subject to confidentiality. This may have to be revisited if people are attempting to structure around the legislation in place. Mr Tomasek referred to (b), saying that this would provide guidance for the Minister. The arrangements as referred to in (b) must be tabled for inclusion in the Act within 12 months of the regulation having been published.   

Sub-clause 2
Reports are now given a period of 60 days to be submitted. The concept of issuing a registration number has fallen away.

Sub-clause 3

This deals with key information to be reported to SARS. The requirement for certified copies of signed documents to permit for the development of an electronic filing mechanism.

Sub-clause 4
Sanctions have been toned down significantly from the previous version of the Bill. The criminal sanction has fallen away and has been replaced with a two-tier set of penalties. The first pertains to a company which willfully or recklessly fails to report the transaction and the tax benefit of the transaction is forgone. The second pertains to an administrative oversight and the SARS anti-avoidance provision is then deemed to have been met. No further penalty applies here. There must then be a higher level of scrutiny to prove that the transaction is not one of avoidance.

Ms Hogan asked whether the new provisions had been run past those who had objected to the original provision.

Mr Tomasek said that this had indeed been the case and SARS felt that the present provision is a workable arrangement that has the focus in the right places. A measure of flexibility is still necessary for the Minister to designate transactions. Because the focus area is narrow, people will try to move out of the focus area.

Mr M Tarr (ANC) asked for clarity as to what triggers the Minister to identify arrangements in the Gazette which meet his approval.

Mr Tomasek used an example to answer Mr Tarr’s question. When a business is sold as a growing concern, it is zero-rated in terms of the VAT Act. Sometimes there is uncertainty as to whether SARS will recognise that the business is to be sold as a growing concern and dispute the sale. A clause is often inserted into the agreement that the purchase price is to be adjusted should SARS intervene. This is a standard business agreement and therefore not abusive or indicative of undue tax benefit. There is a provision to say that if the assumption is not met, it is catered for by a variation in the agreement. The Minister could then make clear that he is not interested in those types of transactions as there is no avoidance involved, and then designate those transactions as non-reportable.

Professor K Engel (Director: Legislative Oversight and Policy Co-ordination: National Treasury) referred to the SARS document on the following issues:.

Business and Reinvestment Provisions
If an asset is sold, there is usually a capital gain or ordinary income on the sale. This is not economically efficient because once the asset is sold, the seller is taxed and there is less money for reinvestment. There is a relief measure to ensure that if all proceeds are reinvested, relief is then provided. The gain is split over the depreciation of a new asset. This appears in voluntary and involuntary sales. An issue which had arisen pertains to the time period in which investment is required, especially in terms of the voluntary investment provisions. With very large assets, it takes a longer period of time to erect a new asset. The period has now been extended. The reason for a limited period being imposed involves tracing. The tax payer must identify what the replacement asset will be and if there is no gain, and it is used before a replacement asset is found, the tax payer loses something in between that time. The compromised position is as follows: if the old asset is sold, there must be a contract for the new asset within 12 months, but it only needs to be functional within 3 years. This is a fairly new provision and most of the concerns raised have been around the tracing mechanism. Most of tax payers’ concerns have been accommodated.

Capital Gains Tax
Inter-group debt cancellations proved to be the biggest issue here. The budget is not equipped to deal with debt cancellations of any kind. Debt cancellations within a group will now be ignored because cash can be transferred. A number of comments suggest that where there is bankruptcy or insolvency, the debtor sees a cancellation of the debt and the taxable gain should also be cancelled. The tax code does not cater for bankruptcy or insolvency, but this issue should be motivated to the Minister and be considered at a later stage. Another point motivated by commentators is that if a debt is cancelled and the debtor is enriched, there should not be an income. A creditor’s loss, on the other hand, should be maintained. However, it is felt that if there is no gain, there should be no loss for the sake of symmetry and therefore the comment has been rejected.

Corporate Rules
SARS's intention was simply to clarify technical issues and anomalies. The main concern in this area pertains to financial instrument holding company rules. Active businesses should be reorganised and passive instruments should not be moved around as this does not constitute structuring.

SARS is concerned that the bulk of tax avoidance is to be found here. The position taken in the reorganisation rules is that one can do the reorganisation of an active business, but if financial instruments are moved around, this does not form part of the reorganisation.

