On 3 February 2016 Government Notice 140 (“the Notice”) was issued for purposes of replacing the list of reportable arrangements determined by the Commissioner under section 35(2) of the Tax Administration Act, 2011 (“TAA”). The Notice replaces all previous notices issued in relation to reportable arrangements with effect from 3 February 2016 and now includes arrangements relating to services that were not covered in previous notices.
Essentially a transaction, operation, scheme, agreement or understanding (collectively defined as an “arrangement”) is classified as a ‘reportable arrangement’ if such arrangement has the characteristics as set out in section 35(1) of the TAA or if the Commissioner for the South African Revenue Service (“the Commissioner”) has listed the arrangement as a reportable arrangement in a public notice.
Included in the Notice is an arrangement for the rendering of consultancy, construction, engineering, installation, logistical, managerial, supervisory, technical or training services to a South African resident (or a non-resident with a permanent establishment in South Africa) by a person that is not a resident or an employee, agent or representative of that person who was or is physically present in South Africa or is anticipated to be physically present in South Africa in connection with or for purposes of rendering the services. In addition the expenditure incurred or to be incurred in respect of the services must exceed or must be anticipated to exceed R10 million in aggregate (excluded are amounts that qualify as ‘remuneration’ for employees’ tax purposes). There is no limit in respect of the period over which the R10 million must calculated.
As such, if the provision of services by a non-resident constitutes a reportable arrangement then it must be disclosed to the Commissioner within 45 days of the arrangement. Failure to report will result in penalties being charged on a monthly basis until the arrangement has been reported (limited to a 12 month period).
Just a few weeks after the release of the Notice the Minister of Finance (“the Minister”) announced in his budget speech on 23 February 2016 that the legislation on withholding tax on service fees will be withdrawn in its entirety and will no longer be implemented (the withholding tax was to come into operation with effect from 1 January 2017). The Minster mentioned that the withholding tax on service fees has led to some unforeseen issues, including uncertainty on the application of domestic tax law and taxing rights under the applicable double taxation treaties. He added that services rendered to South African residents by non-residents will now be dealt with under the provisions of reportable arrangements in the TAA (as read with the Notice).