[ ] Words in bold type in square brackets indicate omissions from existing enactments.

_____________ Words underlined with a solid line indicate insertions in existing enactments.

BE IT ENACTED by the Parliament of the Republic of South Africa, as follows:

. (1) Section 1 of the Estate Duty Act, 1955, is hereby amended by the insertion after the definition of "South African Revenue Service" of the following definition:

"’spouse’ in relation to any deceased person, means a person married to such deceased person in accordance with the Marriages Act, 1961 (Act No. 25 of 1961), and includes any person whom the Commissioner is satisfied is or was at the time of death of such deceased person the partner of such person in a permanent same-sex life partnership.".

(2) Subsection (1) shall be deemed to have come into operation on 4 February 1997.

. Section 1 of the Income Tax Act, 1962, is hereby amended¾

1. by the deletion of the definition of "domestic company";
2. by the deletion of the definition of "external company";
3. by the substitution for the words preceding paragraph (a) of the definition of "gross income" of the following words:

"’gross income’, in relation to any year or period of assessment, means¾

(i) in the case of any [person] resident, the total amount, in cash or otherwise, received by or accrued to or in favour of such [person] resident; or

(ii) in the case of any person other than a resident, the total amount, in cash or otherwise, received by or accrued to or in favour of such person from a source within or deemed to be within the Republic,

during such year or period of assessment [from a source within or deemed to be within the Republic], excluding receipts or accruals of a capital nature, but including, without in any way limiting the scope of this definition, such amounts (whether of a capital nature or not) so received or accrued as are described hereunder, namely¾ ";

4. by the substitution for paragraph (gA) of the definition of "gross income" of the following paragraph:

"(gA) any amount received or accrued from another person as consideration (or payment of like nature) for the imparting of or the undertaking to impart any scientific, technical, industrial or commercial knowledge or information [for use in the Republic], or for the rendering of or the undertaking to render any assistance or service in connection with the application or utilization of such knowledge or information;";

5. by the insertion after the definition of "Republic" of the following definition:

"’resident’ means any¾

1. any person other than a natural person which is incorporated, established, formed or which has its place of effective management in the Republic;";

1. by the deletion of the definition of "South African company";
2. by the deletion of the definition of "territory".

. Section 3 of the Income Tax Act, 1962, is hereby amended by the substitution for subsection (4) of the following subsection:

"(4) Any decision of the Commissioner under the definitions of 'benefit fund', 'pension fund', 'provident fund' and 'retirement annuity fund' in section 1, section 6, section 8(4)(b), (c), (d) and (e), [section 9C], section 9D, section 9F, section 10(1)[(cB)], (cH), [(cI), (cJ)], (cK), (e), (iA), (j) and (nB), section 11(e), (f), (g), (gA), (j), (l), (t), (u) and (w), section 12C, section 13, section 14, section 15, section 22(1), (3) and (5), section 24(2), section 24A(6), section 24C, section 24D, section 24I, section 27, section 31, section 35(2), section 38(4), section 57, paragraphs 6, 7, 9, 13, 13A, 14, 19 and 20 of the First Schedule, paragraph (b) of the definition of 'formula A' in paragraph 1 and paragraph 4 of the Second Schedule, paragraphs 18, 19(1), 20, 21, 22, 24 and 27 of the Fourth Schedule and paragraphs 2, 3, 6, 9 and 11 of the Seventh Schedule, shall be subject to objection and appeal.".

. The following section is hereby substituted for section 6quat of the Income Tax Act, 1962:

"(1) Subject to the provisions of subsection (2), there shall be deducted from the normal tax payable by any resident [of the Republic or any person contemplated in section 9C(2)(b) or any shareholder who is a ‘resident’ as defined in section 9E], in whose taxable income there is included—

(a) any income received by or accrued to such resident [or person] from any [country other than] source outside the Republic (other than any foreign dividend contemplated in paragraph (d)), which is not deemed to be from a source within the Republic, or which is deemed to be from a source within the Republic in terms of section 9(1)(cA), (e) or (fA) or section 9(6); or

(b) any proportional amount of [investment] income contemplated in section 9D; or

(d) any foreign dividend contemplated in section 9E,

a rebate determined in accordance with this section.

