Page 414 - SAIT Compendium 2016 Volume2

IN 35 (3) Income Tax acT: InTeRPReTaTIon noTes IN 35 (3)
1. Purpose
This Note incorporates the latest amendments made by section 66(1) of the Revenue Laws Amendment Act, No. 60 of 2008, which introduces a de nition of a ‘personal service provider’, and limits the de nition of a ‘labour broker’ to natural persons.
2. Background
The use of labels such as ‘independent contractor’ and ‘service company’ and the perception that they are acceptable means of avoiding the deduction of employees’ tax and compliance with labour legislation, necessitated the development of stronger anti-avoidance measures for employees’ tax purposes.
Interpretation Note 17 (Issue 3) ‘Employees’ Tax: Independent Contractors’ focuses on some of the more pertinent issues relating to independent contractors. This Note focuses on the so-called interposed entities. Recent amendments introduced the concept of ‘personal service provider’ to replace the de nitions of ‘personal service company’ and ‘personal service trust’. Substantive amendments were also introduced to reduce the administrative burden on labour brokers.
3. The law
Paragraph 1 - De nitions
‘employee’ means—
(a) any person (other than a company) who receives any remuneration or to whom any remuneration accrues;
(b) any person who receives any remuneration or to whom any remuneration accrues by reason of any services
rendered by such person to or on behalf of a labour broker;
(c) any labour broker; and
(d) any person or class or category of person whom the Minister of Finance by notice in the Gazette declares to be an
employee for the purposes of this de nition; and
(e) any personal service provider; and
(f) . . .
(g) any director of a private company who is not otherwise included in terms of paragraph (a);
‘labour broker’ means any natural person who conducts or carries on any business whereby such person for reward provides a client of such business with other persons to render a service or perform work for such client, or procures such other persons for the client, for which services or work such other persons are remunerated by such person;
‘personal service provider’ means any company or trust, where any service rendered on behalf of such company or trust to a client of such company or trust is rendered personally by any person who is a connected person in relation to such company or trust, and—
(a) such person would be regarded as an employee of such client if such service was rendered by such person directly
to such client, other than on behalf of such company or trust; or
(b) where those duties must be performed mainly at the premises of the client, such person or such company or trust
is subjected to the control or supervision of such client as to the manner in which the duties are performed or are
to be performed in rendering such service; or
(c) where more than 80 per cent of the income of such company or trust during the year of assessment, from services
rendered, consists of or is likely to consist of amounts received directly or indirectly from any one client of such company or trust, or any associated institution as de ned in the Seventh Schedule to this Act, in relation to such client,
expect where such company or trust throughout the year of assessment, employs three or more full-time employees who are on a full-time basis engaged in the business of such company or trust of rendering any such service, other than any employee who is a shareholder or member of the company or trust or is a connected person in relation to such person;
Paragraph 2(1A) – Af davit in respect of 80% rule
Paragraph 2(5) – Certi cate of exemption in respect of a labour broker
(5)(a) The Commissioner shall on application made to him by any person who is a labour broker or who is an employee by reason of the provisions of paragraph (d) of the de nition of ‘employee’ in paragraph 1, issue to such person a certi cate of exemption if—
(i) such person carries on an independent trade and is registered as a provisional taxpayer under the provisions of
paragraph 17;
(ii) in the case of any such labour broker, he is registered as an employer under the provisions of paragraph 15; and
(iii) such person has, subject to any extension granted by the Commissioner, submitted all such returns as are required
to be submitted by him under this Act:
(1A) Notwithstanding the provisions of subparagraph (1), a person shall not be required to deduct or withhold employees’ tax solely by virtue of paragraph (c) of the de nition of ‘personal service provider’ where the company or trust has provided that person with an af davit or solemn declaration stating that the relevant paragraphs do not apply and that person relied on that af davit or declaration in good faith.
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