Welcome to the Tax Focus Jan/Feb 2024 Edition! To start the year off right, we understand the importance of staying informed and up-to-date on all things tax-related. That's why we've compiled a comprehensive collection of articles and resources to help you navigate the complex world of taxes with ease.

Minimum Tax Implementation Handbook (Pillar Two) – Pillar II in plain English

By Raeesa Haneef-Danka

A key part of the OECD/G20 BEPS Project is addressing the tax challenges arising from the digitalisation and globalisation of the economy. The global minimum tax, together with the Subject to Tax Rule, constitutes the second pillar of the Two-Pillar Solution developed to address those challenges.

The minimum tax will ensure large multinational enterprises pay a minimum level of tax on the income arising in each of the jurisdictions where they operate. The minimum tax is based on an agreed set of Model Rules, that are designed to be implemented into domestic law as part of a common approach.

Recently, the OECD has released a 31-page document that explains the main concepts of the Pillar 2 rules in plain English. The purpose of the Implementation Handbook is to supplement the Global Anti-Base Erosion (GloBE) rules. It is not intended as additional detailed guidance material but rather seeks to present the core elements of the rules in a manner that provides a high-level entry point into the overall design and operation of the rules.

The Implementation Handbook on the minimum tax provides an overview of the key provisions of the rules and the considerations to be taken into account by tax policy and administration officials and other stakeholders in assessing their implementation options. The Implementation Handbook is divided into two chapters:

  • The first chapter provides an overview of the global minimum tax. It provides a starting point for the reader to obtain a broad understanding of the scope, design and operation of the rules. This overview is drafted in plain language, with a view of making the content of the GloBE rules as accessible as possible.
  • The second chapter sets out the considerations to be taken into account in assessing implementation options. A copy of the Implementation Handbook itself can be found at the following site: https://www.oecd.org/tax/beps/minimum-tax-implementation-handbook-pillar-two.Pdf

SARS takes a further step towards improving the integrity of trade and traveller facilitation as part of implementing smart borders

By Sipho Mhaga

There is unconscious biasness that individuals travelling abroad or to RSA need not declare personal effects, that is a big mistake or error of judgement: take note of the following. Travellers are required by law to make certain declarations of goods and cash on entering or leaving South Africa.

The declaration process is in line with practices around the world and in compliance with the provision of the Customs and Excise Act No. 91 of 1964 which makes it mandatory for any person entering and leaving the Republic to declare any goods in their possession.

Failure to make a proper declaration as required under the Customs and Excise Act, 1964, is an offence that may result in the detention and forfeiture of the goods not declared and accompanying goods, imposition of an administrative penalty and/or criminal prosecution depending on the seriousness of the offence.

In November 2022, SARS launched a pilot implementation of an electronic on-line portal for travellers to make declarations on a voluntary basis, well ahead of their arrival or departure to/from South Africa.

This pilot got implemented at the King Shaka International Airport. It allowed travelers to pre-declare goods purchased, received, or otherwise acquired. For travellers who choose not to use the on-line portal on their mobile devices, SARS has made available a paper form as well self-service counters at terminals. Customs Officers have hand-held devices to assist travelers, to facilitate passage. Travellers are still permitted to continue to use the travelers card if they so choose.

SARS believes that the process of pre-declaration enable travelers to have a swift and seamless movement when they arrive, and those departing, for a smooth boarding process. The South African Traveler Management System is part of the broader Customs Modernisation Programme that seeks to provide "pre-clearance" as far as possible to travellers and facilitate passage through their ports. SARS aims to create "SMART borders" by leveraging data and technology to create a seamless experience for legitimate traders and travelers through their ports of entry while enhancing its detection capabilities to respond to any risks.

Employees' Tax Registration Requirement for Non-resident Employers in South Africa

By Nokukhanya Madilonga and Laurence Mbokwane

The proposed amendment in paragraphs 2(1)(a) and (b) of the Fourth Schedule to the Income Tax Act No. 58 of 1962 ("the Act"), aims to remove the distinction between resident and non-resident employers. Therefore, this means that any employer (resident or foreign) will be required to deduct employees' tax (PAYE), should the proposed amendments be promulgated into law.