(1A) For the purposes of subsection (1), the rebate shall be an amount equal to the sum of any taxes on income proved to be payable, without any right of recovery by any person (other than a right of recovery in terms of any entitlement to carry back losses arising during any year of assessment to any year of assessment prior to such year of assessment), by—

(a) [(i)] such resident [of the Republic] in respect of¾

(ii) any dividend contemplated in subsection (1)(d); and

(b)[(ii)] any controlled foreign entity, as contemplated in section 9D, in respect of such proportional amount contemplated in subsection (1)(b); or

(c)[(ii)] any company in respect of any profits from which [such] any dividend contemplated in subsection (1)(d) is declared or deemed to have been declared; or

(d) any company in respect of the proportional amount of any profits from which any dividend is declared or deemed to have been declared to a controlled foreign entity and which dividend relates to any proportional amount of [investment] income included in the income of such [shareholder] resident as contemplated in subsection (1)(b),

to the government of any country other than the Republic in respect of the amount of income [derived from such country] which is so included in that resident’s [or person’s or shareholder’s] taxable income: Provided that where such resident is a member of any partnership or a beneficiary of any trust and such partnership or trust is liable for tax as a separate entity in such other country, a proportional amount of any tax payable by such entity, which is attributable to the interest of such resident in such partnership or trust, shall be deemed to have been payable by such resident.

(1B) Notwithstanding the provisions of subsection (1A)—

[(a)] the rebate or rebates of any tax proved to be payable to the government of any other country or countries shall not in aggregate exceed an amount which bears to the total normal tax payable the same ratio as the total taxable income attributable to the income derived from such country or countries, which is so included bears to the total taxable income; [and

(b) where such sum of any taxes payable to the government of any such other country exceeds the rebate as determined in paragraph (a) (hereinafter referred to as the excess amount), such excess amount may—

(ii) in the case of any excess amount relating to any amount included in the income of any company as contemplated in paragraph (b) of subsection (1), be deducted from any Secondary Tax on Companies which becomes payable by such company on the distribution of any profits derived by way of dividends declared to such company by such controlled foreign entity from profits that relate to any amount of investment income so included in terms of paragraph (b), limited to an amount determined by applying the rate of the Secondary Tax on Companies to the amount of the taxable income attributable to the inclusion of the income contemplated in such paragraph, after the deduction of—

Provided that¾

(A) the amount of any such excess amount [as exceeds the amount of any Secondary Tax on Companies as contemplated in subparagraph (i) or (ii)],may—

[(AA)](a) be carried forward to the immediately succeeding year of assessment and shall be deemed to be a tax on income paid to the government of [such] another country in such year; and

[(BB)](b) be set off against the amount of any normal tax payable by such [company] resident during such year of assessment in respect of any amount derived from [such] any other country which is included in the taxable income of such [shareholder] resident during such year, as contemplated in paragraph (a), (b) [(c)] or (d) of subsection (1), after any tax payable by such [company] resident to the government of [such] any other country in respect of [the] any amount so included during such year of assessment has been set off against the amount of—

[(AAA)] such normal tax payable in respect of such amount of income; and

(B) the excess amount contemplated in this paragraph shall not be allowed to be carried forward for more than [three] seven years reckoned from the year of assessment when such excess amount was for the first time carried forward; and

(c) the amount of any tax which—

(i) becomes payable to the government of any other country in respect of any amount which—

(aa) is declared to any [company which is] a resident as a foreign dividend which is exempt from tax in terms of section 9E(7)(e);or

(bb) would, but for the provisions of section 9D(9)(f), have been included in any income of such [company which is a] resident; and

(ii) has not been taken into account as a rebate against any normal tax payable by such company in respect of such amount previously included in his taxable income in terms of section 9D,

may be deducted from any [Secondary Tax on Companies] normal tax which becomes payable by such company [on the distribution of any profits] during any year of assessment that any income is derived by way of dividends declared to such company by any controlled foreign entity from profits relating to any investment income so previously included;

