Category: CHAPTER II – The Taxes (ITA)

Subsections 2, 3, 4, 5, 6 and 7 of section 31 of ITA

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(2)     Where-

(a)     any transaction, operation, scheme, agreement or understanding constitutes an affected transaction; and

(b)     any term or condition of that transaction, operation, scheme, agreement or understanding-

(i)      is a term or condition contemplated in paragraph (b) of the definition of ‘affected transaction’; and

(ii)     results or will result in any tax benefit being derived by a person that is a party to that transaction, operation, scheme, agreement or understanding or by any resident in relation to a controlled foreign company contemplated in subparagraph (iv) of the definition of “affected transaction”,

[Subparagraph (ii) substituted by section 31(1) of Act 23 of 2020 effective on 1 January, 2021 and applicable in respect of years of assessment commencing on or after that date]

the taxable income or tax payable by any person contemplated in paragraph (b) (ii) that derives a tax benefit contemplated in that paragraph must be calculated as if that transaction, operation, scheme, agreement or understanding had been entered into on the terms and conditions that would have existed had those persons been independent persons dealing at arm’s length.

(3)     To the extent that there is a difference between-

(a)     any amount that is, after taking subsection (2) into account, applied in the calculation of the taxable income of any resident that is a party to an affected transaction; and

(b)     any amount that would, but for subsection (2), have been applied in the calculation of the taxable income of the resident contemplated in paragraph (a),

the amount of that difference must, if that person is a resident and the other person to the affected transaction is a person as contemplated in paragraph (a)(i)(bb) or (a)(iii)(bb) of the definition of ‘affected transaction’-

(i)      if that resident is a company, be deemed to be a dividend consisting of a distribution of an asset in specie declared and paid by that resident to that other person; or

(ii)     if that resident is a person other than a company, be deemed, for purposes of Part V, to be a donation made by that resident to that other person,

[Subparagraph (ii) substituted by section 56 of Act 25 of 2015 effective on 8 January 2016]

on the last day of the period of six months following the end of the year of assessment in respect of which that adjustment is made: Provided that where the amount of that difference was prior to 1 January 2015 deemed to be a loan that constitutes an affected transaction, so much of that loan as has not been repaid before 1 January 2015 must-

(a)     if that resident is a company, be deemed to be a dividend consisting of a distribution of an asset in specie that was declared and paid by that resident to that other person; or

(b)     if that resident is a person other than a company, be deemed, for purposes of Part V, to be a donation made by that resident to that other person, on 1 January 2015.

[Words following paragraph (b) substituted by section 50 of Act 43 of 2014 effective on 1 January 2015]

(4)     For the purposes of subsection (2), where any transaction, operation, scheme, agreement or understanding has been directly or indirectly entered into or effected as contemplated in that subsection in respect of-

(a)     the granting of any financial assistance; or

(b)     intellectual property as contemplated in the definition of ‘intellectual property ‘ in section 23I(1) or knowledge,

‘connected person’ means a connected person as defined in section 1: Provided that the expression ‘and no holder of shares holds the majority voting rights in the company’ in paragraph (d)(v) of that definition must be disregarded.

(5)     Where any transaction, operation, scheme, agreement or understanding has been entered into between a headquarter company and-

(a)     any other person that is not a resident and that transaction, operation, scheme, agreement or understanding is in respect of the granting of financial assistance by that other person to that headquarter company, this section does not apply to so much of that financial assistance that is directly applied as financial assistance to any foreign company in which the headquarter company directly or indirectly (whether alone or together with any other company forming part of the same group of companies as that headquarter company) holds at least 10 per cent of the equity shares and voting rights;

(b)     any foreign company in which the headquarter company directly or indirectly (whether alone or together with any other company forming part of the same group of companies as that headquarter company) holds at least 10 per cent of the equity shares and voting rights and that transaction, operation, scheme, agreement or understanding comprises the granting of financial assistance by that headquarter company to that foreign company, this section does not apply to that financial assistance;

