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The OECD released the latest updates to the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations on 10 July 2017. This 2017 edition incorporates the substantial revisions made in 2016 to reflect the clarifications and revisions agreed to in the 2015 BEPS Reports on Actions 8-10 Aligning Transfer pricing Outcomes with Value Creation and on Action 13 Transfer Pricing Documentation and Country-by-Country Reporting. It also includes the revised guidance on safe harbours approved in 2013 which recognises that properly designed safe harbours can help to relieve some compliance burdens and provide taxpayers with greater certainty. Finally, this edition also contains consistency changes that were made to the rest of the OECD Transfer Pricing Guidelines.

Please follow the link below to access the latest version of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations:

http://www.oecd.org/tax/transfer-pricing/oecd-transfer-pricing-guidelines-for-multinational-enterprises-and-tax-administrations-20769717.htm

The 2016/17 tax season is here and this is an important year of tax filing for expatriate employees, especially South Africans working temporarily abroad. We are all well aware of the tax change on the cards and this tax submission must be done bearing future tax strategy in mind.

As an expatriate, there are a few tax concepts to keep in mind, most importantly that you need to declare world-wide income. We have seen so many expatriates or their tax practitioners simply submitting a zero tax return and this is incorrect. This can only be done where you are a non-resident for tax purposes and have no South African source income.

Where you do file correctly, i.e. declaring your world-wide income, there is obviously the section 10(1)(o)(ii) exempts foreign income exemption, which is the section which will be changed this year. Many expatriates have decided to assume a status as a non-resident to pre-empt the impact of this tax law change. Some have even proceeded to obtaining tax residency certificates in foreign jurisdictions. Whilst a residency certificate is by no means conclusive of the tax status, this no doubt assists in discharging the burden of proof.

SARS seem to have caught onto this trend and have now introduced new sections in the tax return to specifically make sure that these expatriates correctly declare their tax position. By making incorrectly a non-residency declaration, there is an automatic trigger of various tax and exchange control provisions, and expatriates must please be cautious to only make an informed decision hereon. There should be no willy-nilly assumption of non-residency and no “quick ticking” of any boxes.

Otherwise, we have seen an increased audit on expatriate employees, but at this stage we are unsure if this is simply part of the higher SARS 12% audit target per year, or whether there is a specific focus on expatriate tax compliance.

Tax Season 2017 is Open

The tax season opened on the 1^st of July for individuals to submit their Income Tax returns.

The deadline dates differ according to the method of submission and is as follows:

• 2 September 2017 for manually submitted returns;
• 24 November 2017 for returns submitted electronically at a SARS branch or via e-filling; or
• 31 January 2018 for returns submitted by provisional taxpayers via e-filling.

Who must Submit Income Tax Returns for 2017 Year of Assessment

Both resident and non-resident companies, trusts or other juristic persons, who carried on a trade through a permanent establishment in the Republic, derived income from a source in the Republic, derived any capital gain or capital loss from the disposal of an asset to which the Eighth Schedule to the Income Tax Act applies, every company incorporated, established or formed in the Republic, but which is not a resident as a result of the application of any agreement entered into with the Government of any other country for the avoidance of double taxation, are liable to submit income tax returns for 2017 year of assessment.

All resident and non-resident natural persons, who:

• Carried on any trade (other than solely in his or her capacity as an employee);
• Was paid or granted an allowance or advance as described in section 8(1)(a)(i) of the Income Tax Act (other than an amount reimbursed or advanced as described in section 8(1)(a)(ii)) and whose gross income exceeded the thresholds set out in paragraph (4) below;
• Was granted a taxable benefit described in paragraph 7 of the Seventh Schedule to the Income Tax Act and whose gross income exceeded the thresholds set out in paragraph (4) below;
• Are residents and had capital gains or capital losses exceeding R40 000, and for non-residents who had capital gains or capital losses from the disposal of an asset to which the Eighth Schedule to the Income Tax Act applies;
• Is a resident who held any funds in foreign currency or owned any assets outside the Republic, if the total value of those funds and assets exceeded R225 000 at any stage during the 2017 year of assessment;
• Is a resident who had any income or capital gains from funds in foreign currency or assets outside the Republic;
• Is issued an income tax return form or who is requested by the Commissioner in writing to furnish a return, irrespective of the amount of income of that person;
• Is an estate of a deceased person that had gross income;
• Is a non-resident whose gross income included interest from a source in the Republic and is not subject to the exemptions contained in Section 10 (1) (h) of the Income Tax Act
• Is a representative taxpayer of any persons are all liable to submit and file income tax returns for 2017 year of assessment.

Who is Exempt from Submitting Income Tax Returns?