(d) no rebate shall be allowed as a deduction from the tax payable by any [shareholder] resident, in respect of any tax contemplated in subsection (1A)(c)[(ii)] or (d), which is payable by—

(i) any company distributing any dividend to such [shareholder] resident, if such [shareholder] resident (in the case of a company, together with any other company in a group of companies of which such company forms part) holds for his or its own benefit less than 10 per cent of the equity share capital in such company; or

(ii) any company in respect of any profits from which the dividend is declared or deemed to have been declared, if such [shareholder] resident does not hold a qualifying interest in such company;

(e) no rebate shall be allowed in respect of any tax payable on any amount contemplated in subsection (1)(d), if the [shareholder] resident has made an election as contemplated in section 9E(6).

(2) The rebate under subsection (1) shall not be granted in addition to any relief to which the resident [of the Republic] is entitled under any agreement between the government of the Republic and the said other country for the prevention of or relief from double taxation, but may be granted in substitution for the relief to which the resident [of the Republic] would be so entitled.

(3) For the purposes of this section—

‘controlled company’ means a controlled company as defined in section 9E;

‘controlling company’ means a controlling company as defined in section 9E;

‘group of companies’ means a group of companies as defined in section 9E;

‘qualifying interest’ means any qualifying interest as defined in section 9E;

(b) any person, other than a natural person, which is incorporated or has its place of effective management in the Republic.]".

(4) For the purpose of this section, the amount of any foreign tax proved to be payable as contemplated in subsection (1A) in respect of any amount which is included in the taxable income of any resident during any year of assessment, shall be converted to the currency of the Republic by applying the ruling exchange rate on the day that such foreign tax is actually paid: Provided that if such foreign tax has not been paid on the last day of such year of assessment the ruling exchange rate on the last day of such year of assessment shall be applied.".

. Section 7 of the Income Tax Act, 1962, is hereby amended by the addition of the following subsections:

"(8) Where by reason of or in consequence of any donation, settlement or other disposition (other than a donation, settlement or other disposition to a foreign entity of a public character) made by any resident, income is received by or accrued to any person who is not a resident (other than a controlled foreign entity as defined in section 9D in relation to such resident), there shall be included in the income of such resident so much of the amount of any income as is attributable to such donation, settlement or other disposition: Provided that any amount of income received by or accrued to such person by way of foreign dividends, shall for the purposes of this section be determined in accordance with the provisions of section 9E, as if such person had been a shareholder who is a resident.

(10) Any resident who, at any time during any year of assessment makes any donation, settlement or other disposition as contemplated in this section, shall disclose such fact to the Commissioner in writing when submitting his return of income for such year and at the same time furnish such information as may be required by the Commissioner for the purposes of this section.".

. Section 8 of the Income Tax Act, 1962, is hereby amended¾

1. by the substitution for the words preceding subparagraph (i) of paragraph (b) of subsection (4) of the following words:

"(b) If any amount referred to in paragraph (a) of this subsection is an amount which has been recovered or recouped during any year of assessment by a [person referred to in section 9(1)(c)] resident who carries on any business as owner or charterer of any ship as a result of the loss, sale or disposal in any other manner by that person of a ship, and if that person satisfies the Commissioner that—";

2. by the insertion after subsection (4) of the following subsection:

"(4A) The provisions of subsection (4)(a), (e), (f) or (k) shall not apply in respect of any amount which is deemed to have been allowed as a deduction in terms of subparagraph (ix) of the proviso to section 11(e), section 11(o)(bb), section 12B(4B), section 12C(4B), section12D(3A), section 13(1A), section 13bis(3A) or section 13ter(6A).".