(c)     any other person that is not a resident and that transaction, operation, scheme, agreement or understanding is in respect of the granting of the use, right of use or permission to use any intellectual property as defined in section 23I(1) by that other person to that headquarter company, this section does not apply to the extent that the headquarter company-

(i)      grants that use, right of use or permission to use that intellectual property to any foreign company in which the headquarter company directly or indirectly (whether alone or together with any other company forming part of the same group of companies as that headquarter company) holds at least 10 per cent of the equity shares and voting rights; and

(ii)     does not make use of that intellectual property otherwise than as contemplated in subparagraph (i); or

(d)     any foreign company in which the headquarter company directly or indirectly (whether alone or together with any other company forming part of the same group of companies as that headquarter company) holds at least 10 per cent of the equity shares and voting rights and that transaction, operation, scheme, agreement or understanding comprises the granting of the use, right of use or permission to use any intellectual property as defined in section 23I(1) by that headquarter company to that foreign company, this section does not apply to that granting to that foreign company.

(6)     Where any transaction, operation, scheme, agreement or understanding that comprises the granting of-

(a)     financial assistance; or

(b)     the use, right of use or permission to use any intellectual property as defined in section 23I,

by a person that is a resident (other than a headquarter company) to a controlled foreign company in relation to that resident or in relation to a company that forms part of the same group of companies as that resident, this section must not be applied in calculating the taxable income or tax payable by that resident in respect of any amount received by or accrued to that resident in terms of that transaction, operation, scheme, agreement or understanding if-

(i)      ……….

(ii)     that controlled foreign company has a foreign business establishment as defined in section 9D(1); and

(iii)    the aggregate amount of tax payable to all spheres of government of any country other than the Republic by that controlled foreign company in respect of any foreign tax year of that controlled foreign company during which that transaction, operation, scheme, agreement or understanding exists 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 that controlled foreign company had that controlled foreign company been a resident for that foreign tax year: Provided that the aggregate amount of tax so payable must be determined-

(aa)   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

(bb)   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.

Paragraph (iii) amended by section 37(1)(c) of Act 34 of 2019 effective on 1 January, 2020 and applicable in respect of years of assessment ending on or after that date]

(7)     Where-

(a)     any transaction, operation, scheme, agreement or understanding has been entered into between a company that is a resident (for purposes of this subsection referred to as resident company’) or any company that forms part of the same group of companies as that resident company and any foreign company in which that resident company (whether alone or together with any other company that forms part of the same group of companies as that resident company) directly or indirectly holds in aggregate at least 10 per cent of the equity shares and voting rights and that transaction, operation, scheme, agreement or understanding comprises the granting of financial assistance that constitutes a debt owed by that foreign company to that resident company or any company that forms part of the same group of companies as that resident company;

(b)     that foreign company is not obliged to redeem that debt in full within 30 years from the date the debt is incurred;

[Paragraph (b) amended by section 50 of Act 43 of 2014 effective on 20 January 2015]

(c)     the redemption of the debt in full by the foreign company is conditional upon the market value of the assets of the foreign company not being less than the market value of the liabilities of the foreign company, and

[Paragraph (c) amended by section 50 of Act 43 of 2014 effective on 20 January 2015]

(d)     no interest accrued in respect of the debt during the year of assessment,

[Paragraph (d) added by section 50 of Act 43 of 2014 effective on 20 January 2015]

this section must not apply to that debt.

Subsections 2, 3, 4, 5, 6, 7, 8 and 9 of section 37B of ITA

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(2)     There shall be allowed to be deducted from the income of the taxpayer, in respect of any year of assessment, an allowance equal to –

 

(a)     in the case of a new and unused environmental treatment and recycling asset owned by the taxpayer or acquired by the taxpayer as purchaser in terms of an agreement contemplated in paragraph (a) of the definition of an ‘instalment credit agreement’ in section 1 of the Value-Added Tax Act, 40 per cent of the cost to the taxpayer to acquire the asset in the year of assessment that it is brought into use for the first time by that taxpayer, and 20 per cent in each succeeding year of assessment; and

 

(b)     in the case of a new and unused environmental waste disposal asset owned by the taxpayer or acquired by the taxpayer as purchaser in terms of an agreement contemplated in paragraph (a) of the definition of an ‘instalment credit agreement’ in section 1 of the Value-Added Tax Act, five per cent of the cost to the taxpayer to acquire the asset in the year of assessment that it is brought into use for the first time by that taxpayer, and five per cent in each succeeding year of assessment.

