Page 195 - SAIT Compendium 2016 Volume2

IN 6 (2)
4.2 4.2.1 4.2.2 4.2.3 4.2.4 4.2.5 4.2.6 4.2.7 4.2.8 4.2.9 5.
6.
Income Tax acT: InTeRPReTaTIon noTes
IN 6 (2)
Key facts and circumstances Head of ce
Delegation of authority Board
Modernisation and global travel
Shareholders
Operational management versus broader top level management Legal factors
Economic
Support functions
Effective date
Conclusion
Preamble
In this Note unless the context indicates otherwise –
• ‘board’ means the board of directors or similar body, however designated, that has the legal authority to exercise
the powers and perform the functions of a company, except to the extent that Company Law or the company’s
Memorandum provide otherwise;
• ‘Companies Act’ means the Companies Act No. 71 of 2008;
• ‘company’ means a company as de ned in section 1(1) and includes companies incorporated under the Companies
Act and companies incorporated, formed or established under the laws of a country other than the Republic;
• ‘Company Law’ means the Companies Act or the laws of a country other than the Republic, as appropriate, under
which a company is incorporated, formed or established;
• ‘director’ means a member of the board or an alternate director and includes any person occupying the position of
director or alternate director, by whatever name designated;
• ‘head of ce’ means the place where a company’s senior management and their direct support staff are located or, if
they are located at more than one location, the place where they are primarily or predominantly located. A company’s head of ce is not necessarily the same as the place where the majority of its employees work or where its board typically meets;
• ‘Memorandum’ means a company’s memorandum of incorporation or similar document, as amended from time to time, that sets out the rights, duties and responsibilities of shareholders, directors and others within and in relation to a company;
• ‘OECD’ means the Organisation for Economic Co-operation and Development;
• ‘rules or by-laws’ mean any necessary or incidental rules adopted by the board or shareholders of a company relating
to the governance of the company on matters that are not addressed in the company’s Memorandum or Company Law;
• ‘section’ means a section of the Act;
• ‘senior management’ means the level of employees of a company who are generally responsible for developing
and formulating key strategies and policies for the company and for ensuring or overseeing the execution and implementation of those strategies on a regular and on-going basis. While terminology may vary, these employees may include:
o Managing Director or Chief Executive Of cer;
o Financial Director or Chief Financial Of cer;
o Chief Operating Of cer; and
o The heads of various divisions or departments (for example, Chief Information or Technology Of cer, Director
for Sales or Marketing);
• ‘Shareholder Agreement’ means an agreement between a company’s shareholders which may, amongst other things,
set out the shareholders’ rights and obligations and describe how the company should be operated. It may, for example, include information on the regulation of the shareholders’ relationship, the management of the company, ownership of shares and privileges and protection of shareholders;
• ‘tax treaty’ means an agreement (including a convention) entered into between the government of the Republic and another country for the avoidance of double taxation;
• ‘the Act’ means the Income Tax Act No. 58 of 1962; and
• any other word or expression bears the meaning ascribed to it in the Act.
1. Purpose
This Note provides guidance on the interpretation and application of the term ‘place of effective management’ in determining the tax residence of a company.
2. Background
The concept of residency is critical in determining a person’s South African tax obligations. In general, a resident is liable to income tax on gross income derived within and outside the Republic while a non-resident is liable to income tax only on gross income from a source within the Republic.*
A person other than a natural person is a ‘resident’ as de ned in section 1(1) if such person –
• is incorporated, established or formed in the Republic; or • has its place of effective management in the Republic.
* De nition of ‘gross income’ in section 1(1).
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