011 463 5566 tonyd@harding.co.za

Editor’s Note:
In this fourth newsletter for 2023 we consider the following:
Offshore remittances from RSA by Tax Non-Residents – New TCS process.
C,SARS v Coronation Investment Management SA (2023) ZASCA10 – Offshore Asset Management structure.
Section 31 (international relationships transfer pricing) ambit expanded to include ‘Associated Enterprises’.
Draft Energy Incentive Legislation published
SARS Interpretation Notes (INs), BGRs and guides Noter-Up.

Tony Davey – Editor
Duncan McAllister – Co-Editor

With effect from 24 April a new TCS (Tax Compliance Status) process for international transfers of monies, via e-filing applies. Termed AIT (Approved International Transfer), this process replaces the previous Emigration and Foreign Investment Allowance processes and also includes non-residents. Thus there are now only two SARS processes. The same TCS process for normal tax compliance status and the new TCS AIT process for international transfers. (The R1 million annual foreign discretionary allowance which is available only to residents, remains unaffected as this does not require SARS approval).

Further to this both the SA Reserve Bank (SARB) and SARS have recently issued publications which, inter alia, impact upon international transfers.

The two publications are titled as follows:
SARB: Currency and Exchanges guidelines for individual: Circular No. 2-2023 issued 4 April 2023
SARS: Guide to the Tax Compliance Status functionality on e-filing issued 24 April 2023.

SARB’s paragraphs 4.9 and 4.17 distinguish between capital and income transfers respectively. Paragraph 4.9 states that ‘further transfers of remaining assets (our underlining) will be subject to a TCS application in respect of Foreign Investment Allowance (FIA) (now termed AIT as per above SARS Guide) – our insertion) irrespective of the date of emigration, that is, prior or after 1 March 2021’. This accords with SARS new AIT process requiring not merely the normal TCS process to verify tax compliance status but the more complex and detailed TCS AIT process.

However, the discord between SARB and SARS pertains to income transfers. SARB’s paragraph 4.17 states that ‘Income (our underlining) due to private individuals who ceased to be residents for tax purposes in SA may be transferred offshore, ……. provided the Authorised Dealers ………. verify a TCS of good standing …………’. The subparagraphs of 4.17 include as income, inter alia, interest, dividends and annuity payments. Thus only the normal TCS process (not the TCS AIT process) is required by SARB. This does not align with SARS requirements for international remittances as the SARS TCS AIT process, as per their Guide at paragraph 9.2 does not distinguish between capital and income transfers. This aspect requires clarification.

From SARS perspective, in order for a non-resident to remit RSA monies abroad, inter alia, the following is required on the AIT application form, TCR01:
– Proof of non-resident RSA tax status. This is notwithstanding such persons having emigrated either under the previous SARB (MP336(b)) emigration system or the replacement SARS TCS system, effective 1 March 2021.
– Both local and foreign assets / liabilities at cost.
– Confirmation whether a non-resident is a beneficiary of a local or foreign trust.

Section 14 of the Constitution (Bill of Rights, chapter 2) provides the right to privacy. The issue then arises as to whether SARS has the right to request information on foreign assets and foreign trusts from a non-resident taxpayer which we suggest could be justified only in circumstances of enforcing tax compliance. However, as regards persons who have either already emigrated under the previous SARB system (MP 336(b)) or the SARS non-residency TCS system, which replaced the SARB system on 1 March 2021 and required worldwide assets to be fully disclosed in order that the section 9H so-termed ‘exit charge’ could be imposed, this AIT appears to be a duplication.

A non-resident is treated for RSA tax purposes as follows:
– No worldwide tax, only RSA sourced taxable income and subject to DTAs’.
– CGT is prepaid under section 9H except for immovable property and assets of a permanent establishment in RSA.
– No Estate Duty except if RSA-sourced assets.
– RSA sourced dividends subject to DWT and RSA interest subject to NRTI, both subject to DTAs.

