Page 314 - SAIT Compendium 2016 Volume2

IN 18 (3) Income Tax acT: InTeRPReTaTIon noTes IN 18 (3)
their local provisional tax payments to the extent that the taxpayer is able to satisfy SARS that those payments will be or are the same or similar to the nal tax liability in that country. To the extent a deduction under section 6quat(1C) is applicable, provisional taxpayers may take into account any tax proved to be payable to the government of any other country when estimating taxable income for provisional tax purposes.
7. Section 6quin – Rebate for foreign taxes on South African-source service income 7.1 Background
The overall purpose of the section 6quin rebate was explained in the Explanatory Memorandum on the Taxation Laws Amendment Bill* as follows:
‘A number of African jurisdictions impose withholding taxes in respect of services (especially management services) rendered abroad if funded by payments from their home jurisdictions. These withholding taxes are sometimes imposed even when tax treaties suggest that the practice should be otherwise. .... The net result of these African withholding taxes is double taxation with little relief. The South African tax system does not provide credits in respect of these foreign withholding taxes because these taxes lack a proper foreign source nexus. Only partial relief is afforded through the allowance of a deduction. While the South African position is theoretically correct, the practical implication of this position is adverse to South Africa’s objective of becoming a regional nancial centre. As long as this theoretically correct position is maintained, the only viable solution for regional operations is to shift their management location to a low-taxed or no taxed location so as to avoid double taxation.’
Subject to certain criteria and limitations, section 6quin provides a foreign tax rebate for foreign taxes paid on South African-source service income that is included in South African taxable income. The rebate is deducted from normal tax payable; the rebate is not a cash refund from SARS. In the event that the amount of the rebate is greater than the amount of normal tax payable in a particular year, the excess is forfeited and may not be carried forward to the next year of assessment to be used in determining the foreign tax rebate for that year of assessment. The excess does not represent a refund which is due to the taxpayer.
Section 6quin is effective for amounts of tax levied and withheld or imposed by a foreign government during years of assessment commencing on or after 1 January 2012. For natural persons and trusts this means from the 2013 year of assessment commencing 1 March 2012, while for companies it means any year of assessment commencing on or after 1 January 2012.
A rebate will not be available under section 6quin if the foreign taxes were levied and withheld or imposed in a year of assessment which commenced before 1 January 2012. Assuming a taxpayer meets the requirements of section 6quin, the taxpayer must deduct the rebate in the year in which the underlying South African-source service income was included in taxable income (see 7.4). The ability to claim a rebate under section 6quin in the year in which the related service income was included in the taxpayer’s taxable income is subject to the normal prescription rules if that year of assessment is earlier than the year of assessment in which the foreign tax was levied and withheld or imposed by a foreign government.
7.2 Rebate for foreign taxes on South African-source service income [section 6quin(1)]
Section 6quin(1) provides that a rebate must be deducted from the normal tax payable by a resident when –
• any portion of that resident’s taxable income is attributable to a South African- source amount which was received or
accrued for services rendered; and
• an amount of tax on that amount is –
o levied by any sphere of the government of a country other than South Africa with which South Africa has concluded a tax treaty and which is withheld by the payer when making payment to the resident;† or
o imposed under its laws by any sphere of the government of a country other than South Africa with which South Africa has not concluded a tax treaty.‡
A rebate is not available under section 6quin if the amount of tax is –§
• •
taken into account in determining the amount of the rebate available under section 6quat(1); or deducted from the income of that resident under section 6quat(1C).
Example 46 – Withholding taxes levied on services rendered in South Africa
Facts:
A, a resident, renders services to B (Pty) Ltd (B). B is resident in Country D. The services are rendered in South Africa and A does not have a permanent establishment in Country D. Under Country D’s domestic law, B withholds and remits 10% withholding tax from all payments to A to Country D’s tax authorities. South Africa has a tax treaty with Country D. The tax treaty does not contain a technical services article and accordingly, notwithstanding Country D’s domestic law, the ‘other income’ clause in the tax treaty applies and Country D is prohibited from imposing the withholding tax on the service fees paid by B to A. The article in the tax treaty which provides for the elimination of double taxation is not applicable as under the tax treaty there is no double taxation since South Africa has the sole taxing right.
* No. 24 of 2011 at page 101. † Section 6quin(1)(a).
‡ Section 6quin(1)(b).
§ Section 6quin(3).
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