Tax Planning Using Interest – An Organised Chaos for Those Interested

Authors

DOI:

https://doi.org/10.17159/1727-3781/2022/v25i0a14382

Keywords:

Transfer pricing, controlling relationship, interest deductibility, withholding tax, limitation of deductions, reorganisation transaction, arm’s length, incurral and accrual of interest

Abstract

Taxation of interest is one of the most complex areas of tax in South Africa. Various provisions apply to interest, with some regulating the inclusion of interest in gross income, others allowing for the deductibility of interest incurred, others limiting the amount of interest that is deductible and yet others providing for anti-avoidance tax measures using interest. This makes tax planning using interest to be a technically intense exercise, time consuming and often costly. This article critically analyses the provisions applicable to interest and highlights the circumstances in which they apply as well as the results of their application. It also illustrates instances of the overlaps in the application of these provisions.

Downloads

Download data is not yet available.

Author Biography

  • Thabo Legwaila, University of Johannesburg

    Professor of Tax Law, University of Johannesburg, South Africa

References

Bibliography

Literature

Arnold BJ and McIntyre MJ International Tax Primer (Kluwer Law International The Hague 2002)

Brincker E Taxation Principles of Interest and Other Financing Transactions (LexisNexis Butterworths Durban 2011)

Haupt P Notes on South African Income Tax (H&H Publications Roggebaai 2020)

Horak W "Tax Reform and Practice under the New South Africa Political Dispensation: A Critical Review" 2002 Acta Juridica 49-85

Keep A and Makola M "South Africa" in Watson W (ed) Corporate Tax 2nd ed (London Global Legal Group 2014) 192-201

Legwaila T et al Tax Law: An Introduction (Juta Cape Town 2020)

Leshomo OP A Proposed Interpretation of the Phrase "Subject to Tax" in Section 23M(2)(i)(aa) of the Income Tax Act, No 58 of 1962, When Read in Context of South African Tax Treaties (LLM-thesis University of Cape Town 2021)

Moosa F "CSARS v NWK Ltd: A Tax Planning Sham(e)?" 2012 Insurance and Tax Journal 3-8

Organisation for Economic Co-operation and Development Model Tax Convention on Income and on Capital (OECD Paris 2017)

Organisation for Economic Co-operation and Development Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Paris 2017)

Oguttu AW "Resolving Double Taxation: The Concept of 'Place of Effective Management' Analysed from a South African Perspective" 2008 CILSA 80-104 DOI: https://doi.org/10.18848/1835-4432/CGP/v01i01/40652

Oguttu AW International Tax Law: Offshore Tax Avoidance in South Africa (Juta Cape Town 2015)

Olivier L and Honiball M International Tax: A South African Perspective (Juta Cape Town 2011)

Stiglingh M et al Silke: South African Income Tax (LexisNexis Durban 2020)

Vorster H "NWK and Purpose as a Test for Simulation" 2011 The Taxpayer 83-85

Case law

Bosch v Commissioner for the South African Revenue Service 2013 5 SA 130 (WCC) DOI: https://doi.org/10.1386/jams.5.2.119_1

Cactus Investments (Pty) Ltd v CIR 1999 1 All SA 435 (A)

CIR v Genn & Co Ltd 1955 3 SA 293 (A)

CIR v Kuttel 1992 3 SA 242 (AD)

CIR v Lever Brothers 1946 AD 441

Cohen v CIR 1946 AD 174

Commissioner for the South African Revenue Service v NWK Ltd 2011 2 SA 67 (SCA)

Commissioner for the South African Revenue Service v South African Custodial Services (Pty) Ltd [2012] JOL 28496 (SCA)

Commissioner for the South African Revenue Service v Tradehold Ltd 2012 3 All SA 15 (SCA)

COT v William Dunn & Co Ltd 1918 AD 607

Dadoo Ltd v Krugersdorp Municipal Council 1920 AD 530

Essential Sterolin Products (Pty) Ltd v CIR 1993 4 SA 859 (A)

First National Bank of Southern Africa Ltd v Commissioner for the South African Revenue Service 2002 3 SA 375 (SCA)

ITC 1485 52 SATC 337

ITC 1496 53 SATC 229

ITC 1588 57 SATC 148

Linton v Corser 1952 3 SA 685 (AD)

Rhodesia Metals Ltd (In Liquidation) v COT 1938 AD 282

Riches v Westminster Bank Limited 1957 All ER 469 HL

Roshcon (Pty) Ltd v Anchor Auto Body Builders CC 2014 4 SA 319 (SCA)

SIR v Downing 1975 4 SA 518 (A)

S v Marwane 1982 3 All SA 405 (AD)

Thompson v Minister of National Revenue 2 DTC 812 (SCC)

WT Ramsay Ltd v Inland Revenue Commissioners [1982] AC 300; 11 ATR 752

Legislation

Income Tax Act 58 of 1962

Taxation Laws Amendment Act 24 of 2011

Government documents

Double Taxation Agreement between South Africa and the United Kingdom (Convention between the Government of the Republic of South Africa and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains) (2002)

Internet sources

Beilings K 2018 Refining Rules for Debt-Financed Acquisitions of Controlling Interest in an Operating Company https://www.webberwentzel.com/News/Pages/refining-rules-for-debt-financed-acquisitions-of-controlling-interest-in-an-operating-company.aspx accessed 13 April 2022

National Treasury 2004 Explanatory Memorandum on the Revenue Laws Amendment Bill, 2004 https://www.sars.gov.za/wp-content/uploads/Legal/ExplMemo/LAPD-LPrep-EM-2004-02-Explanatory-Memorandum-Revenue-Laws-Amendment-Bill-2004.pdf accessed 12 August 2022

National Treasury 2012 Explanatory Memorandum on the Taxation Laws Amendment Bill, 2012 https://www.sars.gov.za/wp-content/uploads/Legal/ExplMemo/LAPD-LPrep-EM-2012-01-Explanatory-Memorandum-Taxation-Laws-Amendment-Bill-2012.pdf accessed 20 January 2021

National Treasury 2020 Reviewing the Tax Treatment of Excessive Debt Financing, Interest Deductions and Other Financial Payments http://www.treasury.gov.za/public%20comments/Reviewing%20the%20Tax%20Treatment%20of%20Excessive%20Debt%20Financing,%20Interest%20Deductions%20and%20Other%20Financial%20Payments.pdf accessed 27 January 2022

National Treasury 2022 Explanatory Memorandum on the Taxation Laws Amendment Bill, 2021 https://www.sars.gov.za/wp-content/uploads/Legal/

ExplMemo/LPrep-EM-2021-01-Explanatory-Memoradum-to-2021-Taxation-Laws-Amendment-Bill-25-January-2022.pdf accessed 12 August 2022

South African Revenue Service 2017 Binding Private Ruling: BPR 260 https://www.sars.gov.za/wp-content/uploads/Legal/Rulings/BPR/LAPD-IntR-R-BPR-2017-04-BPR-260-Interest-on-loans-used-to-acquire-shares.pdf accessed on 28 April 2022

Published

27-10-2022

Issue

Section

Special Edition: Festschrift - Charl Hugo

How to Cite

Legwaila, T. (2022). Tax Planning Using Interest – An Organised Chaos for Those Interested. Potchefstroom Electronic Law Journal, 25, (Published 27 October 2022) pp 1 - 35. https://doi.org/10.17159/1727-3781/2022/v25i0a14382

Similar Articles

1-10 of 1073

You may also start an advanced similarity search for this article.