Tax Advisers - Deloitte

South Africa
A major advantage of the new ATR system for foreign investors is that non-residents
and non-taxpayers may apply for a Binding Private Ruling. An applicant need not
apply in person, but may use an agent or advisor. In fact, the SARS Guide to the new
ATR system recommends that applicants engage a tax advisor to assist them in their
applications. This is helpful because the pre-qualifying process includes the
requirement that the applicant must make his own draft ruling. Engaging an advisor
would also be helpful in ensuring that the ruling obtained is as wide as possible.
Exclusions
The new ATR System contains both mandatory and discretionary exclusions. Mandatory
exclusions include the following:
• the market value of an asset;
• the application or interpretation of foreign law;
• the pricing of goods or services supplied by or rendered to a connected person in
relation to the applicant;
• the constitutionality of any tax law;
• hypothetical transactions; and
• issues to be listed by the commissioner and the so-called No uling list.
Concerns have been raised by South African taxpayers about the mandatory exclusion
of the pricing of goods and services for transfer pricing purposes. The context is the
absence of an Advance Pricing Agreement system and it is therefore not possible to
negotiate or conclude unilateral, bilateral or multilateral APAs. Although South Africa
has had transfer pricing legislation since 1995, there are no plans to implement an APA
system any time soon.
In addition to the above mandatory exclusions, there is a long list of discretionary
exclusions, which include general and specific anti-avoidance provisions, factual issues,
issues more suitable for Competent Authority procedures, and matters which would
be unduly time-consuming or resource-intensive. All these matters may be excluded
from a Private Binding Ruling at the discretion of the Commission. These
discretionary exclusions have been limited somewhat by a new CFC ruling procedure
(see discussion below).
It is not clear why the No Ruling list is included under Mandatory Exclusions and not
under Discretionary Exclusions because essentially to the Commissioner would use his
discretion to place an issue on the No Ruling list.
All the above exclusions are intended to address concerns about limited resources,
certain basic policy issues and the impossibility of addressing factual issues through the
ATR system. The result, however, is a fairly limited ruling system, especially regarding
the mandatory exclusion of transfer pricing in the absence of an APA system.
Amended CFC rules also introduce new CFC ruling procedure
Certain amendments to the South African CFC rules, passed by Parliament on
November 16 2006, have far reaching consequences for South African outbound
multinationals. The consequences can be restricted to a limited extent by a new CFC
ruling procedure described below.
In a nutshell, the South African taxation of foreign subsidiaries applies as follows: South
African tax resident companies with CFCs – foreign resident companies in which South
African shareholders own more than 50% of the participation rights or control more
than 50% of the vote – are taxed on the income and capital gains of the CFC, unless
specific exclusions apply. The most notable of these exclusions is income attributable to
a so-called business establishment. If a CFC has a business establishment as defined,
income and gains attributable to such a business establishment will not be taxed in the
hands of its South African shareholder.
Prior to the amendments, a business establishment was widely defined as including a
place of business with an office, shop, factory, warehouse or other structure used for
not less than one year which was suitably equipped with on-site operational
management, employees, facilities and other equipment for purposes of conducting
the primary operations of that business.
While it was unclear from the previous definition how many employees constituted a
business establishment, what was clear was that such employees were not required to
182 Guide to the World’s Leading Tax Advisers