If the bulk of a company is formed by financial instruments, the company will not be eligible for reorganisation. These rules apply domestically and there is a similar offshore reorganisation provision known as the Participation Exemption, which is an exemption for more than 25% holdings. A financial instrument holding company is one that has more than 50% financial instruments as compared to active assets and is considered passive. The test is measured in two parts: fair market value and in terms of cost. Market value is very volatile and not always indicative of the nature of the business. In an economic downturn, active businesses will be larger. This should not be the sole measure. Cost is then the back-up test to determine how much money is actually being spent.

Most of the anti-avoidance rules have been eliminated, but this rule has remained to maintain the passive and active distinction. SARS had considered modifying the test. The problem with the cost test is that it excludes self-generated goodwill, but this can be addressed by having one third active in cost terms and 50% active in market value terms to exclude the goodwill element. Another option is to exclude financial instruments in certain cases where there are no abusive financial instruments or tax differential. In the inter-group setting, it has been allowed that cash and cash equivalents be moved around free of charge. Further discussion is necessary on this issue.

The 75% test has proved to be another serious concern. A group enjoys preferential treatment and is defined as having 75% control. The minority at this point has no power. Therefore, the subsidiary and the parent are one company and free movement is allowed. It has been argued that this be lowered for black empowerment transactions.

Foreign Provisions
Some of these provisions deal with foreign tax issues and the Secondary Tax on Companies (STC). Credits are awarded when paying foreign taxes, but SARS feels that only 30% credit should be awarded in terms of the South African rate. Extra credits would burn into the domestic base in other ways.

Limitations have been criticised and there are partial limitations when it comes to the election regime. In some cases, a company can elect to be taxed currently on subsidiary activity to eliminate double tax. A harsher stance is taken in this case to eliminate excess credits. There was some confusion because of several different election mechanisms and credit limitation mechanisms. These have now been combined to clarify the uncertainty.

Another issue involves the allocation of foreign tax credits to foreign income. Companies have different marginal rates and therefore tax and income are not always directly traceable. More comments on this issue are necessary to assist both tax payers and SARS. This is a downside of the international regime, but is flexible at this stage. There are three divisions to take into account in the international arena: those who own 0 – 10%, 10 – 25.1% and more than 25% of a foreign company. The first band constitutes the portfolio shareholder interest which are passive financial interests offshore. Any dividends or sales on these shares are fully taxed. The company cannot be looked through because there no is meaningful stake held in the company. The third band seeks to determine whether there is a meaningful interest. If one owns more than a 25% stake in the company, one has control over its dividend policy. The middle band does not make clear whether there is control or not. This is then regarded as the passive band and will be taxed as in the first category. For more generous treatment, one can elect that the concern be treated as a controlled subsidiary with the associated benefits.

Ms Hogan asked why a company would elect to be treated as a controlled subsidiary.

Prof Engel answered that taxes paid by a subsidiary cannot be looked to if there is a passive interest.

Prof Engel continued by saying a concession had been made to tax payers to balance exchange control with low percentages of the interest of this kind of exemption. If a big enough stake is held to influence the dividend policy, one is entitled to that benefit. There is a divide between taxpayers on effective dates. Most of the foreign issues are going to be delayed until 2004. Most taxpayers want all the beneficial changes introduced in January 2004 and the non-beneficial changes in June. The regime will come in as a whole in June 2004.

Another issue is that of the sales of foreign shares. The regime in place is one for exemption of foreign dividends and is known as the Participation Exemption. Dividends come in tax-free if there is a stake larger than 25% is held. When dividends are exempted, sales shares are also exempted because the value of shares often represents dividends that have not yet been distributed. There is now a shift in the final legislation in that the exemption will also apply to the sale of more than 25% shares. If a foreign person buys foreign shares, the seller will receive cash from abroad and this would allow a number of companies to restructure. Taxpayers should welcome that change.

The banking registration requirement was also raised as an important issue. There are anti-avoidance categories in the passive categories where SARS suspects it is losing its tax base. Taxpayers argue that the provision is too harsh because there are a number of offshore banking activities that do not have a licencing requirement. Ring-fenced banks are typically designed to ensure that banks shift offshore. These banks deal with international and not local customers. International clients enjoy special tax treatment and no regulations. It has been pushed that this be accepted as good banking activity. The problem is that these are portable businesses and are shifted offshore to the lowest tax location to the detriment of the South African tax base. The cases presented thus far have not been convincing. Information regarding this issue is only being made available now, and only through a few companies. There should be more motivation if major changes are required to be effected, especially on an issue as sensitive as this.

