Clamp down on corporate covenants
21 February 2018
By Marcus Botha and Sumayyah Pahad
The 2018 Budget Speech delivered by Minister of Finance, Malusi Gigaba on 21 February 2018 confirmed South Africa’s commitment to ending tax avoidance and its impact on economies and societies worldwide.
It was announced that the National Treasury, in close cooperation with the Reserve Bank, the Financial Intelligence Centre and the South African Revenue Service, are taking several steps to detect, disrupt and deter illicit financial flows including:
- Increasing capacity, coordinating a national risk assessment and improving information sharing between various agencies.
- The implementation and tightening of policy measures to deal with transfer pricing and base erosion by multinational companies in line with G20 recommendations.
- Country-by-country reporting enhancements that will ensure the fair share of tax is paid on South African source income.
- Investigating options to curb excessive interest deductions to reduce company tax liabilities.
In addition to the above, a clamp down on the following domestic corporate covenants has been announced to support the fight against tax avoidance:
- Debt relief rules in terms of section 19 and paragraph 12A.
- Share buybacks.
- Dividend stripping.
- Allowances granted to companies on debt funding to acquire qualifying controlling interest in operating companies in terms of section 24O.
These proposals have been left open ended and certainty is expected later in the year when the Tax Law Amendments Bill is promulgated.
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