An analysis of the deductibility of interest expenditure rules in South Africa
Date
2019
Authors
Pillay, Kerusha
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Abstract
Taxpayers are broadly financed in two ways, namely through the use of debt and equity. The returns on capital and debt are treated differently from an income tax perspective (SARS 2013). The interest expense incurred by taxpayers in the production of income by a person carrying on a trade, are deductible in determining taxable income, subject to certain conditions and limitations. The number of provisions contained in the Income Tax Act of 1962 (the Act) which deal with the tax treatment of interest income and interest expenditure have gradually increased over time. There are numerous aspects to be borne in mind by resident and foreign companies when considering the income tax and withholding tax implications which may arise in respect of transactions giving rise to interest income and interest expenditure (SAICA 2015). This is affirmed by the number of provisions in the income tax act dealing with the deductibility of interest primarily dealt with in section 24J of the Act as well as indicated by the 2014 amendments to section 8F, the introduction of section 8FA, sections 23M and 23N into the legislation. The purpose of this report is to assess whether the Department of National Treasury (National Treasury) have taken the number of provisions of the deductibility of interest too far.
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
Keywords
Arm’s length principle,, Base erosion and profit shifting, BEPS Action 4, Interest deductibility, Limitation of interest, Section 8FA, Thin capitalisation
Citation
Pillay, Kerusha (2019) An analysis of the deductibility of interest expenditure rules in South Africa, University of the Witwatersrand, Johannesburg, <http://hdl.handle.net/10539/29612>