Page 327 - SAIT Compendium 2016 Volume2

IN 18 (3) Income Tax acT: InTeRPReTaTIon noTes IN 18 (3)
8.4 Translation of amounts of foreign taxes on dividends [section 64N(4)]
The rebate for foreign taxes is determined in rand by translating the foreign currency amount using the same rate used to translate the foreign dividend [section 64N(4)]. A cash dividend paid by a listed company is deemed to be paid on the date it is paid and not the date when it becomes due and payable [section 64E(2)(a)(i)].
A dividend denominated in foreign currency must accordingly be translated to rand at the spot rate at the time the dividend is paid [section 64E(5)]. It follows that the foreign taxes must also be translated to rand at the spot rate applicable when the dividend is paid.
Example 63 – Translation of amounts of foreign taxes on dividends
Facts:
Company Y, incorporated in Australia, declared a cash dividend of R1 million on shares listed on the Johannesburg Stock Exchange to its South African resident holders of shares. 50% of the holders are natural persons and 50% are companies, each person holding less than 10% of the shares in Company Y.
The holders, which are companies, complied with the necessary requirements and are exempt from dividends tax under section 64F(1)(a). Company Y pays the dividend of R1 million to Regulated Intermediary A resulting in a potential dividends tax liability of R75 000 (R1 million × 50% × 15%) for the holders who are natural persons without taking into account any rebates for foreign taxes.
Company Y withheld Australian tax of R150 000 (R1 million × 15%) from the dividend paid to Regulated Intermediary A in accordance with the tax treaty between Australia and South Africa.*
The dividend of R1 million was converted from Australian dollar to South African rand at an exchange rate of Australian $ 1: R9,2400 when it was paid.
Result:
The foreign tax paid must be translated to rand by using the exchange rate of Australian $1: R9,2400.
8.5 Proof of foreign taxes on dividends [section 64N(5)]
A company or regulated intermediary must obtain proof, in the form and manner prescribed by the Commissioner, of any tax paid to any sphere of government of any country other than the Republic that is deducted as a rebate under section 64N(1) from dividends tax payable.
9. Documentary proof required by SARS in respect of foreign taxes
Any foreign-source amount received by or accrued to a resident must be declared in that person’s income tax return. The onus is on a resident to prove that the resident is entitled to a foreign tax rebate under sections 6quat(1A), 6quin and 64N or a deduction under section 6quat(1C). Consequently a resident must keep adequate written records of amounts of income that qualify for a rebate or a deduction as well as foreign taxes proved to be payable or paid. The requirements detailed in 9.1, 9.2, 9.3, 9.4 and 9.6 are relevant when a resident is claiming a foreign tax rebate under
sections 6quat(1) or 6quin, or a deduction under section 6quat(1C).
The requirements in 9.5 and 9.6 are relevant when claiming a rebate against dividends tax under section 64N. These
requirements re ect the information which will generally be required, however SARS is not limited to the items mentioned and may request additional information and support in a particularcase.
Cases in which a taxpayer is unable to meet the requirements detailed in this Note will be handled on a case-by- case basis taking into consideration the facts of the particular case, the reasons why the taxpayer is unable to meet the requirements as detailed in this Note and the alternative sources of evidence provided by the taxpayer.
With effect from 1 July 2013‡ a resident who wishes to claim a foreign tax rebate under section 6quin on foreign taxes levied by a foreign government with which South Africa has a tax treaty and which have been withheld from payments made to the resident, must submit a return to SARS.
The return must be submitted to SARS within 60 days from the date on which the foreign tax is withheld. The return must be made on the ‘Declaration of foreign tax withheld – Section 6quin of the Income Tax Act (FWT 01)’ form which is available on www.sars.gov.za. – see 7.6. Failure to submit the return within the 60-day period will result in the resident not being able to claim a section 6quin rebate as a deduction from normal tax.
Taxpayers who are unable to obtain all of the required supporting documentation within the 60-day period must submit the FWT 01 form within the 60 day period as required together with a letter explaining what supporting documentation is outstanding, the reason it is outstanding and the date by when it will be submitted. This will allow SARS to consider the appropriateness of the reasons for the delay in submitting all of the required documentation within the time period speci ed in section 6quin(3A) and whether the return is still regarded as submitted even though all the required documentation has not been submitted. It is critical, however, that the return be submitted within the time period speci ed in section6quin(3A).
A person who wishes to claim a foreign tax rebate under section 6quin on foreign taxes imposed by a foreign government with which South Africa does not have a tax treaty must also submit the return referred to in the preceding paragraph.§
* Article 10(2)(b) of the tax treaty between South Africa and Australia
† Article 10(2)(b) of the tax treaty between South Africa and Australia
‡ Date determined by the Minister of Finance in Notice No. 463; Government Gazette No. 36627, (02 July 2013). § Section 46 of the TA Act.
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