PN: The basic rule, as found in section 9(1) of the Value-added Tax Act, applies. It reads as follows:

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1 Webinar = 22 June 1. What is the meaning of In Duplum? PN: The in duplum states that unpaid interest on a money debt owing ceases to accumulate once it reaches the amount of the capital sum. In other words, the aggregate debt (capital plus interest) cannot exceed double the capital amount. The in duplum rule does not apply only to borrowed money, but to all debts (including judgement debts) arising from a capital amount that is owed. The policy reason behind the in duplum rule is that it serves to prevent the exploitation of debtors by creditors who might otherwise allow interest to accumulate indefinitely. The in duplum rule is an encouragement to lenders and other creditors to issue summons and compel debtors to pay what is owing before the existence of, or the terms of, the debt become clouded by the passage of time. 2. I have a client (individual) who is resident and works in Mauritius. He owns an apartment and earns rental income in South Africa which is his only income. This is submitted on his tax return. Would the DTA with Mauritius affect him? PN: The treaty (article 6.1) provides that income derived by a resident of a Contracting State (Mauritius in your case) from immovable property, including income from agriculture or forestry, is taxable in the Contracting State in which such property is situated. As the property is in the RSA it will be taxed here. In terms of article 6.3 the provisions of paragraph 1 of this Article shall apply to income derived from the direct use, letting or use in any other form of immovable property. The treaty applies, but doesn t change the position, i.e. a non-resident is taxed on RSA sourced income and will have to submit a return of income in respect thereof. 3. On a barter transaction, with the absence of a tax invoice, how should the time of supply be determined? In the example could the input tax be claimed in a prior period than having to declare the output tax? PN: The basic rule, as found in section 9(1) of the Value-added Tax Act, applies. It reads as follows: a supply of goods or services shall, except as otherwise provided in this Act, be deemed to take place at the time an invoice is issued by the supplier or the recipient in respect of that supply or the time any payment of consideration is received by the supplier in respect of that supply, whichever time is earlier. As no invoice was issued in this instance the time of supply would be when the other party provided the service as that would constitute payment of consideration (albeit in kind). 4. IS STC NOT APPLICABLE TO PTY TD ONLY? The secondary tax on companies applied to all companies (as defined in section 1(1) of the Income Tax Act) and was therefore not limited to private companies (or (Pty) Ltd. s). A close corporation was also caught by the provisions. 5. I have a client. They had interest free loans that accumulated over 2-3 year and eventually reduced to a much smaller amount. SARS raised an assessment for R20m STC. Upon my review of accounts, we realized that for the first few years, the company had no profits available for distribution and hence we used the provisions in 64C(c) to claim there could be no dividend. In the last year, the co-generated profits, but we sought to use the once off provision as in year 4, the loan was significantly reduced. We met with SARS and the arguing that the once off provision can only be used in the first year and we cannot used this as we wish! How can they argue this? We still await SARS official response.

2 PN: I assumed that the once off provision that you referred to was the one found in section 64C(4)(f). It requires that the loan be repaid or otherwise extinguished by not later than the end of the immediately succeeding year of assessment (the year that followed the year during which the loan was granted). This was clearly not the case in your example and one would not be able to fight it. Please also note that the last dividend cycle ended on 31 March The defense that it exceeded the company s profit s and reserves available for distribution (found in section 64C(4)(c) was replaced with effect 1 January 2011 and thereafter only exempted (so to speak) the part that reduced the market value of the assets of the company to an amount that is less than the liabilities of the company. 6. If the shareholder/director paid fringe benefit tax on the interest free loan, is there deemed divi tax? PN: The short answer is no. The principle is that where benefit of the interest free loan was granted in respect of services rendered (as remuneration essentially) it would lead to a fringe benefit and where is was granted by virtue of a share held in the company, it would be deemed to be a dividend. 7. Could we have a situation where both deemed dividend and fringe benefit arise on the same loan? PN: No see above. 8. Could you please explain the scenario if the trust was a 100% shareholder and had an interest free debit loan before 2012? PN: If the trust had an interest free debit loan section 64C(2) would not apply in other words where the trust granted the loan. If the reverse was true, i.e. the company granted the loan to the trust, and the trust was either a shareholder or a person connected to the shareholder, then the interest free loan should have been deemed to be a dividend. There is a 3-year prescription rule here and the parties may have been lucky if this was not discovered in that period. 9. With deemed dividends: what if company 2 has the same directors as company 1 that is lending? PN: It is not the directors that of the company that one must look at. The Act, both for STC and the dividends tax) refers to a person who is a connected person in relation to the company. A director, who is not a shareholder, would not normally be a connected person in relation to the company. 10. So it is safe to say that any debit loan to an individual or trust would / should incur DWHT. Only if the individual is connected (20 %+)? And in these instance(s) if we charge market related rates - no deemed dividend? PN: You are correct, but the interest must be at least at the official rate of interest, which may not in all instances be a normal market related rate. It is a defined rate. 11. If an employee take an advance on his/her salary or a loan without interest, this advance or loan will be seen as a benefit? Do I understand this correctly? PN: You understand correctly see questions 8 and 9 above. The employee gets a benefit, as envisaged in paragraph 2(f) of the Seventh Schedule, and a fringe benefit arises, unless the no value exclusions apply. 12. The market related interest rate you used, is this from SARS

