International Tax Newsletter - Spring 2011- South Africa - International Tax Developments

  • The concept of transfer pricing has been broadened in domestic legislation to incorporate the terms and conditions associated with an entire arrangement undertaken for the benefit of connected parties with a cross border nexus. This amendment will enable the South African Revenue Service (SARS) to impose transfer pricing adjustments if the terms and conditions of a transaction, operation, scheme, agreement or understanding differ from those that would have existed between parties acting independently of each other and the difference confers a South African tax benefit on one of the parties.
  • The concept of an S.A. resident Headquarter Company (HQC) which will enjoy tax relief in areas typically affecting foreign investment holding companies resident in S.A. has now been introduced. Briefly, a qualifying HQC will enjoy relief from SA's controlled foreign company (CFC) legislation; Secondary Tax on Companies (STC) on dividends declared to qualifying shareholders; and SA's thin capitalization rules on qualifying loan funding from foreign investors.
  • Legislation has been amended to ensure limited liability partnerships and companies will be taxed in S.A. as look-through partnerships, provided such partnerships are treated accordingly in the relevant foreign jurisdiction. Consequently, for purposes of S.A. tax, a general partner of a partnership (or a trustee of a trust) will be treated as an independent agent in relation to qualifying partners (or trust beneficiaries). Independent agent status means that the activities of a general partner (or trustee) within South Africa will not create a permanent establishment status for the qualifying partner (or trust beneficiary).
  • With effect from January 2013, the current blanket exemption of interest earned by non-residents from tax in SA will be removed by subjecting such interest to a 10% withholding tax. However, interest earned on certain forms of domestic investments, such as government debt instruments, listed debt instruments and bank deposits will not be subject to the withholding tax.

For further details, Cristina Wolff of EisnerAmper LLP in New York can facilitate contact with Eugene du Plessis or Louis Van Manen of PKF South Africa.

International Tax Newsletter - Spring 2011 

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