Page 528 - SAIT Compendium 2016 Volume2

IN 59 Income Tax acT: InTeRPReTaTIon noTes IN 59
Example 7 – Agreement between the Government of the Kingdom of Denmark and the Government of the Republic of South Africa on the Danish Assistance Programme to South Africa
The agreement entered into force on 18 February 1997. It was concluded under the interim Constitution and is a binding international agreement. Under paragraph (1) of Article 1 of this Agreement it is stated that under the Danish Traditional Assistance Programme as well as the anish Environmental Co-operation Programme, Denmark will make available on a grant basis, nancial assistance, technical assistance, material resources and training opportunities. On the other hand South Africa will ensure the effective utilisation of the assistance made available under this Agreement. Under Article 2 (3) of the agreement South Africa shall in respect of activities directly related to the execution of Projects, take inter alia the following measures, as far as applicable under South African law with regard to foreign Executive Agencies—
‘(a) ...
(b) exempt them from income tax or any other direct tax or charge in respect of any emoluments paid to them from
resources outside the Republic of South Africa for their services in the Republic of South Africa in terms of this
Agreement;
(c) exempt them from the duty to submit to the South African authorities any tax or nancial declaration in respect of
direct taxation required from private persons or corporations regarding emoluments referred to in subparagraph
(b);
(d) ...
(e) ...’.
3.6.3 Exemption under section 10 (1) (zA) – Export incentives
Any amount received by or accrued to or in favour of any person by way of rebate or other assistance under any
scheme for the promotion or nancing of exports, is exempt from normal tax under section 10(1)(zA). The scheme must be approved by the Minister of Trade and Industry in concurrence with the Minister of Finance.
Although several schemes were approved over the years, only the Export Marketing and Investment Assistance Scheme (EMIA) administered by the Department of Trade and Industry is currently still in existence.
The EMIA consists of the following sub-schemes—
• Primary Export Market Research and Foreign Direct Investment Research Scheme;
• Individual Inward Bound Mission;
• National Pavilions;
• Individual Exhibitions and In-Store Promotions;
• Outward Selling Trade Missions;
• Outward Investment Recruitment Missions;
• Inward Buying Trade Missions;
• Inward Investment Missions; and
• Sector Speci c Assistance Scheme.*
A reduction in an amount payable does not, however, qualify for exemption under section 10(1)(zA) even if styled as a ‘rebate’ because it is not a receipt or accrual. This is illustrated by the case of Toyota South Africa Motors (Pty) Ltd v C: SARS.† In that case the issue before the court was whether certain rebates on excise duty (‘export rebates under Phase VI’) were exempt from tax under section 10 (1) (zA). In essence the company had sought to claim a deduction for the full duty before rebates and then contended that the reduction in duty was an amount of exempt income.
The court held that ‘excise duty rebates granted in respect of exports’ were not exempt from tax under section 10 (1) (zA).
The following dictum of De Klerk J is relevant:‡
‘The basic reason in principle why applicant cannot succeed, however, is that the rebate in this case is a deduction, a discount, ‘’n afslag’.
It is not money ‘which is paid by the State’ as meant in section 10 (1) (zA) of Act 58 of 1962.
There was no set-off. The amounts which applicant now claims are exempt from tax are no more than factors in the formula to calculate the rebate.
By no stretch of the imagination can these amounts be described as amounts paid by the State.
If a rebate is granted the debtor owes that much less.
Applicant’s accounting records contained a ction by showing as a liability the full excise duty before the rebate
was deducted. Because of the incentive scheme (phase VI) that liability never arose. It is ction to label as income the amount which remained after the net excise duty had been paid. Just as the amount of foreign exchange earned is a factor in the calculation of the rebate, the rebate is a factor in the calculation of excise duty. It is not income. It is also not ‘a receipt’ or an accrual.’
3.6.4 Exemption under section 10 (1) E) – Small Business Development Corporation Limited
Any amount received by or accrued to the Small Business Development Corporation Limited by way of any subsidy
or assistance payable by the government, is exempt from normal tax.
3.6.5 Exemption under section 10 (1) (zG) – Films
Any amount received by or accrued to a person by way of a subsidy payable by the government under any scheme
designed to promote the production of lms, is exempt from normal tax.
* See www.thedti.gov.za/exporting/exportincentives.htm [Accessed 10 December 2010]. † [2001] 2 All SA 332 (T) 63 SATC 115.
‡ At SATC 116.
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