If a non-resident company pays or is required to pay 'remuneration' to an employee in South Africa for services rendered, it is generally considered to be an employer within the meaning of 'employer' under the Fourth Schedule to the ITA. Currently, paragraphs 2(1)(a) and (b) of the Fourth Schedule to the Act, provides that the obligation to withhold employees' tax and pay it over to the South African Revenue Service ("SARS") is placed upon the "employer who is a resident" or a "representative employer in the case of any employer who is not a resident".

Non-resident companies who employ local South African employees are, therefore, under no obligation to deduct and withhold employees' tax unless remuneration is paid or is liable to be paid by a resident representative employer, meaning an "agent of such non-resident employer having authority to pay remuneration". Therefore, in such cases the employee is responsible for paying their taxes by way of the provisional tax system.

Some of the public comments on the 2023 draft TALAB are that the proposed changes will add an administration burden on non-resident employers, which will include the employer's registration with the Companies and Intellectual Property Commission (CIPC), as well as the opening of a local bank account, both of which may not be feasible or possible for a non-resident employer.

In response to public comments, National Treasury has provided some relief and proposed that the obligation to register as an employer will only fall on those non-resident employers that have a permanent establishment in South Africa. This will alleviate the administrative burden on non-resident employers in general and limit the obligation to non-resident employers that have business activities in South Africa.

Therefore, the proposed changes will relieve non-resident employers with no business activity or presence in South Africa from withholding employees' tax. It is, therefore, very important to ensure that an analysis of the specific facts is conducted to ascertain whether there are any potential risks of creating a permanent establishment in South Africa. You are more than welcome to contact our team for assistance with employer tax obligations in South Africa, at tax.info@sng.gt.com

Who is the employer for VAT purposes? South African Revenue Service (SARS) vs Citibank

By Mabutho Mthembu

In a recent Court Case at the North Gauteng High Court, a judgment handed down confirmed that Citibank South African branch (Citibank SA) is required to pay VAT in respect of the employees seconded from its offshore related parties since the services supplied by the respective employees qualify as "imported services" as defined for VAT purposes.

In this matter, Citibank US entered into agreements with Citibank SA pertaining to the secondment of employees to Citibank SA. The agreement stipulated that Citibank US lends the services of the seconded employees to Citibank, which further concludes that the agreement is for the supply of employee services. The agreements were also explicit that the seconded employees areis not an employees of Citibank SA. Citibank SA argued that the seconded employees are its employees since:

  • The seconded employees place their productive capacity at the disposal of Citibank SA;
  • Citibank SA has the right of supervision and control over the seconded employees for the duration of their secondment; and
  • Citibank SA paid Citibank US for the supply of the seconded employees' services and the amount was equivalent to the remuneration due to the employees and no mark-up was charged or paid.

SARS argued that the critical determination is whether Citibank SA is an employer of seconded employees in terms of the definition of an employer in the relevant tax Act and if not, whether Citibank SA is liable to pay VAT on imported services. SARS further argued that the agreements are explicitly clear that the seconded employees are supplied as a service provided to Citibank SA and it follows that the payments made in respect of the secondees in question, are made as payment for a service in terms of the agreement. The Court held that Citibank SA faulters at two level, in a sense that they have not shown that they are employers of the seconded employees and secondly that the payments made to individuals in question constitute "remuneration" within the meaning contemplated in the definition of enterprise in the VAT Act.

Consequently, it was concluded that since Citibank US supplied services to Citibank SA, such services constituted imported services as defined for VAT purposes and therefore Citibank SA was required to charge and account for VAT at the standard rate of 15% on such services acquired from a non-resident to be used in the course of its exempt supplies.

Key lessons from the case: It is important to carefully consider wording used in secondment agreements especially where the secondment is between an RSA based and foreign party. All tax implications must be assessed upfront before the agreements are concluded to ensure an efficient tax position is adopted.

The Courts will rely on the intention of the parties which is expressed in legal provisions. In this case, Citibank SA could not argue against the legal provisions which are explicit and clearly express the intention of the parties with respect to seconded employees, without any ambiguity. Therefore, since Citibank SA is not an employer, it follows that it could not argue that it paid salaries to individuals who were not employed by it, however, the recoveries from Citibank US constituted fees for the services rendered which are subject to VAT under the reverse charge mechanism.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.