Editorial
DOI | 10.10520/EJC-18c0120f02 |
Author | Michael Rudnicki |
Date | 01 September 2019 |
Record Number | btclq_v10_n3_a1 |
Pages | v-vi |
Published date | 01 September 2019 |
v
© SIBER INK
Editorial
MICHAEL RUDNICKI
This issue features three articles which deal with inter alia aspects of the
‘connected person’ definition of the Income Tax Act 58 of 1962 (‘the Act’),
a foreign branch of a local vendor and its attendant VAT consequences and
a particular provision contained in section 8C of the Act and its application
to founders of businesses.
The first article addresses an assessment of the application of the provi-
sions of paragraph (d)(iv) of the definition of ‘connected person’ contained
in section 1 of the Act in relation to a particular example given in SARS’s
Interpretation Note 67 (Issue 3), dated 8 December 2017.
Paragraph (d)(iv) provides that a connected person in relation to a
company means any person, other than a company as defined in section1
of the Companies Act, who individually or jointly with any connected
person in relation to that person, holds, directly or indirectly, at least 20%
of the equity shares or voting rights in the company.
The author suggests that the result of Example 20 in the Interpretation
Note is incorrect. The example given is a natural person who holds 20% of
the equity in a company which, in turn, owns 20% of the equity of another
company. The question is whether the natural person is a connected person
to the second company. The SARS solution suggests that the natural person
is connected because his or her effective interest in the second company
(4%) is added to the the first company’s interest in the second company
(20%), and the joint ownership in the second company is therefore 24%.
The author disagrees and proposes that this is double counting and that
the effective interest of 4% is the correct percentage. The author further
remarks that, based on recent court decisions, the SARS result is strained and
will not be followed by the courts when the matter is judicially considered.
The second article deals with VAT considerations in relation to foreign
branches of a local vendor. South Africa does not have place-of-supply rules
that determine whether a supply is subject to VAT in the jurisdiction where
the taxable person is situated.
A branch of a company is not a separate and distinct legal entity from
a common-law perspective, but from a VAT perspective it may be treated
as a separate person. As a consequence of the common-law acceptance, an
enterprise, from a VAT perspective, must carry on an activity in the course
or furtherance of which goods and services are supplied to another person.
In terms of paragraph (ii) of the definition of ‘enterprise’, an enterprise
permanently situated at premises outside South African is deemed to be
carried on by a person separate from the vendor if the branch can be sepa-
rately identified and an independent accounting system is maintained for
To continue reading
Request your trial