. Section 9 of the Income Tax Act, 1962, is hereby amended¾

1. by the deletion of paragraphs (a), (b), (bA), (c), (cB), (d), (d)bis and (f) of subsection (1);
2. by the substitution for subparagraph (i) of paragraph (e) of subsection (1) of the following subparagraph:

"(i) any services rendered by such person to or work or labour done by such person for or on behalf of [the] any employer in the national or provincial spheres of Government [including any provincial administration], or any local authority in the Republic, or [the South African Tourist Corporation or the Council for Scientific and Industrial Research] any national or provincial public entity if 80 per cent or more of its expenditure is defrayed directly or indirectly from funds voted by Parliament, notwithstanding that such services are rendered or that such work or labour is done outside the Republic, provided such services are rendered or such work or labour is done in accordance with a contract of employment entered into with the Government [or such administration] or local authority or [that Corporation or that Council] national or provincial public entity; or";

3. by the substitution for subsection (1A) of the following subsection:

"(1A) For the purposes of paragraph (g)(ii) the services referred to in [paragraphs (d), (d)bis, (f) and] paragraph (fA) shall be deemed to have been performed within the Republic.";;

4. by the deletion of subsection (5).

. Section 9A of the Income Tax Act, 1962, is hereby repealed.

. Section 9C of the Income Tax Act, 1962, is hereby repealed.

. Section 9D of the Income Tax Act, 1962, is hereby amended¾

1. by the insertion in subsection (1) before the definition of "controlled foreign entity" of the following definition:

"’business establishment’ of a controlled foreign entity means a place of business with¾

1. an office, shop, factory, warehouse, farm or other structure which is owned by the controlled foreign entity or held by such entity under a lease of not less than one year;
2. a mine, oil or gas well, a quarry or any other place of extraction of natural resources, which is owned by such controlled foreign entity or held by such entity under a lease of not less than one year; or
3. a site for the construction or installation of buildings, bridges, roads, pipelines, heavy machinery or other projects of comparable magnitude which lasts for at least six months,

1. such establishment has its place of effective management within the country where such establishment is located; and
2. the place of business is maintained in such country outside the Republic, for a bona fide business purpose (other than the avoidance, postponement or reduction of any liability for payment of any tax, duty or levy imposed by this Act or by any other law administered by the Commissioner);";

1. by the insertion in subsection (1) after the definition of "controlled foreign entity" of the following definition:

"’designated country’ means any designated country as defined in section 9E;";

2. by the substitution for the definition of "foreign entity" in subsection (1) of the following definition:

"’foreign entity’ means any person (other than a natural person) which [has its place of effective management in a country other than the Republic] is not a resident;";

3. by the deletion of the definition of "investment income" in subsection (1);
4. by the deletion of the definition of "resident" in subsection (1);
5. by the substitution for subsection (2) of the following subsection:

"(2) There shall be included in the income for the year of assessment of any resident contemplated in the definition of "controlled foreign entity" in subsection (1), [a] an amount equal to the proportional amount of [any investment] the net income [received by or accrued to] of such entity for any financial year of such entity which ends during such year of assessment of such resident, which bears to the total [investment] net income received by or accrued to such entity during such financial year, the same ratio as the percentage of the participation rights of such resident in relation to such entity bears to the total participation rights in relation to such entity: Provided that the provisions of this subsection shall not apply [to any amount of investment income to which the provisions of subsection (4) are applicable] where such resident (together with any connected person in relation to such resident) holds less than 10 per cent of the participation rights in such controlled foreign entity.";

6. by the insertion after subsection (2) of the following subsection:

"(2A) For the purposes of subsection (2), the "net income" of a controlled foreign entity shall be an amount equivalent to the taxable income of such entity determined in accordance with this Act as if such controlled foreign entity had been a resident: Provided that¾

(a) any deductions or allowances which may be allowed, or any amounts which may be set off against, the income of such entity in terms of this Act shall be limited to the amount of such income; and

(b) any amount whereby such deductions or allowances or amounts exceed the amount of such income, shall be carried forward to the immediately succeeding year of assessment and be deemed to be a balance of assessed loss which may be set off against the income of such entity in the such succeeding year for the purposes of section 20;

(c) no deduction shall be allowed in respect of any interest paid by such entity to any other controlled foreign entity in relation to the resident, as contemplated in subsection (9)(fA);.";

7. by the substitution for subsection (3) of the following subsection:

"(3) Where any resident acquires during any year of assessment any vested right to participate in any amount representing capital of any controlled foreign entity (other than a company) and¾