Individuals and Employees
Mr Tomasek mentioned that an innovation dealt with in the Budget concerns companies withholding tax in terms of PAYE or collected VAT and then misappropriating those funds. Director’s shareholds would be held personally liable in this case as stipulated in the draft legislation. SARS is proposing that the representative taxpayer is held liable, that the liability of shareholders and directors be limited only to those persons involved in the financial management affairs of the company. The scope of legislation has been narrowed to focus on those directly involved with financial affairs in the company.

Dr G Woods (IFP) voiced agreement with the change. He asked about share schemes where employees are shareholders or involved in finance at some level. He asked whether the wording is clear enough to exclude those shareholders.

Mr Tomasek said that this applies to someone involved in the overall financial affairs of the company.

Ms Hogan asked what is meant by management and financial affairs.

Mr Tomasek answered that this refers to the company’s overall financial affairs at executive level. He referred to another comment made which suggested that there should be a right of recovery where the individual has paid to SARS. This person should be in a position to recover those funds from the company. This has been accepted and introduced.

Administrative Provisions
Concerning the question of objections, certain limitations were introduced and some questions were raised. One of these deals with the limitation of the period for extension unless exceptional circumstances exist. In terms of the normal rules, 30 business days are allowed to lodge an objection. An additional 30 days is catered for in clause 76(1)(a) of the Bill and this is allowed if reasonable grounds for late objection are made clear. If more time is required, there should be exceptional circumstances so that the expedited flow of objections and appeals, with timelines on both the tax payers’ and Commissioners’ side, actually works.

Another point was raised on 76(1)(c). Situations often arise where a piece of legislation is accepted by most, but those who disagree lodges an objection, takes it through to appeal and wins. All those who had previously agreed then find that they have reasons for a late objection. This is problematic for SARS. It is however unfair that those who actually have exceptional reasons for late submissions be excluded. The test has been reformulated so that what is excluded is only an objection based on a change in practice as a result of a court decision. If the practice remains undisturbed and there are exceptional reasons for a late objection, this can be done.

Ms Hogan asked why only those who had objected benefit from a favourable court ruling and those subject to it do not.

Mr Tomasek stated that this is a generally accepted practice and everyone benefits from the date of the decision. The issue is that it was a common understanding of how the legislation was interpreted. A problematic situation then arises as far as refunds and reopening of old matters is concerned. It counts both ways as the Commissioner cannot open a reassessment issued in terms of practice generally prevailing after a period of time.

Mr K Louw (SARS General Manager: Law Adminstration) added that most businesses build tax in as a cost and pass them through in this way.

Lending Arrangements
Professor Engel pointed out that adjustments had been made to the definition of “lending arrangements” for more commercial purposes to eliminate avoidance. If shares were lent under the old law and were then returned after 12 months, this was not considered a taxable transaction. Under new law, the exemption is limited to listed shares.

The original definition implied that the lender could lend to the borrower, and the borrower would have to sell. “Unlending” has now been provided for in the budget. With unlending, the borrower acts as an intermediary. Sometimes lenders are only willing to lend to high credit-worthy borrowers. It is hoped that the concept of multiple-lending increases especially with collective investment scheme units.

The purpose of lending is to increase turnover on the JSE. A requirement is that when the borrower borrows from the lender before the 12 month period, it must be returned.  If the borrower goes on to sell, he cannot lend back to the initial lender because this would constitute a meaningless transaction without any commercial point to it. This has also been revised in the legislation to state that if shares are borrowed and the purpose of that borrowing is to extend the 12 month period or any other tax avoidance, this is not considered a valid lending arrangement. Any return to the lender within a 10 day period for the purpose of the borrowing caused some concern. Sometimes the borrower has to return the shares to the lender at the lender’s insistence. A borrower would typically borrow shares and SARS requires that the borrower has to dispose of it in 10 days either by lending or with a sale. The lender has the right to recall the shares at any time and the borrower has no choice but to comply.

There had to be purpose criteria to balance the concerns of industry and protect against avoidance. Another issue concerns the borrower getting STC credit. If the borrower borrows shares, he or she gets a dividend. A borrowing company would be eligible for STC credit. The borrower is no longer eligible for STC credit because the borrower is not an owner. Only owners have a right to STC credit and there is no intention of extending this credit to borrowers. A concern is that, under current law, people could borrow solely for STC credits and then return the shares and this would then constitute trafficking STC credits.