 

(3)     For the purposes of this section, the cost to a taxpayer of any asset shall be deemed to be the lesser of the actual cost to the taxpayer or the cost which a person would, if that person had acquired such asset under a cash transaction concluded at arm’s length on the date on which the transaction for the acquisition was in fact concluded, have incurred in respect of the direct cost of the acquisition.

 

(4)     Where any asset in respect of which any deduction is claimed in terms of this section was during any previous year of assessment used by the taxpayer for the purposes of any trade carried on by such taxpayer, the receipts and accruals of which were not included in the income of such taxpayer during such year, any deduction which could have been allowed in terms of this section during such year or any subsequent year in which such asset was used by the taxpayer shall for the purposes of this section be deemed to have been allowed during such previous year or years as if the receipts and accruals of such trade had been included in the income of such taxpayer.

 

(5)     No deduction shall be allowed under this section in respect of any asset that has been disposed of by the taxpayer during any previous year of assessment.

 

(6)     For purposes of determining the taxable income derived during any year of assessment by a taxpayer, there shall be allowed as a deduction any expenditure or loss in respect of decommissioning, remediation or restoration arising from any trade previously carried on by that taxpayer to the extent that such expenditure or loss –

 

(a)     is incurred for purposes of complying with any law of the Republic that provides for the protection of the environment upon the cessation of trade;

 

(b)     would otherwise have been allowed as a deduction in terms of section 11 had that taxpayer still been carrying on that trade; and

 

(c)     is not otherwise allowed as a deduction.

 

(7)     Any assessed loss of a taxpayer as defined in section 20(2) that is attributable to any expenditure or loss contemplated in subsection (6) may be set off against income derived by that taxpayer during a year of assessment notwithstanding the fact that the taxpayer is not carrying on any trade during that year.

 

(8)     No deduction shall be allowed under section 11, 12C or 13 in respect of the cost of an environmental treatment and recycling asset or an environmental waste disposal asset.

 

(9)     The deductions which may be allowed in terms of this section in respect of any asset shall not in the aggregate exceed the cost to the taxpayer of such asset.

Section 40C (ITA) – Issue of shares or granting of options for no consideration

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40C.    Issue of shares or granting of options for no consideration

Where a company issues a share or grants an option or other right in respect of the issue of a share to a person for no consideration, the expenditure actually incurred by the person to acquire that share, option or right must be deemed to be nil.

[Section 40C inserted by section 47 of Act 60 of 2008, substituted by section 70 of Act 22 of 2012, section 87 of Act 31 of 2013 and section 59 of Act 25 of 2015 effective on 8 January 2016]

“Domestic financial instrument holding company” definition of section 41 of ITA

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“domestic financial instrument holding company” ……….

[Definition of “domestic financial instrument holding company” amended by section 49 of Act 45 of 2003 and section 32 of Act 32 of 2004, substituted by s of 37 of Act 31 of 2005, amended by section 28 of Act 20 of 2006 and section 90 of Act 31 of 2013 and deleted by section 54 of Act 43 of 2014 effective on 20 January 2015]

“Affected transaction” definition of section 31 of ITA

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(1)     For the purposes of this section-

‘affected transaction’ means any transaction, operation, scheme, agreement or understanding where-

(a)     that transaction, operation, scheme, agreement or understanding has been directly or indirectly entered into or effected between or for the benefit of either or both-

(i)

(aa)    a person that is a resident; and

(bb)   any other person that is not a resident;