(a) such capital arose from [investment] income received by or accrued to such controlled foreign entity in any previous year of assessment during which such resident had a contingent right to participate in such [investment] income; and

(b) such [investment] income has not been subject to tax in terms of the provisions of this Act,

such amount shall be included in the income of such resident in such year of assessment.";

8. by the deletion of subsection (4);
9. by the deletion of subsection (4A);
10. by the deletion of subsection (5);
11. by the substitution for subsection (6) of the following subsection:

"(6) The amount apportioned to any resident under the provisions of this section, shall be converted [at a date not later than the end of the financial year of the resident] to the currency of the Republic on the last day of the financial year of the controlled foreign entity and the ruling exchange rate at that date shall be applied to determine the value of the amount to be included in the income of such resident or at an average exchange rate determined for such year in such manner as the Commissioner may approve.";

12. by the substitution for subsection (7) of the following subsection:

"(7) Any resident who, at any time during any year of assessment, has a [participating] participation right contemplated in subsection (2) or a vested right contemplated in subsection (3) [or makes any donation, settlement or other disposition as contemplated in subsection (4)], shall disclose such fact to the Commissioner in writing when submitting his return of income for such year and at the same time furnish such information as may be required by the Commissioner for the purposes of this section.";

13. by the deletion of subsection (8);
14. by the substitution for subsection (9) of the following subsection:

"(9) The provisions of this section shall not apply—

1. in respect of [investment income] receipts and accruals, other than [income] receipts and accruals from foreign dividends contemplated in section 9E, of any controlled foreign entity which is a company where the [foreign tax actually paid or payable without any right of recovery by any person (other than a right of recovery in terms of any entitlement to carry back losses arising during any year of assessment to any year of assessment prior to such year of assessment) in any country other than the Republic, relating to the proportional amount contemplated in subsection (2) or (4)], receipts and accruals after taking into consideration any deductions or allowances under the taxation provisions of such other country [determined at the ratio as contemplated in subsection (2) or (4) as the case may be, is more than 85 per cent of the normal tax payable in the Republic] have been or will be subject to tax on income in a designated country at a statutory rate of at least 27 per cent without any right of recovery by any person (other than a right of recovery in terms of an entitlement to carry back losses arising during any year of assessment to any year of assessment prior to such year of assessment): [Provided that for the purposes of the determination of the tax payable in the Republic on such proportional amount, such tax shall be an amount which bears to the total normal tax payable the same ratio as the taxable income attributable to the inclusion of such proportional amount bears to the total taxable income in relation to such resident];
2. where the [investment income arises from and is effectively connected to the business activities of a substantive business enterprise] net income of any controlled foreign entity which is a company is attributable to any business establishment of [any] such controlled foreign entity [conducted through a permanent establishment as defined in section 9C(1) of such controlled foreign entity] in any country other than the Republic [where such permanent establishment is suitably equipped for conducting the principal business of such substantive business enterprise]: Provided that the provisions of this paragraph shall not apply to any receipts and accruals¾

(i) derived from any sale or service transaction by such controlled foreign entity with any connected person who is a resident, unless the consideration in respect of such transaction reflects an arm’s length price that is consistent with the provisions of section 31; or

[(d) to any particular class of investment income which is taxable in a country which the Minister has identified by notice in the Gazette as a country whose tax on income is determined on a basis which is substantially the same as that of the Republic;]

(e) to [investment income] the net income of any controlled foreign entity [which is—

(ii)] to the extent that such income is included in the taxable income of the entity;

(f) in relation to the proportional amount of [investment income relating] the net income attributable to any resident, to the extent that it relates to any foreign dividend contemplated in section 9E declared to or deemed to have been declared to a controlled foreign entity [which is attributable to any resident to the extent that the profits from which the dividend is declared or deemed to have been declared relate to any proportional amount of [investment] income which has been included in the income of such resident in terms of the provisions of this section] which is a company by any other company which is a controlled foreign entity in relation to such resident; or

(fA) in relation to the proportional amount of the net income attributable to any resident, to the extent that it relates to any interest, which is paid to such entity by any other controlled foreign entity in relation to such resident;

