Category: CHAPTER II – The Taxes (ITA)

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

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“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] 

Subsection 2, 3, 4 and 5 of section 23N of ITA

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(2)     Where an amount of interest is incurred by an acquiring company in terms of a debt-

[Words preceding paragraph (a) substituted by section 38 of Act 43 of 2014 effective on 1 January 2015]

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

(b)     used directly or indirectly for the purpose of redeeming, refinancing or settling the debt contemplated in paragraph (a);

(c)     issued, assumed or used in terms of an acquisition transaction; or

(d)     used directly or indirectly for the purpose of redeeming, refinancing or settling the debt contemplated in paragraph (c),

the amount of interest allowed to be deducted must not exceed the amount determined in terms of subsection (3).

(3)     The amount of interest allowed to be deducted in terms of all debts owed as contemplated in subsection (2), in respect of any year of assessment in which the acquisition transaction or reorganisation transaction is entered into and in respect of five years of assessment immediately following that year of assessment, must not exceed the sum of-

(a)     the amount of interest received by or accrued to the acquiring company; and

(b)     the highest of the amounts determined by multiplying the percentage determined under subsection (4) by the adjusted taxable income of the acquiring company for each of the years of assessment-

(i)      in which the acquisition transaction or reorganisation transaction is entered into;

(ii)     in which the amount of interest is incurred by that acquiring company; or

(iii)    immediately prior to the year of assessment contemplated in subparagraph (i),

[Paragraph (b) substituted by section 38 of Act 43 of 2014 and section 40 of Act 17 of 2017 effective on 18 December 2017]

reduced by any amount of interest incurred by the acquiring company in respect of debts other than debts contemplated in subsection (2).

[Words following paragraph (b) substituted by section 38 of Act 43 of 2014 effective on 1 January 2015]

(4)     The percentage contemplated in subsection (3)(b) must be determined in accordance with the formula-

         A   =   B   x   C

                              D

in which formula-

(a)     ‘A’ represents the percentage to be determined;

(b)     ‘B’ represents the number 40;

(c)     ‘C’ represents the average repo rate plus 400 basis points; and

(d)     ‘D’ represents the number 10,

but not exceeding 60 per cent of the adjusted taxable income of that acquiring company.

[Subsection (4) substituted by section 38 of Act 43 of 2014 effective on 1 January 2015]

(5)       ……….

[Subsection (5) deleted by section 64 of Act 31 of 2013, re-inserted by section 42 of Act 15 of 2016, amended by section 40 of Act 17 of 2017 and deleted by section 42 of Act 23 of 2018 effective on 1 January 2019 and applies in respect of amounts incurred on or after that date]

“Intellectual property” definition of section 23I of ITA

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“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;

Subsections 2, 3, 4 and 5 of section 24G of ITA

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(2)     Subject to the provisions of subsection (5), there shall be deducted in the determination of the taxable income derived by the taxpayer during any year of assessment –

 

(a)     the sum of any annual allowances determined under subsection (3) in relation to expenditure incurred during the current or any previous year of assessment in respect of any permanent work, road pavement, major rehabilitation of the road pavement or erection or construction of ancillary services in relation to a toll road;

 

(b)     any expenditure incurred during the year of assessment in respect of the repair or maintenance of a toll road or any ancillary service in relation to such toll road, other than expenditure incurred on major rehabilitation of the road pavement;

 

(c)     any interest (other than interest which is deductible under section 11(a) incurred by the taxpayer during the year of assessment in respect of any loan utilized for the purpose of financing any expenditure contemplated in paragraph (a) or (b); and

 

(d)     any amount which has been disallowed in the preceding year of assessment under the provisions of subsection (5):

 

Provided that the aggregate of the allowances which may be granted under paragraph (a) shall not exceed the total expenditure incurred by the taxpayer on such permanent work, road pavement, major rehabilitation of road pavement or erection or construction of ancillary services.

 

(3)     For the purposes of subsection (2), an annual allowance shall be calculated in respect of expenditure incurred by the taxpayer on permanent works, road pavements, major rehabilitation of road pavements or the erection, construction, installation or provision of ancillary services during any year of assessment, such allowance to be equal to the expenditure so incurred during the year divided by the lesser of the number of years reckoned from the commencement of that year until the end of the tolling period (for which purpose a portion of a year shall be regarded as a year) and –

 

(a)     in the case of expenditure incurred on permanent works or the erection or construction of ancillary services, 25 years; and

 

(b)     in the case of such expenditure incurred on road pavements or major rehabilitation of road pavements, 8 years.

 

(4)     No deduction or allowance shall be granted under this Act in respect of expenditure contemplated in subsection (2) otherwise than as provided in that subsection.

 

(5)     The allowances which may be granted under subsection (2) (a), (b) and (d) in any year of assessment in respect of any single toll road shall not in the aggregate exceed the taxable income (as determined before the deduction of the said allowances) derived by the taxpayer during such year from –

 

(a)     the exploitation of such toll road or any ancillary service in relation to such toll road; and

 

(b)     any interest derived in the ordinary course of such exploitation and the financing of any expenditure contemplated in subsection (3) which relates to such toll road.

“End user” definition of section 23I of ITA

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(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]

“Tolling period” definition of section 24G of ITA

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“tolling period”, in relation to a toll road, means the initial period during which the South African National Roads Agency Limited has granted to the taxpayer or any other person the right to operate such toll road, including any period in respect of which such right was so granted in terms of an interim agreement concluded by the South African National Roads Agency Limited, but excluding any extension of such first-mentioned period in respect of which a right of renewal may be exercised;