Author: admin_kmos

Subsections 2, 3, 4, 5, 6, 7, 8, 9 and 10 of section 23K of ITA

Posted on by admin_kmos

(2)    Subject to subsections (3), (9) and (10), no deduction is allowed in respect of interest incurred by an acquiring company in terms of-

(a)     a debt if that debt was issued, assumed or used directly or indirectly-

(i)      for the purpose of procuring, enabling, facilitating or funding the acquisition by that acquiring company of any asset in terms of a reorganisation transaction; or

(ii)     in substitution for any debt issued, assumed or used as contemplated in subparagraph (i); or

(b)     a debt if that debt was issued, assumed or used-

(i)      for the purpose of financing the acquisition of an equity share in a company in terms of an acquisition transaction; or

(ii)     in substitution for any other debt issued, assumed or used as contemplated in subparagraph (i).

(3)     Subject to subsection (5), the Commissioner may, on application by an acquiring company, issue a directive that subsection (2) does not apply in respect of an amount of interest incurred as contemplated in that subsection.

(4)     In considering an application for a directive contemplated in subsection (3), the Commissioner-

(a)    must take into account-

(i)      the amount of interest incurred as contemplated in subsection (2) by an acquiring company in terms of a debt contemplated in that subsection; and

(ii)     all amounts of interest incurred, received or accrued in respect of all debts issued, assumed or used directly or indirectly to fund a debt in respect of which any amount of interest is incurred by an acquiring company as contemplated in subsection (2); and

(b)     may only issue a directive contemplated in subsection (3) if and to the extent that the Commissioner is, having regard to the criteria prescribed by the Regulations contemplated in subsection (7), satisfied that the issuing of that directive will not lead nor be likely to lead to a significant reduction of the aggregate taxable income of all parties who incur, receive or accrue interest-

(i)      in respect of; and

(ii)     for all periods during which any amounts are outstanding in terms of,

any debt contemplated in subparagraphs (i) and (ii) of paragraph (a):

Provided that in determining whether a reduction of taxable income is significant for the purpose of this subsection, the Commissioner must have regard to the criteria prescribed by the regulations contemplated in subsection (7).

(5)     Any directive issued by the Commissioner in terms of subsection (3) may be made subject to such conditions and limitations as may be determined by the Commissioner.

(6)     A directive issued by the Commissioner in terms of subsection (3) in respect of an amount of interest incurred in terms of a debt must be effective from-

(a)     the date on which that debt was issued or assumed if the application for that directive is made-

(i)      on or before 31 December 2011, where that debt was issued or assumed before 25 October 2011; or

(ii)     within 60 days of the date of issue of that debt, where that debt is issued or assumed on or after 25 October 2011; or

(b)     the date on which the application for that directive is made if-

(i)      that debt was issued or assumed before 25 October 2011 and that application is made after 31 December 2011; or

(ii)     that debt is issued or assumed on or after 25 October 2011 and that application is made later than 60 days after the date of issue or assumption of that debt.

(7)     The Minister must make regulations that prescribe criteria that the Commissioner must, in terms of subsection (4)(b), have regard to in considering any application made in terms of subsection (3) by an acquiring company in respect of any amount of interest incurred by such an acquiring company in terms of any debt, which criteria must relate to-

(a)     all amounts of debt in relation to total equity of such an acquiring company;

(b)     total amounts of interest to be incurred by such an acquiring company in relation to total income of such an acquiring company;

(c)     terms of such a debt, including the economic effect of such a debt, having regard to any debt or equity features of such a debt;

(d)     the direct or indirect holding of shares in such an acquiring company by any holder (or any company that forms part of the same group of companies as the holder) of such a debt; and

(e)    any other factor prescribed by the Minister.

(8)

(a)     If, subsequent to the date on which a directive is issued by the Commissioner pursuant to an application made by an acquiring company in terms of subsection (3)-

(i)      there is any material change in respect of any fact or circumstance which influenced any decision of the Commissioner relating to the issuing of that directive; and

(ii)     that change would, had the change been anticipated by the Commissioner at the time of issuing the directive, have resulted in the Commissioner not issuing the directive or issuing the directive on terms that are less favourable to that acquiring company,

the directive will cease to apply with effect from the date on which that change takes effect.

(b)     Where any decision relating to the issuing of a directive by the Commissioner in terms of subsection (3) was made by the Commissioner as a direct or indirect result of fraud, misrepresentation or non-disclosure of material facts, that directive will cease to apply with effect from the date that the directive took effect.

(9)       The Minister may make regulations prescribing circumstances in which subsection (2) does not apply.

(10)     Subsection (2) does not apply in respect of any amount of interest incurred by an acquiring company-

(a)     in terms of a debt if that debt was issued, assumed or used directly or indirectly for the purpose of-

(i)      procuring, enabling, facilitating or funding the acquisition by that acquiring company of any asset in terms of a reorganisation transaction entered into on or after 1 April 2014; or

(ii)     redeeming, refinancing, substituting or settling, on or after 1 April 2014, a debt issued, assumed or used directly or indirectly for the purpose of procuring, enabling, facilitating or funding the acquisition by that acquiring company of any asset in terms of a reorganisation transaction entered into on or after 3 June 2011 and on or before 31 March 2014; or

[Subparagraph (ii) amended by section 39 of Act 25 of 2015 effective on 8 January 2016]

(b)     in terms of a debt-

(i)      issued, assumed or used in terms of an acquisition transaction entered into on or after 1 April 2014; or

(ii)     issued, assumed or used, on or after 1 April 2014, directly or indirectly for the purpose of redeeming, refinancing, substituting or settling a debt that was issued, assumed or used in terms of an acquisition transaction entered into on or after 1 January 2013 and on or before 31 March 2014.

