Special foreign tax credit for service fees to end
South Africans who provide services from within this country to entities or individuals in another country should not be able to claim a special tax credit for foreign withholding taxes.
This is according to a proposal by National Treasury in the Draft Taxation Laws Amendment Bill, which was released for public comment on July 22.
Treasury said the special tax credit was introduced in 2011 to provide relief from double taxation on cross-border services for South African multinational companies that render services to their foreign subsidiaries. The concern was that some countries that have withholding tax on fees ignored the provisions of tax treaties when funds were paid by their residents to South African-resident companies for services rendered to their residents. Although these countries, in terms of their tax treaties with South Africa, do not have the right to tax service fees, they still imposed withholding tax on services rendered by South Africans to their residents.
Treasury says the tax credit encourages the country’s tax-treaty partners not to abide by the treaties and gives them taxing rights over income that is not sourced in those countries.
Treasury says the tax credit should be withdrawn, and all tax-treaty disputes should be resolved by the tax authorities of South Africa and the relevant countries.
If the amendment is enacted, it will take effect on January 1, 2016.
TAX AMENDMENT BILLS PUBLISHED
National Treasury on July 22 published, for public comment, the Draft Taxation Laws Amendment Bill and the Draft Tax Administration Laws Amendment Bill, which provide the legislative amendments required to implement most of the tax proposals announced in the 2015 Budget in February.
