Page 546 - SAIT Compendium 2016 Volume2

IN 63 (2) Income Tax acT: InTeRPReTaTIon noTes IN 63 (2)
4.3 Rounding
5. The default translation rule [section 25D(1)
6. Natural persons and non-trading trusts – election to use an average exchange rate [section 25D(3)]
7. Foreign permanent establishments, controlled foreign companies, headquarter companies, domestic treasury
management companies and international shipping companies
7.1 General introduction
7.2 Functional currency
7.3 Foreign permanent establishments – general rule [section 25D(2)]
7.3.1 Multiple foreign permanent establishments
7.3.2 Translating other foreign currency amounts attributable to a foreign permanent establishment to functional
currency
7.3.3 Rand amounts attributable to a foreign permanent establishment
7.3.4 Foreign permanent establishments having a Common Monetary Area currency as their functional currency
7.3.5 Foreign permanent establishment having a hyperin ationary currency
7.3.6 Final taxable income of a foreign permanent establishment – translated elements of taxable income
7.3.7 Applicable year of assessment
7.4 7Controlled foreign companies – general rule [section 9D(6)]
7.4.1 Foreign tax year vs year of assessment
7.4.2 Other currency amounts recognised by a controlled foreign company
7.4.3 Controlled foreign company having a hyperin ationary currency
7.5 Headquarter companies [section 25D(4)], domestic treasury management companies [section 25D(5)] and
international shipping companies [section(25D(6)]
8. Translation of foreign taxes to rand for purposes of foreign tax rebates and the section 6quat(1C) deduction
8.1 Rebate and deduction for foreign taxes on foreign-source amounts [sections 6quat(4) and (4A)]
8.2 Rebate for foreign taxes on South African-source service income [section 6quin(4)]
8.3 Rebate for foreign taxes on dividends [section 64N(4)]
9. Withholding of amounts from payments to non-resident sellers of immovable property [section 35A(5)]
10. Taxation of foreign entertainers and sportspersons (section 47J)
11. Withholding tax on royalties (section 49H)
12. Withholding tax on interest (section 50H)
13. Withholding tax on services (section 51H)
14. Blocked foreign funds (section 9A)
15. Conclusion
Annexure A – The Law
Preamble
In this Note unless the context indicates otherwise –
• ‘authorised dealer’ means an institution authorised by the Minister of Finance to act as an authorised dealer in
foreign exchange for the purposes of the Exchange Control Regulations administered by the Financial Surveillance
Department of the Reserve Bank;
• ‘average exchange rate’ means average exchange rate as discussed in 4.2;
• ‘buy rate’ means the rate at which an authorised dealer will buy foreign currency;
• ‘CMA’ means Common Monetary Area comprising Lesotho, Namibia, Swaziland and South Africa;
• ‘CMA currency’ means the currency of any member of the CMA and includes the Lesotho Loti, the Namibian dollar,
the Swaziland lilangeni and the rand;
• ‘CFC’ means ‘controlled foreign company’ as de ned in section 9D(1);
• ‘domestic PE’ means a PE located in South Africa;
• ‘DTMC’ means ‘domestic treasury management company’ as de ned in section 1(1);
• ‘foreign currency’ means any currency other than the rand;
• ‘foreign currency amount’ means any amount denominated in a foreign currency that is received by or accrues to a
person, or expenditure or loss denominated in a foreign currency incurred by a person, during a year of assessment,
including any amounts of a capital nature;
• ‘foreign PE’ means a PE located outside South Africa;
• ‘functional currency’ means functional currency as discussed in 7.2;
• ‘HQC’ means ‘headquarter company’ as de ned in section 1(1);
• ‘IAS 21’ means International Accounting Standard 21 ‘The Effects of Changes in Foreign Exchange Rates’;
• ‘ISC’ means ‘international shipping company’ as de ned in section 12Q;
• ‘non-trading trust’ means any trust that is not engaged in trade;
• ‘PE’ means ‘permanent establishment’ as de ned in section 1(1);
• ‘recognise’ and ‘recognition’, in relation to a foreign currency amount, refer to the receipt or accrual of any amounts
denominated in a foreign currency or to the incurral of any expenditure or loss in a foreign currency, as the case may
be;
• ‘section’ means a section of the Act;
• ‘sell rate’ means the rate at which an authorised dealer will sell foreign currency;
• ‘spot rate’ means spot rate as discussed in 4.1;
• ‘the Act’ means the Income Tax Act No. 58 of 1962;
• ‘translate’ refers to the restatement of a foreign currency amount in rand; and
• any other word or expression bears the meaning ascribed to it in the Act.
538 saIT comPendIum oF Tax LegIsLaTIon VoLume 2