Given the above limited tax situations, the rationale for SARS requested information from non-residents, especially foreign assets falling outside SA’s taxing jurisdiction, is unclear. Possibly this is unintentional and will be corrected in due course. Alternatively, this is a deliberate decision by SARS to verify post-facto, the correctness of the section 9H CGT exit charge on assets and/or whether the correct withholding taxes have been levied on income remittances.

We have requested certain SARS ‘Recognised Controlling Bodies’ (section 240A of the Tax Administration Act (TAA)) to clarify the above matters with SARS and with SARB.

SA (2023) ZASCA10
The core issue for decision by the Supreme Court of Appeal (SCA) was whether a ‘controlled foreign company’ Coronation Global Fund Managers (Ireland) (CGFM

Ireland) being, through a pyramid structure, a 100% subsidiary of Coronation Investment Management SA (CIMSA), was a ‘foreign business establishment’ (FBE) as defined, for purposes of Section 9D of the Income Tax Act (ITA). If CGFM is a genuine FBE, a tax exemption under Section 9D(9)(b) applies and its net income is not included in its RSA holding company’s (CIMSA) taxable income.

An FBE is defined in Section 9D(1) as including, inter alia, a fixed place of business which is suitably staffed with on-site managerial and operational employees of that CFC who ‘conduct primary operations’ (our underlining) of that business. In essence, in determining whether FBE tax exempt status applied, the SCA had regard to where the primary operations of CGFM were conducted.

The outsource business model of CGFM including investment management services, trading and custodial functions, was to the effect that such services were outsourced to specialist investment managers Coronation Asset Management RSA (CAM) a company tax resident in the RSA.
SARS contended that CGFM met all the FBE definition requirements except one, namely, the critical requirement of independent economic substance, as its primary operations, being in SARS view, investment management, were not based in Ireland but outsourced, inter alia, to CAM in the RSA.
CIMSA contended that CGFM’s licence as a fund management company, was not approved by the Central Bank of Ireland (CBI) to perform investment functions and thus had to outsource investment management which it distinguished from fund management which latter function included corporate and statutory governance, administration and marketing which was retained and performed by CGFM in Ireland.

The SCA held that CGFM’s licence included investment management which is core to fund management. Given this, the SCA held that the primary operations of CGFM, being investment management, were conducted in the RSA through the outsource arrangement and thus the FBE exemption was inapplicable. Thus, the net income of CGFM was imputable to CIMSA in the RSA.
We understand that CIMSA has applied for leave to appeal this SCA decision to the Constitutional Court and we await the court’s decision on whether CIMSA’s application will be granted. The ultimate outcome will be of significance to many RSA asset management companies which conduct a foreign business establishment abroad, dependent also on their own factual position and structuring.


On 17 April SARS issued an Interpretation Note (IN 128) on the definition of ‘associated enterprise’, which expands the ambit of section 31. (This definition became effective 1 January 2023 and applies to years of assessment commencing on or after this date).
Section 31 deals with the tax payable by persons in respect of international transactions and operations between resident and non-resident parties and requires such transactions and operations to be based on the arm’s length principle.

Before the amendment of this section to include an ‘associated enterprise’ in the definition of ‘affected transaction’, section 31 and the definition of ‘affected transaction’ encompassed only ‘connected persons’. As such, the application of the transfer pricing rules contained in section 31 did not encompass transactions between ‘associated enterprises’ which did not fall within the ‘connected persons’ definition. To bring section 31 in line with international standards, the term ‘associated enterprise’ has been inserted in section 31.

In essence, in determining whether enterprises are associated, one has regard to whether the same persons, directly or indirectly participate in any of three criteria, being either management and/or control and/or capital structure. These are far broader tests than the ‘connected person’ tests.

We will consider such tests in future newsletters.

SARS Interpretation Note 127 provides guidance on determining arms-length market-related commercial pricing methods, between resident and non-resident parties who are either connected persons and/or associated enterprises.

On 21 April 2023 National Treasury released draft legislation giving effect to the energy generation incentives announced in the 2023 Budget which we covered in the March issue. The draft legislation provides additional information on how the incentives will work.

