“acquisition transaction” means an acquisition transaction as defined in section 24O(1) to which section 24O applies;
Author: admin_kmos
“Acquiring company” definition of section 23K of ITA
(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;
Section 23K (ITA) – Limitation of deductions in respect of reorganisation and acquisition transactions
23K. Limitation of deductions in respect of reorganisation and acquisition transactions
Subsections 2 and 3 of section 23I of ITA
(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
“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
“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
“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;
“End user” definition of section 23I of ITA
(1) For the purposes of this section-
“end user” means a taxable person or a person with a permanent establishment within the Republic that uses intellectual property or any corresponding invention during a year of assessment to derive income, other than a person that derives income mainly by virtue of the grant of use or right of use or permission to use intellectual property or any corresponding invention;
[Definition of “end user” substituted by section 36 of Act 43 of 2014 effective on 20 January 2015]
Section 23I (ITA) – Prohibitions of deductions in respect of certain intellectual property
23I. Prohibition of deductions in respect of certain intellectual property
Section 23H (ITA) – Limitations of certain deductions
23H. Limitation of certain deductions
(1) Where any person has during any year of assessment actually incurred any expenditure (other than expenditure incurred in respect of the acquisition of any trading stock) –
(a) which is allowable as a deduction in terms of the provisions of section 11(a), (c), (d) or (w), or section 11A; and
[Paragraph (a) substituted by section 29 of Act 59 of 2000, section 36 of Act 35 of 2007, section 19 of Act 3 of 2008, section 43 of Act 7 of 2010, section 46 of Act 22 of 2012 and section 35 of Act 43 of 2014 effective on 1 October 2012]
(b) in respect of-
(i) goods or services, all of which will not be supplied or rendered to such person, during such year of assessment; or,
(ii) any other benefit, the period to which the expenditure relates extends beyond such year of assessment,
the amount of the expenditure in respect of which a deduction shall be allowable in terms of such section in the said year and any subsequent year of assessment, shall be limited to, in the case of expenditure incurred in respect of –
(i) goods to be supplied, so much of the expenditure as relates to the goods actually supplied to such person in such year of assessment; or
(ii) services to be rendered, an amount which bears to the total amount of such expenditure the same ratio as the number of months in such year during which such services are rendered bears to the total number of months during which such services will be rendered or, where the period during which such services will be rendered is not determinable, such period during which the services are likely to be rendered; or
(iii) any other benefit to which such expenditure relates, an amount which bears to the total amount of such expenditure the same ratio as the number of months in such year during which such person will enjoy such benefit bears to the total number of months during which such person will enjoy such benefit or where the period of such benefit is not determinable, such period over which the benefit is likely to be enjoyed:
Provided that the provisions of this section shall not apply –
(aa) where all the goods or services are to be supplied or rendered within six months after the end of the year of assessment during which the expenditure was incurred, or such person will have the full enjoyment of such benefit in respect of which the expenditure was incurred within such period, unless the expenditure is allowable as a deduction in terms of section 11D(2); or
[Paragraph (aa) substituted by section 34 of Act 60 of 2001, section 36 of Act 35 of 2007 and section 37 of Act 17 of 2017 effective on 18 December 2017]
(bb) where the aggregate of all amounts of expenditure incurred by such person, which would otherwise be limited by this section, does not exceed R100000; or
(cc) to any expenditure to which the provisions of 24K or 24L apply; or
(dd) to any expenditure actually paid in respect of any unconditional liability to pay an amount imposed by legislation.
(2) If in any case the apportionment of the expenditure in accordance with subsection (1) does not reasonably represent a fair apportionment of such expenditure in respect of the goods, services or benefits to which it relates, such apportionment must be made in such other manner as is fair and reasonable.
[Subsection (2) substituted by section 38 of Act 25 of 2015 effective on 8 January 2016]
(3) Notwithstanding the provisions of subsections (1) and (2), where it is during any year of assessment shown by any person that –
(a) the goods or services in respect of which the expenditure is incurred will never be received by or be rendered to such person; or
(b) such person will never enjoy such other benefit in respect of which any expenditure is incurred,
such expenditure shall be allowed in such year, to the extent that such expenditure has been actually paid by such person.