(g) to the proportional amount of [any investment income] the net income of any company listed on a stock exchange as defined in section 1 of the Stock Exchanges Control Act, 1985 (Act No. 1 of 1985), or any subsidiary of such company, which is attributable to any resident by virtue of the shareholding of such resident in such company which resident, together with any connected person in relation to such resident, directly or indirectly holds less than 10 per cent of the equity share capital in such company or subsidiary.";

1. by the addition of the following subsections:

"(10) The provisions of subsection (9)(b), (f) and (fA) shall not apply, where any resident fails to fully comply with the provisions of section 72A(2).

1. ‘rental income’ means any amount received by or accrued to any person as consideration for the use of, or the right to use, any movable or immovable property;
2. ‘royalty’ means any amount received by or accrued to any person as consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work (including cinematograph films and films, tapes or discs for radio or television broadcasting), any patent, trade mark, design or model, plan, secret formula or process, or any other property or right of a similar nature, or for information concerning industrial, commercial or scientific experience.".

. (1) Section 9E of the Income Tax Act, 1962, is hereby amended¾

by the substitution for the words preceding paragraph (a) of the definition of "foreign dividend" in subsection (1) of the following words:

"’foreign dividend’ means any dividend received by or which accrued to any person from any company [to the extent that the dividend is declared from profits derived by such company from a source outside the Republic which are not deemed to be from a source within the Republic, or from profits which are deemed to be from a source within the Republic which have not been subject to tax in the Republic] which is not a resident, and includes the following amounts which shall be deemed to be a dividend declared by such company to such person¾ ";

by the substitution for paragraph (a) of the definition of "foreign dividend" of the following paragraph:

"(a) any amount deemed to have been distributed as contemplated in section 64C(3)(a), (b), (c) or (d) by any company which is not a resident [as contemplated in section 64C(3)(a), (b), (c) or (d)] to such person or any resident who is a connected person in relation to such person to the extent that such company could have distributed a dividend to such person from profits [derived from a source outside the Republic which are not deemed to be from a source within the Republic, or from profits which are deemed to be from a source within the Republic] which have not been subject to tax in the Republic, and none of the provisions contained in section 64C(4) apply: Provided that the provisions of this paragraph shall not apply in respect of any amount distributed by any company which is being wound up or liquidated or whose corporate existence is finally terminated, out of profits of a capital nature (other than profits of a capital nature derived from the disposal by such company, on or after the effective date, of any interest in any other company with retained profits which were available for distribution by such other company to such company which would not have been excluded from the provisions of paragraph (b) had that paragraph applied); or

by the substitution for the words preceding the proviso to paragraph (b) of the definition of "foreign dividend" of the following words:

"(b) any amount derived by any person from the disposal by such person of any share or interest in the fixed capital in a company which is a controlled foreign entity, to the extent that such company or any subsidiary of such company has any undistributed profits [which were derived from a source outside the Republic which are not deemed to be from a source within the Republic, or from profits deemed to be from a source within the Republic] which have not been subject to tax in the Republic, which were directly or indirectly available for distribution to such person:";

by the deletion of the definition of "resident" in subsection (1);

by the deletion of subsection (2);

by the insertion after subsection (5) of the following subsection:

"(5A) Notwithstanding the provisions of sections 11(a) and 23(g)¾

there shall be allowed to be deducted from any income of a resident which is derived from taxable foreign dividends, an amount of any interest actually incurred by such resident in the production of income in the form of foreign dividends: Provided that such deduction shall be limited to the amount of foreign dividends included in the gross income of such resident during such year; and

any amount whereby such interest contemplated in paragraph (a) exceeds the amount of any such foreign dividends shall be reduced by the amount of any foreign dividends received by or accrued to such resident during such year of assessment which are not included in the taxable income of such resident and the balance shall be carried forward to the immediately succeeding year of assessment and be deemed to have been actually incurred by such resident during such succeeding year of assessment in the production of income in the form of foreign dividends.";

by the deletion of paragraphs (a) and (b) of subsection (7);

