Page 299 - SAIT Compendium 2016 Volume2

IN 18 (3) Income Tax acT: InTeRPReTaTIon noTes IN 18 (3)
that such a resident must have available for submission to the Commissioner when so requested, a copy of the nancial statements of the CFC for the relevant tax year of that CFC. These must be translated into English, or one of South Africa’s of cial languages, if so requested.*
Failure to comply with section 72A(2) will result in the provisions of section 6quat not being available in respect of any tax proved to be payable to a foreign government in respect of an amount included in the income of the resident under section 9D(2) in relation to that CFC, unless reasonable grounds exist either for the failure which is outside the control of the resident or for the resident to believe that the resident is not subject to section 72A(2).†
Example 31 – Application of section 6quat(1) to foreign taxes paid in more than one country by a CFC
Facts:
A resident company owns 100% of the shares in a CFC (CFC A) in Country A. CFC A earns dividends of R100 000 from its share investment in a company which is tax resident in Country B, the company is not a CFC. CFC A did not earn any other income.
Taxes levied by the foreign tax jurisdictions on the dividend received by CFC A
Country B levies a withholding tax of 10% (R10 000). Country A levies tax of R15 000 but gives a credit of R4 000 on the foreign withholding tax payable to Country B. Country A and Country B’s tax treatment is appropriate under the tax treaty between the two countries and the domestic tax laws of each country.
Result:
Proportional amount attributed under section 9D:
The dividend of R100 000 received by CFC A from the other foreign company constitutes a foreign dividend for purposes of calculating the net income of CFC A under section 9D(2A). Under section 10B(3) partial exemption is provided for the foreign dividend based on the ratio of 13 / 28 as the CFC is a company. The identity of the resident in whose hands attribution occurs under section 9D(2) is not relevant.
Exempt portion of the foreign dividend:
= R100 000 × 13 / 28 = R46 429
Therefore the taxable portion of the foreign dividend amounts to R53 571 (R100 000 – R46 429). This amount represents the net income of CFC A and is attributed to the resident under section 9D(2).
Amount of foreign taxes which potentially qualify for a rebate under section 6quat(1)
The provisions of paragraph (ii) of the proviso to section 6quat(1A) provide that the amount included in the resident company’s taxable income, that is, the proportional amount, must be determined without regard to section 10B(3). Accordingly, the foreign tax relating to the full amount of the dividend (R100 000) potentially quali es for a section 6quat(1) rebate.
Sum of qualifying foreign taxes
Country A
Tax on income levied
Less: Rebate for foreign taxes
Country B
Withholding tax paid Total foreign taxes paid
R
15 000 (4 000)
10 000 21 000
Foreign taxes potentially qualifying for a section 6quat(1) rebate is R21 000. The limitation formula provided for in section 6quat(1B) will then apply to the full amount of foreign taxes of R21 000.
* Section 33 of the TA Act. † Section 72A(3)(b)(ii).
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