A critical analysis of the South African tax and exchange control implications of royalty payments to non-residents
Date
2018
Authors
Kubyane, Mahommed Malepeng
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Abstract
Under the current tax regime in South Africa, non-residents are taxed on amounts received or accrued by such person from a source within the Republic. The general principle is that income derived from royalties on the exploitation of intellectual property is regarded as sourced in South Africa if the intellectual property was developed in South Africa.
South Africa imposes withholding taxes on royalties paid to non-residents on the exploitation of intellectual property regardless of actual source through the deeming source provisions incorporated in the Income Tax Act 58 of 1962. Withholding tax provisions are introduced in many tax systems across the world to facilitate the collection of taxes from non-residents and to limit the tax base erosion of that country through the tax deduction claimed by the South African taxpayer.
This research intend to critically analyse the definition of ‘royalty’ in terms of the current tax legislation in South Africa in the context of withholding taxes on royalties. The question arises mainly due to the difficulty in the interpretation of the definition of royalty as defined in section 49A of the Income Tax Act with respect to amounts accrued or received by foreign persons for the imparting of knowledge and information, widely known as ‘know-how’.
The research will also provide a review of the nature of payments for computer software programs that are technically for the use or right of use of that computer software program. Other tax considerations covered in this research includes a discussion of the concept of effectively connected with a permanent establishment and some of the discrepancies between the domestic law and double tax agreements when a foreign person seeks to obtain relief for a reduction in the withholding tax rate.
This second part of this research report provides a comprehensive understanding of the exchange control regulations applicable to South African residents on the payment of royalty payments to non-residents. Furthermore, the researcher analyses the penalties that arise because of noncompliance with the regulations and what the impact is on the parties’ contractual obligations.
Description
A research report submitted to the Faculty of Commerce, Law and Management in partial fulfilment of the requirements for the degree of Master of Commerce specialising in taxation, 2018
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Citation
Kubyane, Mahommed Malepeng (2018) A critical analysis of the South African tax and exchange control implications of royalty payments to non-residents, University of the Witwatersrand, Johannesburg, <http://hdl.handle.net/10539/26686>