3 PN: The term market-related interest, is defined in section 64E(4)(d) and in relation to any debt owed to a company[,] means the amount of interest that would be payable to that company on the amount owing to that company in respect of that debt for a period during a year of assessment if the debt had been owed for that period at the official rate of interest as defined in paragraph (1) of the Seventh Schedule. SARS publishes this rate, and changes thereto, on its web site. 13. What is the situation with a working director (thus an employee) who is also a shareholder, obtaining a loan? What gets preference? The fringe benefit rules or the deemed dividend rules? PN: See also the response to question 8 and 9 above. The tax consequences follows from the intention, normally determined from the minutes or other documents that support the approval of the loan. If the intention was that the benefit is granted in respect of services rendered it would be a fringe benefit. If not, i.e. it the debt arose by virtue of any share held in the company, it would lead to a deemed dividend (in respect of the interest benefit). 14. When dealing with trusts and deemed dividends, does the connected person rule apply to the beneficiaries and not the trustees? PN: In terms of the definition of connected person in section 1(1) of the Income Tax Act a beneficiary (also a discretionary one) will be a connected person in relation to the trust. A trust itself is not caught by the deemed dividends rules it would only be where the trust is a connected person in relation to the company (due to for instance it owning more than 20% of the company s equity) that the trust would become a connected person and then the beneficiaries would be connected persons in relation to the trust (being a person connected to the company). 15. Could you advise name of presenter please PN: My name is Piet Nel. I am an independent tax consultant and am currently assisting SAIT with their technical queries and some CPD events. 16. If in the deemed dividend example, the individual has 15% interest. If the trust had 10% interest and the company 75% but the same individual is a beneficiary of the trust, does the 20% rule apply (accumulatively)? PN: The more than 20% rule does not normally require, where the individual and the trust is concerned, must add their interests together. But where, in terms of paragraph (d)(iv) of the definition of connected person (in section 1(1) of the Income Tax Act) it states that in relation to a company any person, other than a company as defined in section 1 of the Companies Act that individually or jointly with any connected person in relation to that person, holds, directly or indirectly, at least 20 per cent of (aa) the equity shares in the company; or (bb) the voting rights in the company. 17. If the director or member repays a debit loan account before the end of the financial year, would a deemed dividend still arise on the interest for the period that the loan account was in debit balance? PN: The deemed dividend (in terms of section 64E(4) dividends tax) would apply in respect of the period, during the year of assessment, that the amount was outstanding. Full repayment of the loan during the year merely means that the deemed dividend then stops.

4 18. For interest sake... what action is SARS likely or able to take if no interest is charged on the debit loan and no dividend is declared? PN: SARS can only act in terms of the legislation. If the debit loan was granted to an employee or shareholder (who is a connected person in relation to the company) either a fringe benefit or a dividend arises. In both instance, if the employer or company doesn t deduct the tax (employees tax or dividends tax) the individual is under an obligation to declare and pay the tax thereon. SARS will levy penalties if that didn t happen. 19. So do you agree that if a vendor is deemed to be a vendor, in terms of any section of the vat act, and that whatever documentation is seen as adequate by the Commissioner, to determine the consideration (which is deemed to include vat, where the vendor is deemed to be a vendor), then even if the deemed vendor is unable to obtain full tax invoices for the input, then the vendor should be entitled to claim the input in the period in which either that have the correct documentation, or alternate documentation, as long as it is within 5 years of the supply to the deemed vendor? PN: I may be missing something here and you are welcome to raise the issue, with a bit more detail on the SAIT system. The principle is that the vendor has 5 years see the first proviso to section 16(3) after the transaction date (or event) to make the deduction. I take it that you are, based the facts provided, referring to a deduction based on the documents required by section 16(2)(f). It may well be that the deduction is also made due to a section 18(4) event. The 5 year period then commences on the date of the section 18(4) event. 20. If a company has an agreement with a related company to reimburse a market related fee to the other company for services such as "purchasing stock/administration etc.", without any tax invoices, would one be able to apply the principles of barter case if the fee was debited/credited to respective loan accounts in each co books. PN: It is not clear what the counter action by the other company is in other words this doesn t appear to be a barter transaction. The problem is that where the parties are connected person s in relation to each other, the time and value of supply rules as specifically provided for in the Act and differs from the normal ones. Debiting to the loan account also creates a potential section 22(3) problem (the 12 months rule). 21. If a director is an active, working director (thus an employee) and he received a loan & he is a >20% shareholder as well, which part of the tax act takes preference? Fringe benefit on the loan or deemed dividend rule? PN: Refer to the other questions in this regard. The parties bear the onus to prove whether the intention was that the benefit was granted in respect of services rendered (it would then be a fringe benefit) or not, i.e. it the debt arose by virtue of any share held in the company, it would then lead to a deemed dividend (in respect of the interest benefit). 22. Once off concession (f) to any loan or credit granted to a shareholder of the company or any connected person in relation to the shareholder during any year of assessment of the company granting the loan or credit, if (i) such loan or credit is repaid or otherwise extinguished by not later than the end of the immediately succeeding year of assessment;(ii) the amount thereof is not included in any subsequent loan or credit granted to the shareholder or any connected person in

5 relation to the shareholder; and(iii) the provisions of this paragraph have not been applied in the case of the company in any previous year of assessment; PN: Not sure if there is a question here, but thank you I dealt with this in the question that raised the issue.