On 31 July 2023, National Treasury released their annual draft tax law amendments, for public comment. Although still at the draft stage, there are some pertinent proposed changes for which the supporting systems have already been implemented i.e., the “Beneficial Ownership Registers”.

Drawing from history, it appears that, regardless of feedback to dissuade Treasury on specific items, the proposed amendments are likely to mostly be promulgated into law. This follows the National Strategy on AML/CTF/CFP, to combat South Africa’s current grey-listing status, and further drives the “strategic intent” of SARS.

With these changes imminent on the horizon of our tax landscape, here are 7 key considerations for taxpayers to be aware of!

7 Key Changes 

At a high level, the proposed changes are largely focused on the strengthening of tax treatment in South Africa, as well as making any non-compliance both “hard and costly”. In summary, these are the key changes that all South African taxpayers should be aware of: 

1. The requirement for South African employers to register for and withhold Pay-As-You-Earn from employee remuneration will apply equally to foreign employers;
2. Low interest foreign currency loans made by connected persons to trusts, and subject to donations tax, now have a methodology to calculate the rand value of the donation;
3. Income distributions from South African trusts to non-resident beneficiaries must be subject to income tax in trust’s hands, compared with local beneficiaries who could receive the distribution and pay tax at their marginal rate;
4. The “foreign business establishment” exclusion, which applies to South Africans with shares in a controlled foreign company, has been clarified as it related to Group companies, following the recent Coronation judgment; 
5. Discretion is given to the Commissioner to allow an extension of the 40-day period for taxpayers to request a revised tax return, where an auto-assessment was issued by SARS;
6. The definition of “beneficial owner” is to be included in the Tax Administration Act, encompassing the meanings of the term, in regard to a company, trust, and partnership; and
7. Most importantly – the inter-organisational sharing of information has extended to now include organisations such as the Companies and Intellectual Property Commission (CIPC), the Directorate of Non-Profit Organisations and the Master of the High Court.

Practical Ramifications

From the proposed changes, and from a practical perspective, what this means is a more stringent verification process, with new measures being put in place to cast the net as wide as possible for the detection of non-compliance.

National Treasury has highlighted how crucial the proposed regulations are, to ensure transparency and accountability in all financial transactions, with a keen focus on the cross-border flow of funds. This will allow an inter-organisational determination of tax liability, whilst preventing tax evasion and profit shifting, as the benefitting parties will be more strictly monitored. 

International cooperation will be facilitated through the proposed changes on Beneficial Ownership reporting, regularisation of interest rates on foreign currency loans, and substance requirements for the application of the “foreign business establishment” exclusion in relation to controlled foreign companies. This will further aid the agenda of tax-related information sharing between jurisdictions and will serve to bring the wide compliance net already cast, to a close.

Keep Your First Mover Advantage

In light of the automatic exchanges of information, any singular infringement, regardless of the ramifications, will become common knowledge amongst the various regulatory organisations. Simply having your advisor’s assurance that all stacks up is no longer sufficient, and the “trust but verify” approach should ideally be followed as a best practice.

Where uncertain of your, or your company’s obligations under the proposed legislative amendments, it is prudent to approach an astute corporate and tax attorney, to ensure the fulfilment of all legal obligations. Where already venturing into the realm of non-compliance, do not let these new changes be your undoing. 

Engaging a diligent tax attorney not only ensures legal professional privilege on disclosures, but also being specialists in their own right, guarantees that the correct remedial measures are executed post-haste, whilst upholding the first mover advantage you gain from being proactive.

Written by Jashwin Baijoo, Head of Strategic Engagement and Compliance at Tax Consulting SA