Mining Rehabilitation
Mr Tomasek pointed out the concern around having to approach the Financial Services Board (FSB) for approval of investments. This was based on a misunderstanding of the legislation as this refers only to banks subject to the correct degree of regulation. It had been felt that the taxation of the reserves of one of the rehabilitation trusts failing to meet the criteria for exemption is rather harsh. This is only the case after repeated violations of the provisions that exemption would be withdrawn. There is a three month window for the trust or entity to transfer its cash to another entity that does meet the requirements of the legislation. Since there is a substantial amount of time for cash to be transferred, this provision has been retained.

Public Benefit Organisations
Professor Engel said that commentators had noted two lists: one group is eligible for tax-exempt activities and the other group is eligible for tax deductible donations as well as tax-exempt activities. It had been announced in the Budget that the list of organizations qualifying to receive tax deductible donations would be extended. There had been concerns about affordability. There are two sets of PBOs. There are those that operate under the old regime and are required to revert to the new regime, and there are problems with the conversion. Part of the problem is that a number of smaller organizations are familiar with what needs to be done in this case. Under current law, the deadline is set for 31 December 2003 for conversion. Exemption will be lost if the conversion is not facilitated. In light of the lack of response thus far, the date is to be extended for another year. PBOs under the old regime will not be eligible for tax-deductible benefits.

There was a concern as to why the types of donations had been limited. The aim is that more straightforward donations be made.

An issue generating a great deal of discussion concerned PBOs for South Africa and PBOs for the rest of the world. Under current law, a PBO must have 85% of its activities in South Africa to be exempt. This has been modified somewhat to state that to the extent that foreign donations are received, this money can be used abroad without affecting the 85% test. Foreign donors often donate to a region instead of one country.

Administrative collective housing projects have also been added to the list of exemptions, but these proved to be more substantial than initially envisioned. The exemption has been withdrawn as the concept seemed to include simple landlord situations and more clarity is needed before granting exemption.

Ms R Joemat (ANC) asked whether the PBO should separate its business from its actual function as it should for SARS. She asked how the tax deduction for the donor will be tracked if donations are made to a project generating income.

Mr Tomasek said that if a substantial business is generating income for the PBO, this income could be split off. If a smaller business operation falling below the 15% limit and other limits, the donation would have to be to the PBO. This would allow for tracking. Once the operation grows to a point where it can generate an income for the PBO, it would have to be spun out as a taxable entity.

Professor Engel continued and said that the rules for donations to Government had been changed. Under current law, donations to Government are taxable without deductions. New law will state that donations to Government are exempt and that the donor is eligible for deduction. Deductions are to be limited to tax-deductible activities in the private sector. There is a danger that these monies will be misappropriated as certain aspects of Government are part of tax avoidance schemes. Legislation pertaining to public private partnerships has been changed. Government grants to a PPP will be exempt if used for Government infrastructure. Presently, the requirements for this exemption are that, firstly, grants should be to a PPP, the grant must occur before operations occur on the PPP. It has been that the second requirement is unrealistic because PPP’s receive both infrastructure and operational grants throughout the life of their operations.

Research and Development
The current regime is very restrictive because once research becomes an asset, it is no longer eligible for a deduction. It was stipulated that payments to a connected person would not be deductible. However, a number of companies rely on subsidiaries to do R&D and a deduction is only granted with the discovery of new information.

Ring-fencing of Assessed Losses
Two changes are being affected in terms of the legislation. The penalty for failing to report is that all deductions are lost and automatically ring-fenced. This provision has been eliminated. With regard to farming, the current regime stipulated that farming would be regarded as a suspect activity if it not done on a full-time basis. This has been changed so that farming or related farming activity on full-time basis are both regarded as a suspect activities.

Dr Woods asked whether the horseracing industry would be included.

Mr M Grote (Chief Director for Tax Policy: Treasury) answered that there had been meetings with representatives from DTI for a better understanding of their views on the issue. It is clear that there is more support for the horse-breeding industry including showcasing horses and facilitating trade fairs both off-bound and in-bound. Surveys were conducted to ascertain the nature of activity in this industry and it has been found that foreign purchasers are encouraged to consult with breeders. Transactions are focused on the horse-breeding industry and not on horse-owners. It had been suggested that horse-owners be subsidised because they carry the whole industry. The information on the issue is sketchy and the full spectrum of activity has not yet been made available. According to DTI, the majority of transactions are being conducted between purchasers offshore and breeders. Breeders do not make losses for very long periods and are therefore not in the same position as owners. If an owner can show that there are reasonable prospects for profits, he or she is not ring-fenced.

