Page 320 - SAIT Compendium 2016 Volume2

IN 18 (3) Income Tax acT: InTeRPReTaTIon noTes IN 18 (3)
income has been included in the resident’s taxable income. However, if the foreign tax is only withheld or becomes payable after the relevant return has been submitted and assessed, then SARS will need to issue a reduced assessment under section 93 of the TA Act taking into account the time periods stipulated in section 99 of that Act.
Example 52 – Foreign taxes paid in a year subsequent to the years in which the underlying service income accrued
Facts:
Company A, a resident, derived remuneration from Company X for management services rendered in South Africa during its 2009 year of assessment. The income was included in Company A’s 2009 tax return. Company X is resident in Country Z.
Company X paid Company A in the 2015 year of assessment for the management services rendered in 2009 net of the foreign withholding tax which was withheld and paid over to Country Z’s tax authority in that year of assessment.
Result:
Notwithstanding that Company A may meet the requirements under section 6quin, Company A would not have been able to claim the section 6quin rebate from normal tax payable in 2009, that is, the year in which the income was included in Company A’s taxable income, as the relevant time periods in section 99 of the TA Act have been exceeded. In addition, Company A will not qualify for a rebate under section 6quin in the 2015 year of assessment because the section 6quin rebate must be claimed in the year the underlying income is included in taxable income which is not 2015.
Example 53 – Foreign taxes paid in a year subsequent to the years in which the underlying service income accrued
Facts:
Company A, a resident, derived remuneration from Company X for management services rendered in South Africa during its 2011 year of assessment. The income was included in Company A’s 2011 tax return. Company X is resident in Country Z.
Company X paid Company A in Company A’s 2012 year of assessment for the management services rendered in 2011 net of the foreign withholding tax which was withheld and paid over to Country Z’s tax authority in that year of assessment.
Result:
The foreign tax was levied and withheld during the company A’s 2012 year of assessment. Accordingly, even though the relevant income was earned in the 2011 tax year, Company A will qualify for a section 6quin rebate in the 2011 year of assessment assuming the detailed requirements of section 6quin are met. Company A will need to notify SARS and request a reduced assessment bearing in mind that SARS can only issue a reduced assessment within the time periods stipulated in section 99 of the TA Act.
Example 54 – Foreign taxes paid in a year subsequent to the years in which the related income accrued
Facts:
A resident derives remuneration for management services rendered in South Africa under a three-year management contract to a client resident in Country X. Payment for the services rendered is only made at the end of the contract (that is, at the end of year 3).
For South African tax purposes an accrual takes place as and when services are rendered over the period of the contract. Country X levies a nal withholding tax as and when payment is made (that is, at the end of the contract in year 3). Thus the contract income is included in the resident’s taxable income in each of the three years on an accrual basis, while the related foreign tax liability only arises in year 3.
In each of the tax years concerned the resident submitted the South African income tax return 13 months after the end of the year of assessment and was assessed on the same day.
South Africa has a tax treaty with Country X.
Each of the years concerned took place after the effective introduction of section 6quin in 2012.
Result:
The foreign tax paid in year 3 must be allocated across the three years in which the management fees were earned based on the amount accrued in each year.
Year 1 – at the time the income tax return was submitted and assessed, the relevant portion of the foreign tax had not been withheld and accordingly a rebate would not have been available under section 6quin(1). When the tax is withheld from payment at the end of year 3, the resident may advise SARS and request a reduced assessment under section 93 of the TA Act.
Year 2 – at the time the income tax return is submitted the foreign tax will have been withheld and it may therefore be included in the calculation of the section 6quin rebate.
Year 3 – at the time the income tax return is submitted the foreign tax will have been withheld and it may therefore be included in the calculation of the section 6quin rebate.
312 saIT comPendIum oF Tax LegIsLaTIon VoLume 2