News › Weekly Alert Article

Income Tax Notice May Trouble Multinationals

South Africa

On 29 June 2012, SARS issued its annual notice which provided that every company, trust or juristic person, which is either a resident or which derives any gross income or capital gain from a source within the Republic, must furnish a tax return within 12 months from the date within which its financial year ends in respect of the 2012 year of assessment. Taxand South Africa discovers why this announcement could be problematic for multinationals.

This announcement, which perhaps escaped the attention of many people, is likely to be problematic in light of the source rules contained in section 9 of the Act which makes it clear that the source of any dividends, interest and royalties is where the paying company is located. Section 9 has the effect that multinational or non-resident companies receiving dividends, interest and royalties from companies located in South Africa will be receiving gross income for South African tax purposes. Whereas in the past the source of these income streams may still have been located abroad.

Furthermore, this obligation is rendered all the more nonsensical because any company declaring dividends etc. to a non-resident is obliged to deduct withholding tax at 15% unless varied by a tax treaty.

Given that the notice requires companies to furnish their tax returns where gross income is derived from a South African source, the combined effect of section 9 and the notice will be to increase the administrative burden of these companies. If it is really SARS' intention that each and every foreign investor must furnish a return, the non-resident will now be required to register for tax in South Africa even where it is ultimately not liable to South African tax.

It is also likely that many multinational or non-resident companies affected by this announcement will remain uninformed and be subject to administrative penalties for not furnishing their tax returns.

Discover more: Income tax notice may trouble multinationals

Your Taxand contact for further queries is:
Bernard Du Plessis
T. +27 11 269 7891

Taxand's Take

The latest notice issued by SARS potentially raises a new administrative risk for multinationals receiving passive income from South Africa. However on balance, this would appear to be an administrative error given the ability to ensure the full liability is already catered for through the withholding tax mechanism. Until the matter is resolved, however, due regard needs to be had by multinationals when completing their South African tax registration and filing requirements.

Taxand's Take Author

Bernard Du Plessis
Taxand Board member
South Africa
Sub-Saharan Africa