Natural persons and estates of deceased persons, if the gross income of that person consisted solely of gross income, such as remuneration paid or payable from one employer, which does not exceed R350 000 and employees’ tax has been deducted or withheld in terms of the deduction tables prescribed by the Commissioner, dividends received by, or accrued to natural persons who were non-residents throughout 2017 year of assessment; and amounts received or accrued from a tax-free investments, do not need to file income tax returns. In addition to this requirement, interest (other than interest from a tax-free investment) from a source in the Republic not exceeding:

• R 23 800 for natural persons below the age of 65 years;
• R 34 500 for natural persons aged 65 years, or older;
• R 23 800 for the estates of deceased persons is not subject to income tax.

Natural persons, who have received income not exceeding R 75 000 per year for persons under the age of 65 years; R 116 150 per year for persons older than 65 years, but under the age of 75 years and R 129 850 per year for persons older than 75 years will not be liable to submit and file income tax returns for 2017 year of assessment.

What Supporting Documents May be Required?

When completing your return, have your supporting documents at hand. You may need to refer to some of the supporting documents listed below, while completing your return; however, you must not submit them to SARS. You must keep them safely in your possession for at least five years in case SARS needs access to them in future.

• Your IRP5/IT3(a) certificate(s) which you will receive from your employer
• Medical certificates as well as documents required for amounts claimed in addition to those covered by your medical aid.
• Pension and retirement annuity certificates
• Your banking details
• Travel logbook (if you receive a travel allowance)
• Tax certificates that you received in respect of investment income (IT3(b))
• Completed confirmation of diagnosis of disability (ITR-DD), where applicable
• Information relating to capital gain transactions, if applicable
• The approved Voluntary Disclosure Programme (VDP) Agreement between yourself and SARS for years prior to 17 February 2010, where applicable
• Financial statements, e.g. business income, where applicable
• Any other documentation relating to income you received or deductions you want to claim.

Tax Consulting has a team of Consultants on hand and ready to handle any queries you may have regarding your Income Tax return.

Please feel free to contact them on the following number:

(011) 467 0810 or e-mail contact@taxconsulting.co.za

Tax Residency and Retirement Annuity considerations for Expatriates

South African expatriates are reeling in response to the proposed changes to the foreign income tax exemption, so much so that many expatriates are investigating whether they can become non-resident for tax purposes. Similarly, expatriates who previously intended to retire in South Africa are now not so sure, and those who have a retirement annuity in South Africa are exploring the option of withdrawing the proceeds of their annuity and taking the money abroad.

With this change in attitude, expatriates should give some consideration as to whether or not they can prove their non-residency and whether they are legally permitted to cash in / withdraw their retirement annuity in a lump sum.

In terms of section 102 of the Tax Administration Act, No. 28 of 2011, the taxpayer bears the burden of proving all tax exemptions, deductions or set-offs, lower tax rates and reductions. In the same vein, it is the taxpayer and not SARS who will have to prove the taxpayer’s residency status.

In endeavouring to prove their non-residency, unfortunately it is not enough for a taxpayer to simply state an intention to be non-resident. The taxpayer will have to show something more, this by pointing to objective factors, such as their work and personal circumstances, which evidence such non-residency.

Although not in the context of residency, but still in considering the correlation between subjective belief and objective, external factors, the 2015 Supreme Court Appeal decision in Anglo Platinum Management Services (Pty) Ltd v C:SARS confirmed that “a court is not concerned with the subjective belief of the parties to the agreement – no matter how genuine that belief may be – but with whether the facts, objectively viewed, establish that this result was attained.”

A taxpayer must therefore prove with sufficient certainty, through a reliance on a significant presence of objective factors, that they are non-resident. In that regard, one factor stands out from the rest and evidences beyond any doubt that the taxpayer intends to become non-resident. This is where the taxpayer has effected a formal financial emigration through the Reserve Bank.

Interestingly, with regard to a lump sum withdrawal of a retirement annuity, the legislature seems to have taken a similar view on proving non-residency by effecting in 2016 an amendment to the Income Tax Act, No. 58 of 1962. The Act now provides that a taxpayer who intends to transfer their annuity abroad, may only do so where they are or were “a resident who emigrated from the Republic and that emigration is recognised by the South African Reserve Bank for purposes of exchange control”.

In conforming to the Anglo Platinum decision, it is therefore insufficient to rely solely on a subjective belief of non-residency for purposes of cashing in a retirement annuity. The taxpayer must objectively validate this belief, this by effecting a financial emigration. This codification of the objective test provides for absolute certainty as to the taxpayer’s residency.

Whether or not a taxpayer intends to withdraw their retirement annuity, effecting a financial emigration should still be pursued. As an attorney, it will always be easier to rebut an assessment raised by SARS where I can point to the taxpayer’s prior financial emigration and resultant non-residency.