Page 142 - SAIT Compendium 2016 Volume2

PN 7/1999 Income Tax acT: PracTIce noTes PN 7/1999
15. Burden of proof
16. Advance pricing agreements (APA’S) 17. Intangible property
18. Intra-group services
19. Cost contribution arrangements
20. Effective date
21. Conclusion
ANNEXURE A : CHARACTERISTICS OF A FUNCTIONAL ANALYSIS ANNEXURE B : THE FOUR-STEP APPROACH
ADDENDUM : SUBMISSION OF TRANSFER PRICING POLICY DOCUMENT
1 De nitions and Terminology
1.1 The concepts below are de ned in section 1 and section 31 of the Act:
1.1.1 Goods;
1.1.2 Services;
1.1.3 International agreement;
The concept of ‘managed or controlled’ is used a number of times in the de nition and the scope thereof is intended to be wider than the term ‘managed and controlled’, as used in other sections of the Act.
In order to determine the place where an entity is managed or controlled, regard will be had to the business activities of the entity and business activities of connected persons, as well as the degree of autonomy under which the entity operates.
SARS’s view is that the control of an entity is to be found at the meeting place of the persons who exercise authority over and control direction of the entity’s business operations. A company is generally controlled by its directors. However, situations may be encountered where control is effectively exercised by the directors of a company’s holding company or ultimate holding company. The question of where the shareholders may reside or meet in annual general meeting (in the case of a company) is therefore irrelevant.
The place where directors and other persons performing the same functions (in the case of entities other than companies) usually exercise their functions and direct the affairs of the entity, is an indication of where an entity is controlled. In most cases this will be the place where the entity’s head of ce is located.
The place where an entity is managed is usually the place where the day-to-day running of the business activities takes place. From the above it is evident that the place from which an entity is controlled is not necessarily the place from which it is managed.
1.1.4 Connected person.
A ‘connected person’ is de ned in relation to each of the following categories of persons.
1.1.4.1 In relation to a natural person:
(i) any relative of such person (including by adoption), ie children and parents, grandchildren, grandparents,
brothers and sisters, great-grandchildren, great-grandparents, uncles and aunts, nephews and nieces, the person’s spouse and any person who is a relative of the spouse, the spouse of any of the above- mentioned relatives; and
(ii) any trust of which such natural person or any relative or spouse referred to above is a bene ciary. A bene ciary means any person named, in the will, trust deed or letter of wishes, as a bene ciary or as a person upon whom the trustee or the trust has a power to confer a bene t from the trust.
1.1.4.2 In relation to a trust:
(i) any bene ciary of such trust, i.e. any person named as a bene ciary in the trust deed or letter of wishes,
or any other person in favour of whom the trustee of the trust exercises the trustee’s discretion; and
(ii) any connected person in relation to such bene ciary, for example any of the bene ciary’s relatives and any trust of which a relative may be a bene ciary. A trust and connected persons in relation to the
bene ciaries of the trust, are connected persons.
1.1.4.3 In relation to a connected person in relation to a trust (other than a unit trust scheme in property shares, as authorised under the Unit Trust Control Act, 1981 (Act 54 of 1981)), any other person who is a connected person in relation to such trust.
All persons who are connected persons in relation to a trust are connected persons in relation to each other.
1.1.4.4 In relation to a member of any partnership:
(i) any other member of such partnership; and
(ii) any connected person in relation to any member of such partnership, for example any of that member’s relatives and any trust in which a relative may be a bene ciary.
1.1.4.5 In relation to a company:
(i) (ii)
its holding company, as de ned in section 1 of the Companies Act, 1973 (Act 61 of 1973) (the Companies Act);
its subsidiary, as de ned in section 1 of the Companies Act;
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SAIT CompendIum oF TAx LegISLATIon VoLume 2