[Subparagraph (ii) amended by section 39 of Act 25 of 2015 efffective on 8 January 2016]

(c)     ……….

[Paragraph (c) deleted by section 39 of Act 25 of 2015 effective on 8 January 2016]

“Acquiring company” definition of section 23K of ITA

Posted on by admin_kmos

(1)       For the purposes of this section-

 

“acquiring company” means-

 

(a)     a transferee company contemplated in the definition of “intra-group transaction” in section 45(1);

 

(b)     a holding company contemplated in the definition of “liquidation distribution” in section 47(1); or

 

(c)     a company that acquires an equity share in another company in terms of an acquisition transaction;

Subsections 2 and 3 of section 23I of ITA

Posted on by admin_kmos

(2)     Other than a deduction allowed in terms of section 11(gC) or a deduction allowed in respect of trading stock, a deduction is not allowed in respect of-

 

(a)     any amount of expenditure incurred for the use or right of use of or permission to use tainted intellectual property; or

(b)     expenditure the incurral or amount of which is determined directly or indirectly with reference to expenditure incurred for the use or, right of use of or permission to use tainted intellectual property,

[Paragraph (b) substituted by section 36 of Act 43 of 2014 effective on 20 January 2015]

to the extent that the amount of expenditure does not constitute income received by or accrued to any other person or to the extent that the amount of expenditure does not constitute a proportional amount of net income of a controlled foreign company an amount equal to which is included in the income of any resident in terms of section 9D.

(3)       Notwithstanding any provision of subsection (2) to the contrary, an amount equal to-

(a)     one third of any expenditure contemplated in subsection (2)  must be allowed to be deducted if withholding tax on royalties contemplated in Part IVA is payable in respect of that amount at a rate of 10 per cent; or

(b)     one half of any expenditure contemplated in subsection (2) must be allowed to be deducted if withholding tax on royalties contemplated in Part IVA is payable in respect of that amount at a rate of 15 per cent.

(4)     Subsection (2) must not apply where the aggregate amount of taxes on income payable to all spheres of government of any country other than the Republic by a controlled foreign company contemplated in that subsection in respect of the foreign tax year of that controlled foreign company is at least 67,5 per cent of the amount of normal tax that would have been payable in respect of any taxable income of the controlled foreign company had the controlled foreign company been a resident for that foreign tax year: Provided that the aggregate amount of tax payable by a controlled foreign company in respect of a foreign tax year of that controlled foreign company must be determined—

(a)     after taking into account any applicable agreement for the prevention of double taxation and any credit, rebate or other right of recovery of tax from any sphere of government of any country other than the Republic; and

(b)     after disregarding any loss in respect of a year other than that foreign tax year or from a company other than that controlled foreign company.

[Sub­section (4) added by section 38(1) of Act 17 of 2017 and amended by section 27(1) of Act 34 of 2019 effective on 1 January, 2020 and applicable in respect of years of assessment ending on or after that date]

“Taxable person” definition of section 23I of ITA

Posted on by admin_kmos

“taxable person” means any person other than-

 

(a)     a person that is not a resident;

 

(b)     the government of the Republic in the national, provincial or local sphere contemplated in section 10(1)(a);

 

(c)     an institution, board or body contemplated in section 10(1)(cA);

 

(d)     any public benefit organisation as defined in section 30 that has been approved by the Commissioner in terms of that section;

 

(e)     any recreational club as defined in section 30A that has been approved by the Commissioner in terms of that section;

 

(f)      any company or trust contemplated in section 37A;

 

(g)     any fund contemplated in section 10(1)(d)(i) or (ii); or

 

(h)     any person contemplated in section 10(1)(t).

“Tainted intellectual property” definition of section 23I of ITA

Posted on by admin_kmos

“tainted intellectual property” means intellectual property-

(a)     which was the property of the end user or of a taxable person that is or was a connected person, as defined in section 31(4), in relation to the end user;

(b)     which is the property of a taxable person;

(c)     a material part of which was used by a taxable person in carrying on a business while that property was the property of a taxable person and the end user of that property acquired that business or a material part thereof as a going concern; or

(d)     which was discovered, devised, developed, created or produced by the end user of that property, or by a taxable person that is a connected person, as defined in section 31(4), in relation to the end user, if that end user, together with any taxable person that is a connected person in relation to that end user, holds at least 20 per cent of the participation rights, as defined in section 9D, in a person by or to whom an amount is received or accrues-

(i)      by virtue of the grant of use or right of use or permission to use that property; or

[Subparagraph (i) substituted by section 36 of Act 43 of 2014 effective on 20 January 2015]

(ii)     where that receipt, accrual or amount is determined directly or indirectly with reference to expenditure incurred for the use or right of use or permission to use that property;

[Subparagraph (ii) substituted by section 36 of Act 43 of 2014 effective on 20 January 2015] 

“Intellectual property” definition of section 23I of ITA

Posted on by admin_kmos

“intellectual property” means any-

 

(a)     patent as defined in the Patents Act including any application for a patent in terms of that Act;

 

(b)     design as defined in the Designs Act;

 

(c)     trade mark as defined in the Trade Marks Act;

 

(d)     copyright as defined in the Copyright Act;

 

(e)     patent, design, trade mark or copyright defined or described in any similar law to that in paragraph (a), (b), (c) or (d) of a country other than the Republic;

 

(f)      property or right of a similar nature to that in paragraph (a), (b), (c), (d) or (e); and

 

(g)     knowledge connected to the use of such patent, design, trade mark, copyright, property or right;