Proposed section 6C – Solar energy tax credit
The proposed section 6C provides for a rebate against normal tax payable of 25% of the cost actually incurred in acquiring and bringing into use new and unused solar panels with a minimum capacity of 275W between 1 March 2023 and before 1 March 2024. The rebate may not exceed R15 000 (25% of R60 000).

The panels must be installed, mounted or affixed to a residence mainly used for domestic purposes by the person incurring the cost. They must be connected to the distribution board and an electrical certificate of compliance obtained. If more than one person incurs the cost of the panels, each such person will be able to claim 25% of their pro rata share of the total cost of the panels. Each such person’s rebate will be limited to R15 000. Thus, if two spouses each spent R60 000 on panels, they would each be entitled to a rebate of R15 000. If a panel is disposed of before 1 March 2025, the rebate will be added back as an amount of additional tax in the year of disposal.

Section 6C will not apply if a deduction has been claimed under section 12B or 12BA.
Enhanced deduction for assets used in the production of renewable energy
A new section 12BA is proposed to replace the existing section 12B(1)(h) incentive. It is a temporary measure applying to any new and unused machinery, plant, implement, utensil, or article owned by the taxpayer and brought into use for the first time by the taxpayer for the taxpayer’s trade on or after 1 March 2023 and before 1 March 2025 and used by the taxpayer to generate electricity from any of five different sources:
• wind power
• photovoltaic solar energy
• concentrated solar energy
• hydropower
• biomass comprising organic wastes, landfill gas or plant material

The cost of foundations and supporting structures is included in the cost for allowance purposes if it is brought into use on or after 1 March 2023 but before 1 March 2025, designed for and integrated with the asset and has a useful life that is limited to the life of the asset.
The deduction is 125% of the cost of the asset. The cost of the asset is the lesser of the actual cost and the direct cost that would have been incurred under a cash transaction concluded at arm’s length. This requirement ensures that any interest incurred under an instalment credit agreement is excluded and claimed instead under section 24J.

Can the section 12BA allowance be claimed on domestic premises used partly for trade by sole traders and commission agents? It would seem that the portion of the cost relating to the part of the premises used for trade will qualify provided the part of the residence complies with section 23(b), which requires that ‘such part is specifically equipped for purposes of the taxpayer’s trade and regularly and exclusively used for such purposes’. SARS is likely to apply an apportionment based on floor area (see IN 28 (Issue 3) dated 4 March 2022). Section 23(m) will preclude employees who are not commission agents from claiming the allowance. Section 23(b) also excludes a commission agent from claiming a deduction if the agent carries out their duties mainly at an employer-provided office.
Section 12BA(4) contains special rules governing assets let by lessors. The deduction applies to assets acquired under an operating lease as defined in section 23A(1). A deduction under any other type of lease will be allowed only if the lessor derives income from carrying on trade and the lease is for at least five years or a shorter period equal to the asset’s useful life. No amendments have been proposed to include section 12BA in section 23A in order to ring-fence any rental losses.

When the asset is acquired under an instalment credit agreement, the seller will not be entitled to the allowance, since the acquirer would be entitled to it.

The allowance is also unavailable on any asset on which an allowance under section 12B has been granted. I understand that the purpose of this provision is to merely confirm that taxpayers have the choice to adopt section 12BA rather than section 12B.
Section 12BA(6) contains a special recoupment provision which applies to the 25% deduction above cost if the asset is sold before 1 March 2026. The 25% portion will be included in income in addition to any recoupment under section 8(4)(a).
Section 12BA is proposed to come into operation on 1 March 2023 and apply to years of assessment commencing on or after that date. While this will accommodate individuals and trusts which have years of assessment ending on the last day of February, it will disadvantage companies, depending on their financial year end. For example, a company with a 31 December financial year will be able to qualify for the allowance only on or after 1 January 2024, as that is its first year of assessment commencing on or after 1 March 2023.