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The Dangers of Interpreting Tax Concessions

South Africa
Supreme Court of Appeal tax cases often adopt a higher-than-normal threshold to support an exemption from, or a relaxation of, taxation. This is normally expressed as a rule that tax concessions are to be strictly construed.

Taxand South Africa investigates the dangers of interpreting tax concessions. Taxpayers in tax favourable industries often receive income in the form of interest from a variety of sources including, but not limited to:

  • Interest on money in foreign bank accounts
  • Interest on so-called escrow accounts
  • Interest earned on money lent on fixed deposit
  • Interest earned on late payments
  • Interest earned in terms of any incentive schemes
  • Interest earned on SARS' refunds
  • Interest earned on retention fees

The question that fails to be resolved is whether the interest income is so directly connected to the qualifying activity (such as mining, farming or other qualifying activities) that the interest income falls within the tax concession applicable to the qualifying activity.

Quite often taxpayers in tax-favoured industries are inclined to disregard the space between what the statute provides and what they think the statute should provide. For example, taxpayers will contend that when a statute provides an exemption for income derived from a particular qualifying activity it implicitly authorises an exemption for interest associated with that income. The strict rule of interpretation, on the other hand, suggests that the statutory text should be extra-ordinarily clear before such an implication may be made.

Discover more: The dangers of interpreting tax concessions


 

Your Taxand contact for further queries is:
Mansoor Parker
T. +27 11 269 7860
E. mparker@ens.co.za

 

Taxand's Take

Taxpayers operating in tax-favoured industries should not assume that all incremental revenue streams are necessarily covered by the tax concession applicable to the industry in which they operate. Corporations should test each revenue stream against the wording of the statutory text and operate on the basis that unless the tax concession is clearly expressed that they will have a difficult time convincing a court that the tax concession is clearly implied.

Taxand's Take Author

Mansoor Parker
South Africa