(ii)

(aa)    a person that is not a resident; and

(bb)   any other person that is not a resident that has a permanent establishment in the Republic to which the transaction, operation, scheme, agreement or understanding relates;

(iii)

(aa)    a person that is a resident; and

(bb)   any other person that is a resident that has a permanent establishment outside the Republic to which the transaction, operation, scheme, agreement or understanding relates; or

(iv)

(aa)    a person that is not a resident; and

(bb)   any other person that is a controlled foreign company in relation to any resident,

and those persons are connected persons or associated enterprises in relation to one another; and

[Subparagraph (iv) amended by section 37(1)(a) of Act 34 of 2019 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date (effective date in section 37(2) of Act 34 of 2019 as substituted by section 78(1) of Act 23 of 2020 and by section 66(1) of Act 20 of 2021)]

(b)     any term or condition of that transaction, operation, scheme, agreement or understanding is different from any term or condition that would have existed had those persons been independent persons dealing at arm’s length;

“Environmental waste disposal asset” definition of section 37B of ITA

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‘environmental waste disposal asset’ means any air, water, and solid waste disposal site, dam, dump, reservoir, or other structure of a similar nature, or any improvement thereto, if the structure is –

 

(a)     of a permanent nature;

 

(b)     utilised in the course of a taxpayer’s trade in a process that is ancillary to any process of manufacture or any other process which, in the opinion of the Commissioner, is of a similar nature; and

 

(c)     required by any law of the Republic for purposes of complying with measures that protect the environment.

Section 40CA (ITA) – Acquisition of assets in exchange for shares

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40CA.  Acquisitions of assets in exchange for shares

 

Where a company acquires any asset, as defined in paragraph 1 of the Eighth Schedule–

 

(a)     from any person in exchange for shares issued by that company, that company must be deemed to have actually incurred an amount of expenditure in respect of the acquisition of that asset which is equal to the sum of—

 

(i)      the market value of the shares immediately after the acquisition; and

 

(ii)     any deemed capital gain determined in terms of section 24BA (3)(a) in respect of the acquisition of that asset; or

 

(b)     in terms of an asset-for-share transaction as contemplated in section 42, a substitutive share-for-share transaction as contemplated in section 43 or an amalgamation transaction as contemplated in section 44 in respect of which a deemed capital gain is determined in terms of section 24BA (3)(a) in respect of the acquisition of that asset-

 

(i)      by that company; or

 

(ii)     by any person that acquired that asset from that company in terms of any transaction contemplated in Part III of Chapter II,

 

that company or that other person must be deemed, in addition to the amount of expenditure for which the asset is deemed to have been acquired by that company or that other person as a result of the application of sections 42(2)(b), 43(2)(b) or 44(2)(a)(ii)(aa), to have incurred an amount of expenditure equal to that deemed capital gain immediately before a disposal of that asset in a transaction other than a transaction contemplated in Part III of Chapter II.

[Section 40CA inserted by section 71(1) of Act 22 of 2012, amended by section 89(1) of Act 31 of 2013, substituted by section 88 of Act 31 of 2013, amended by section 38(1) of Act 34 of 2019, substituted by section 32(1) of Act 23 of 2020 and by section 23(1) of Act 20 of 2021 and amended by section 35(1) of Act 17 of 2023 with effect from 1 January, 2024 and applicable in respect of any acquisition of an asset on or after that date]

“Environmental treatment and recycling asset” definition of section 37B of ITA

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(1)     For purposes of this section –

 

‘environmental treatment and recycling asset’ means any air, water, and solid waste treatment and recycling plant or pollution control and monitoring equipment (and any improvement to the plant or equipment) if the plant or equipment is-

 

(a)     utilised in the course of a taxpayer’s trade in a process that is ancillary to any process of manufacture or any other process which, in the opinion of the Commissioner, is of a similar nature; and

 

(b)     required by any law of the Republic for purposes of complying with measures that protect the environment; and