International Tax

Question 1

S31

Answer 1

• Check if there is any DTA applicable
• CP, not at arms length (R+NR)
• Thin capitalization (debt and interest are not market related)
• Base Erosion Profit shifting s31 (BEPS)
• Primary adjustment at 28%*x/365 (difference between what you paid and what you should have paid)
• Secondary adjustment: depends on type of taxpayer calculate dividend tax

Question 2

International Tax General

Answer 2

• Always start with article 4 to determine residency. If you are a resident in SA, Article 4 sub part 1 will verify that
• If SA residents collectively hold >50% it becomes a CFC which is regarded to be a resident
• If receiving foreign income, go to specific DTA
• s108 prevention or relief from DTA
• Consider case law
• Deduction is not prohibited by s23(g), s23(f) or s23(f)
• Consider s6quat if there is a double tax
• DTA useful to prevent tax evasion
• Cannot offset domestic and foreign source
• Foreign country and South African (inbound transaction, source: SA)
• SA and a foreign country (outbound)

-If s31 is N/A consider s8F

Question 3

International double tax

Answer 3

• Unilateral- s6quat
• Bilateral (DTA or tax treaty)
• Multilateral (BEPS_ Country wants to protect the tax base, OECD)

Question 4

DTA OECD

Answer 4

• Cannot levy tax if there would not have been domestic tax levied
• Provides relief from double tax
• Prevent tax evasion
• Allow exchange of information

Question 5

Exam technique: DTA

Answer 5

1. Determine tax residency of TP (s1, case law)
2. Determine if DTA exists between SA and the other country and whether the date of the transaction is covered by the date the DTA become effective
3. Determine residency per DTA
4. Apply specific article in DTA based on revenue stream

Question 6

S6quat

Answer 6

• SA resident pays any foreign taxes

- Carried forward for maximum of 7 years

Question 7

s35A

Answer 7

• WHT is a final tax
• DTA can reduce the amount
• NR disposes property in SA -It is an advance payment incl CGT
• If not submitted tax return within 14 days par (4) SARS can regard it to be a final tax otherwise within 28 days
• NA if proceeds do not exceed R2m

Question 8

Methods to eliminate double taxation

Answer 8

-Tax treaty may grant a particular country the sole taxing rights in respect of income and capital gains – thus no double taxation arises
• exemption method – country of residence grants an exemption for income earned in the source state
• Credit method (either full credit or ordinary credit)
-Full credit, no limitation for foreign taxes by resident country.
-Ordinary credit – foreign tax credit limited to attributable domestic taxes on foreign income

-Once a treaty between SA and another country is approved by parliament and gazetted it becomes part of SA domestic law (refer section 108 of the Income Tax Act).