Foreign income and DTAs

Question 1

As a UK tax resident that gets interest from a company in South Africa, what sections and info in those subsections are relevant?

Answer 1

Section idk
- income is only included in the gross income of a non resident if it’s source is South Africa

Section 9(2)(b) of the ITA - because it comes from a South African company, which is a South African resident, it has a southern African source

Section 10(1)(h)
- you could be fully exempt from the interest being included in your gross income if you meet the requirements of this section
* hdjdh
* it must be connected to a permanent establishment

Section 50C and 50D
- however the interest could be subject to withholding tax if none of the following exemptions apply
* hedge he
* djdhejdh

Article 11 of the UK DTA
- if it meets the definition of the interest in terms of the UK DTA
- then the interest will only be taxable in the UK
- unless it is effectively connected to a permanent establishment in south africa
- if there is an excces of interest being charged in terms of the loan, or agreement that wouldnt have happened if they were not connected persons, then the excess will be taxable according to the domestic laws of SA AND UK
- the main principles of the article will also not apply if the main purpose of the debt claim was to take advantage of article 11 (subsection 5)

section 108(2) of the ITA
- the DTA rules overide the provisions of the ITA

Question 2

How do you know a DTA applies in a situation?

Answer 2

Article 1 of UK DTA/ DTA mauritius
- tells us what persons are covered

article 2 of UK DTA/ DTA mauritius
- tells us what taxes are covered, it is all income taxes and captial gains taxes

all other articles
- it needs to be the definition contained in the other articles for it to apply

Question 3

How do you determine who is resident in terms of the ITA?

Answer 3

Section 1 of the ITA?
- natural person
* someone who is ordinarily resident
> a person is ordinarily resident in the country to which a person would naturally return to after his wanderings, so his real home is his usual or principle place of residence - Cohen v CIR case
> a person is ordinarily resident where he ordinarily resides apart from temporary and occasional abscenses - CIR v Kuttel case
OR
* passes the phyiscal presence test
> must pass ALL these requirements; >91 days in the current year of assessment; > 91 days in each of the previous 5 years of assessment; 915 days in aggregate over the previous 5 years of assessment
> if they become a resident from passing this test, they will remain as a resident for that year of assessment until the day that they they leave SA and stay away for a continuos period of 330 days

• companies
• a resident of south africa if they were incorperated, established or formed within south africa OR
• Place of effective management is within south africa
  > the smallwood case defines this as the place where key management and commerical decisions are made

Question 4

What is a resident according to the DTAs?

Question 6

How does Article 9 of the DTA with UK work?

Answer 6

Article 9 of the DTA with UK
- if company A in SA does not have profits included in his income because of an agreement with a connected company who is resident in the UK, SA may include that profit in the taxable income of the SA state
- UK must then make an adjustment to the amount of tax paid by company B in the UK according to how much extra tax was charged to company A here in south africa
-that is the jist of it

Question 7

How does section 6qaut work?

Answer 7

• if you have foregin income included in your taxable income in south Africa, you are allowed to have a deduction of any taxes that you paid to foreign governments/ tax authorities from your normal tax payable here to SARS
• this deduction is limited to what you actually incurred in terms of foreign taxes and can prove this amount and not what you actually paid (DTA = what you paid)
  -it is also limited to this ratio formula (same as in the DTA)
• limitation of rebate = normal tax payable before rebates * (taxable foreign source amounts that qualify for a rebate/ total taxable income)
• a foreign source amount qualifies for a rebate if it is included in your taxable income in SA
• the excess foreign income can only be carried forward for 7 years
• the value of the foreign tax is converted into RANDS using the average exchange rate for that year of assessment
• SARS may issue an additional assessment if the actual tax that needed to be paid is different from what was allowed in terms if s6quat as a rebate

Question 8

Can a foreign assessed loss be set off against your local taxable income?

Answer 8

section 20(1)
- No it cannot

Question 9

What type of exemption can you get for foreign dividends?

Answer 9

Section 10B(2)
- you can get a full exemption if you meet one of the following requirements
* look in the standard I am lazy right now

Section 10B(3)
- if you didnt get the full exmeption, you can then use this partial exmeption from gross income
- natural persons exemption = 25/45 * dividend amount
- companies = 8/28 * dividend amount

Question 10

How does section 10(1)(gC) work?

Answer 10

section 10(1)(gC)
- you will receive a full exemption for any of the follwoing types of amounts
* amount received by or accrued to a resident under the social security system of any other country
* lump sum, pension or annuity received by or accrued to a resident from a source outside the Republic, in consideration for past employment outside the Republic