Tuesday, 22 March 2016

South Africa: 2016 budget announced

South Africa’s Minister of Finance delivered his 2016 budget speech to parliament on 24 February 2016, including a number of tax proposals. The minister made specific reference to the OECD base erosion and profit shifting (BEPS) project, noting that the South Africa Revenue Service (SARS) will take an aggressive stance on the evasion of tax through transfer pricing and the misuse of tax treaties, and measures will be introduced to address issues including the inappropriate use of hybrid debt instruments and profit shifting out of South Africa. Country-by-country reporting will be introduced, as will the OECD common reporting system, which will enable the exchange of information between the SARS and foreign tax authorities.
Proposals relevant to multinational companies include the following:
  • The percentage of capital gains that is includable in taxable income would be increased from 66.6% to 80% for companies (and from 33.3% to 40% for individuals).
  • Measures would be implemented to address mismatches associated with hybrid debt instruments that currently may result in double nontaxation in cases where the issuer of the instrument is a nonresident.
  • The proposed withholding tax on service fees payable to nonresidents, which has not yet been implemented, would be replaced by a reporting requirement that would apply to agreements between South African taxpayers and foreign service providers under certain circumstances.
  • Certain changes would be made to the rules for controlled foreign companies (CFCs):
  • The “high-tax exemption” from the CFC rules would be modified to prevent taxpayers from benefitting from the exemption in cases where there is no foreign tax payable by the CFC due to tax losses of the CFC’s group companies; and
  • Collective investment schemes would be excluded from having to apply the CFC rules.
  • It would be clarified that previously taxed foreign exchange gains on debts would qualify for a tax deduction if those debts become bad (i.e. uncollectable).
  • Various modifications would be made to tax incentives, including proposed improvements to the administration of the research and development allowances and a proposed expansion of the current urban development zone scheme to include more municipalities.
  • A special voluntary disclosure program would be introduced that would permit noncompliant taxpayers with certain undisclosed foreign assets and income to normalize their tax affairs before the new OECD global standard for the automatic exchange of financial information enters into effect in 2017. The program would be available from 1 October 2016 to 31 March 2017, and various forms of relief would be available to eligible taxpayers.
  • The transfer duty rate that applies to sales of immovable property with a value exceeding ZAR 10 million would be increased from 11% to 13% for property acquired on or after 1 March 2016.
  • The proposed carbon tax would remain revenue neutral until 2020. The November 2015 draft bill on the tax would be revised to take public comments and further consultation into account, but there is no indication of postponing the proposed implementation date of 1 January 2017.
  • A general anti-avoidance provision would be introduced for customs and excise tax purposes. 

Source: Deloitte