The foreign business establishment exemption and other aspects of section 9D of the Income Tax Act
Date
2018
Authors
Ismail, Faizel
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Abstract
This research report considers a number of practical issues that arise in relation to
the enforcement of section 9D of the Income Tax Act No. 58 of 1962 (“ITA”) read
together with complementary provisions of the Tax Administration Act No. 28 of 2011
(“TAA”).
More particularly, this research report considers the following issues: the onus and
burden of proof under section 9D; the scope of SARS’ power under section 46 of the
Tax Administration Act No. 28 of 2011 (“TAA”) to request information in order to give
effect to section 9D; the interlinking definitions in terms of section 9D; whether an
outsourcing business model can constitute the primary or core operations of a CFC
for the purposes of determining whether the CFC qualifies for the ‘foreign business
establishment’ exemption under section 9D status; and, if the issue of whether a
CFC correctly claimed an FBE status during the years of assessment be revisited by
SARS, particularly in respect of years of assessment which have prescribed.
It is submitted as follows. Section 46 of the TAA provides SARS with the effective
procedural powers to ensure compliance with section 9D. SARS is however
required to provide the taxpayer with grounds for assessment with sufficient and
reasonable detail in order to enable the taxpayer to understand the basis of and
reason for such assessment and respond appropriately thereto. SARS is
constrained by a three-year prescription period (from the date of an original
assessment) for issuing additional assessments unless SARS can demonstrate that
the taxpayer committed a fraud or misrepresentation which caused SARS failure to
properly assess the taxpayer. The onus is on the taxpayer to show, on a
preponderance of probability, that the decision/s of SARS in terms of section 9D
against which it appeals is/are wrong. There is an arguable case for contending that
the active management of service providers and agents may constitute the primary
operations for purposes of determining whether an FBE arises in relation to a CFC.
Description
A research report submitted to the Faculty of Commerce, Law and Management,
University of the Witwatersrand, Johannesburg, in partial fulfilment of the
requirements for the degree of Master of Commerce (specialising in Taxation).
Johannesburg, 2018
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Citation
Ismail, Faizel (2018) The foreign business establishment exemption and other aspects of Section 9D of the Income Tax Act, University of the Witwatersrand, Johannesburg, https://hdl.handle.net/10539/28753