Ms Hogan asked how a reasonable prospect would be exhibited in this industry.

Mr Grote said that it would have be shown that horses are actively trained and then given to an agent who would then put the horse in race courses. The horses are pushed on an ongoing training basis to reach their full potential.

Professor Engel added that it should be determined whether it is a suspect activity. Losses would then have to be compared to gross income. Another factor is advertising to evidence a real business. The horse would then also go to a special horseracing farm for specialised training.

Ms Hogan asked whether the necessary criteria for entering and staying in this kind of business would be listed.

Professor Engel said legal factors include gross income relative to losses, levels of activity in terms of selling and advertising, the number of employees and equipment, the years of losses, a business plan to decrease losses and the recreational element. SARS could stipulate that in the case of horse-racing, circumstances need to be interpreted in light of that industry.

Dr Woods mentioned that the said industry is an important one in that it provides employment and generated revenue for the Government. He asked that there be some assurance that there will not be losses in terms of revenue and related aspects.

Mr Tarr expressed concern that cognisance is not taken of the fact that this is a greatly integrated industry. The guidelines mentioned by Professor Engel are important to provide some clarity. However, the comment on the horse being considered a reasonable prospect is too vague and clearer guidelines would be more useful. This area should be revisited as inadequate provisions could prove damaging.

Mr Grote said that the reality is that those in the horse industry are competing with other gambling industries and should be given time to adjust to the environment. The horse industry should organise itself into a corporation. The risk would be spread as all involved buy a share in the corporation, and a share-holding dispensation could deal with individuals making profits from the industry. This industry has been left out of the budget so that more time is allowed for a more phased-in approach. DTI makes no provision in its budget for supporting individual owners.

Ms Joemat voiced agreement and expressed concern that the timeline be adhered to.

Ms Hogan stated that there must substantive consultation with DTI to further investigate the horse industry.

Mr Tarr said that tax implications encourage people to become horse-owners. This is a valid problem but a number of other individuals involved in the industry generate incomes and pay income tax and the ripple effect of legislation in this area is enormous.

Mr Grote stated that time is necessary to deal with all stakeholders and see where the disadvantage or benefit for the fiscas is. This issue should be considered more carefully.

Urban Development Zones
Some questions arose around the nature of the deductions. The deduction is essentially for the cost of building and improving. There have suggestions that this should be extended to developers as it is limited to owners and renters, but not those who develop and sell. Depreciation is based on use and when one sells, one does not use anymore and this kind of incentive is inconsistent. Criteria for urban development zones created some confusion. Each area must be a target, well-defined area so that buildings are upgraded one by one. Urban development zones only work if they are narrowly defined and purpose of the incentive is to add to the urban revival that has already begun in Johannesburg, Cape Town and Durban. There will be a hectare limitation of 600m. Other criteria are basically current law and part of a strategic and integrated development plan. Some controversy arose municipality requirements like a formal partnership arrangement known as Community Improvement Districts (CID’s) and Business Improvement Districts (BID’s). However, some cities have a more planned and phased approach where others have a more informal approach. More areas should be encouraged to either lowering electricity rates or make related concessions to qualify for urban renewal. Another requirement is that area represents sunken capital and the relative tax base should be measured. If the tax base is shrinking, this indicates lost capital and this area should then be revitalised. Effective dates are being changed so that municipalities designate areas as quickly as possible.

Dr Woods noted that there seems to be a particular line of tax policy with regard to urban renewal and asked whether there has been research and consultation with local government to determine if this is in line with they are trying to drive.

Mr Grote said that the initiative had started after discussions with the NGO sector as some NGO’s are involved in creating opportunities for low-income households in big inner cities to find residential accommodation. A number of buildings are falling into disuse and can be acquired cheaply. Donations help in that these companies have a large cash flow to perform this function. This needs to be underpinned with urban development plans of municipalities to rejuvenate these areas. Private sector individuals and SACOB has also been engaged to plough money into the inner city of Johannesburg because there are large opportunities there. A conference had been convened in May 2003 with all the listed municipalities and it was clear that there is not a common approach among municipalities. There are some which adhere to the notion of concentrated input and this will draw further investment because it is evident that there is activity in the area in this regard. Municipalities that are the product of a merger of smaller units are also focusing on one key area primarily. Two concerns are those of affordability and the necessary visible impact.

