Page 558 - SAIT Compendium 2016 Volume2

IN 63 (2) Income Tax acT: InTeRPReTaTIon noTes IN 63 (2)
Section 9A(3) provides that any amount or any part of an amount of the net income of a CFC for a foreign tax year which may not be remitted to South Africa must be deducted from the income of the CFC for that foreign tax year.
Under section 9A(4) the amount of the blocked funds will, to the extent that it does not exceed the deduction allowed under section 9A(3), be deemed to be an amount received by or accrued to the CFC in the following foreign tax year.
15. Conclusion
In general, subject to the speci c provisions governing foreign tax rebates, dividends tax rebates, blocked foreign funds, hyperin ationary currencies, exchange items and capital gains and losses –
• the spot rate must be used by –
o any natural person and non-trading trust, unless that person or trust elects to use the average exchange rate in a year of assessment in accordance with section 25D(3);
o any person to translate any foreign currency amount which has been deducted or withheld from amounts payable to a non-resident in accordance with section 35A (sales of immovable property), section 47J (amounts paid to entertainers or sportspersons), section 49H (royalties), section 50F (withholding tax on interest) or section 51F (withholding tax on services, effective in 2016);
o any foreign PE, CFC, HQC, DTMC or ISC to translate amounts recognised by it in foreign currencies other than its functional currency to its functional currency;
o any domestic PE; and
o any foreign PE with a functional currency in a CMA currency to translate other foreign currencies to rand, unless
the person is an individual or non-trading trust which has elected to use an average exchange rate; and • the average exchange rate must be used by –
o any natural person or non-trading trust that elects to use it in a year of assessment in accordance with section 25D(3); and
o any foreign PE, CFC, HQC, DTMC or ISC to translate its taxable income in its functional currency to rand.
Depending on whether the person has or is a foreign PE, CFC, HQC, DTMC or ISC, amounts in rand must either be left as is or be translated to the foreign PE, CFC, HQC, DTMC or ISC’s functional currency at spot before being translated back to rand at an average exchange rate.
Legal and Policy Division
SOUTH AFRICAN REVENUE SERVICE Date of 1st issue: 19 September 2011
Annexure – The law
Section 1(1) – De nition of ‘average exchange rate’
‘average exchange rate’ in relation to a year of assessment means the average determined by using the closing spot rates at the end of daily or monthly intervals during that year of assessment which must be consistently applied within that year of assessment;
Section 1(1) – De nition of ‘domestic treasury management company’ ‘domestic treasury management company’ means a company—
(a) incorporated or deemed to be incorporated by or under any law in force in the Republic; (b) that has its place of effective management in the Republic;and
(c) that is not subject to exchange control restrictions by virtue of being registered with the nancial surveillance department of the South African Reserve Bank;
Section 1(1) – De nition of ‘functional currency’ ‘functional currency’, in relation to—
(a) a person, means the currency of the primary economic environment in which the business operations of that person are conducted; and
(b) a permanent establishment of any person, means the currency of the primary economic environment in which the business operations of that permanent establishment are conducted;
Section 1(1) – De nition of ‘headquarter company’
‘headquarter company’, in respect of any year of assessment means a company contemplated in section 9I (1) in
respect of which an election has been made in terms of that section;
Section 1(1) – De nition of ‘spot rate’
‘spot rate’ means the appropriate quoted exchange rate at a speci c time by any authorised dealer in foreign
exchange for the delivery of currency;
Section 6quat – Rebate or deduction in respect of foreign taxes on income
(4) For the purposes of this section the amount of any foreign tax proved to be payable as contemplated in subsection
(1A) or (1C) in respect of any amount which is included in the taxable income of any resident during any year of assessment, shall be translated to the currency of the Republic on the last day of that year of assessment by applying the average exchange rate for that year of assessment.
550 saIT comPendIum oF Tax LegIsLaTIon VoLume 2