(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.