Mr Tarr asked whether municipalities fully comprehended the initiative and whether they would be able to take full advantage of it.

Mr Grote said that this is a new initiative in terms of Government in partnership with local government. Treasury has made an agreement to meet with South Africa City Network, a new section 21 company dealing with the major metropolitan and urban municipalities, on an ongoing basis over the years to evaluate measures which work and those that don’t. there is little evidence in the African context and so the Eurocentric approach will have to be taken into consideration. The four-year limitation has been removed because this project is ongoing and will take years to be fine-tuned to the needs of municipalities. There has positive feedback from municipalities on the project thus far.

Ms Mahlangu mentioned that she had seen renewals in downtown Johannesburg area and was impressed with the developments that had taken place so far.

Mr Louw continued with the issues on value-added tax. Changes made with regard to the transfer of goods between branches in South Africa and overseas and transfer of services satisfied those who had raised concerns around this issue. Another issue relates to the requirement of 1 March 2005 that the purchaser’s VAT number is included in invoices. This is regarded as a good control measure. It has been suggested that the number of tax invoices be increased to R5000, but experience has shown that tax evasion takes place when there are a number of invoices at the wrong level. Concerning the public entities grant by Government, there is a slight problem as to whether this should be considered a cost.

Mr Tarr asked whether the amended Bill incorporates what had been discussed in the meeting thus far and when it would be made available.

The Chairperson asked the delegation when the Bill is to be tabled in Parliament.

Mr P Frank (Treasury) explained that the Bill is with the State Law Advisors at present because the final changes must still be affected. The Bill is due for tabling in the National Assembly on 18 November 2003 and debates around the Bill take place on 25 November 2003.      

The Chairperson thanked the delegation. She declared the meeting closed.


Insertion of section 76A in Act 55 of 1962

 “ReportabIe Arrangements”

76A. (1)
For purposes of this Part-arrangement' means any transaction operation or scheme; reportable arrangement' means -
(a)        any arrangement in terms of which-
(i)         the calculation of interest as defined in section 24J, finance costs, fees or other charges is wholly or partly dependent on the tax treatment of that arrangement;

(ii)         provision is made for the variation of that interest, finance costs fees or other charges should the actual tax treatment differ from the anticipated tax treatment (otherwise than by reason of any change in the provisions of the Act) or should the anticipated tax treatment be challenged by the Commissioner; and

(iii)        the  potential  amount  of the  variation  contemplated in subparagraph (ii) exceeds R5 million;

but does not include any arrangement identified by the Minister by notice in the Gazette, which is not likely to lead to any undue tax benefit;

(b)        any arrangement which has certain characteristics identified by the Minister by notice in the Gazette which are likely to lead to an undue tax benefit;

“tax benefit' means any reduction in or postponement of the liability of a person for any tax, duty, levy, charge or other amount in terms of any Act administered by the Commissioner based on the anticipated tax treatment of the arrangement.

Every company or trust which derives or will derive any tax benefit in terms of a reportable arrangement must report that transaction to the Commissioner within 60 days after the date that any amount is first received

by or accrues to any person in terms of the reportable arrangement at such place as the Commissioner may determine.

(3)        The company or trust must in so reporting provide to the Commissioner-

(a)        a description of all the steps and key features of the reportable arrangement;
(b)        a list of all the parties to the reportable arrangement;
(c)        copies of all the signed documents relating to that reportable arrangement; and
(d)        the financial model of that transaction, including any spreadsheet or computer model of the implementation thereof
(4)(a) Where a company or trust willfully or recklessly fails to report a reportable arrangement as contemplated in subsections (2) and (3), that company or trust will not be entitled to any tax benefits in terms of that reportable arrangement to which that company or trust may otherwise have been entitled.
(b)        Where a company or trust fails to report a reportable arrangement as contemplated in subsections (2) and (3), in any manner other than as contemplated in paragraph (a), that company or trust shall be deemed to have entered into that transaction in a manner or by means as contemplated in section 103(l)(b)(i) or to have created rights or obligations as contemplated in section 103(1 )(b)(ii).".


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