1. by the substitution for subparagraph (ii) of paragraph (d) of subsection (7) of the following subparagraph:

"(ii) are or will be subject to tax at a statutory rate of at least 27 per cent without any right of recovery by any person (other than a right of recovery in terms of an entitlement to carry back losses arising during any year of assessment to any year of assessment prior to such year of assessment); or";

2. by the deletion of the word "or" at the end of paragraph (d) of subsection (7);
3. by the substitution for subparagraph (i) of paragraph (e) of the following subparagraph:

"(i) relate to any amount of [investment] income which has or will be included in the income of the shareholder of such company in terms of section 9D; or"

4. by the addition of the word "or" at the end of paragraph (e) of subsection (7); and
5. by the addition to subsection (7) of the following paragraph:

"(f) any company out of profits derived by such company by way of any foreign dividend which is exempt from tax in terms of the provisions of this subsection.";

6. by the deletion of paragraph (a) of subsection (8).

(2)(a) Subsection (1)(a), (b), (d), (e), (g), (j) and (m) shall come into operation on 1 January 2001 and shall apply in respect of any year of assessment commencing on or after that date.

(b) Subsection (1)(c), (f), (h), (i), (k) and (l) shall be deemed to have come into operation on 23 February 2000.

. The following section is hereby inserted after section 9E of the Income Tax Act, 1962:

"Income from foreign sources.

during any year of assessment, may not be remitted to the Republic during such year of assessment as a result of currency or other restrictions or limitations imposed in terms of the laws of the country where the amount was received or accrued, such amount or any portion thereof shall be deemed not to have been received or accrued to such person or such resident during such year and such amount or portion thereof shall be included in the gross income of such person or such resident during the year of assessment during which such amount or portion thereof may be so remitted to the Republic.".

. Section 10 of the Income Tax Act, 1962, is hereby amended¾

1. by the substitution for subparagraphs (iii) and (iv) of paragraph (c) of the following subparagraphs:

"(iii) the salary and emoluments payable to any person who holds office in the Republic as an official of any government, other than the Government of the Republic, provided such person is stationed in the Republic for that purpose and is not [ordinarily] a resident [in] of the Republic;

(iv) any salary and emoluments payable to any domestic or private servant of any person referred to in subparagraph (iii) in respect of domestic or private services rendered or to be rendered by such servant to such person if such servant is not a South African citizen and is not [ordinarily] a resident [in] of the Republic;";

2. by the substitution for subparagraph (ii) of paragraph (cA) of subsection (1) of the following subparagraph:

"(ii) any [South African company] association, corporation or company contemplated in paragraph (a) of the definition of "company" in section 1, all the shares of which are held by any such institution, board or body, if the operations of such association, corporation or company are ancillary or complementary to the object of such institution, board or body:";

3. by the substitution for paragraph (cG) of subsection (1) of the following paragraph:

"(cG) the receipts and accruals of any [persons (other than a company) who is ordinarily resident in any country other than the Republic or of an external company which is managed and controlled in any such country] person who is not a resident, which are derived by such person [or company] from carrying on business as the owner or charterer of any ship or aircraft, if a similar exemption or equivalent relief is granted by the [said] country where such person has his or her or its place of residence to any [person (other than a company) ordinarily resident in the Republic or to any domestic company] resident in respect of any tax imposed in that country on income which may be derived by such person [or company] from carrying on in such country any business as owner or charterer of any ship or aircraft;";

4. by the deletion of paragraph (dA) of subsection (1);
5. by the insertion of the following paragraph after paragraph (gB) of subsection (1):

"(gC) any¾

(i) amount received by or accrued to any resident under the social security system of any other country; or

(ii) pension received by or accrued to any resident from a source outside the Republic, which is not deemed to be from a source in the Republic, in consideration of past employment outside the Republic;";

6. by the substitution for subparagraphs (i) and (ii) of paragraph (h) of subsection (1) of the following subparagraphs:

"(ii) an [external] company which is not a resident and which does not [carrying] carry on business in the Republic,";

7. by the substitution for the first proviso to paragraph (h) of subsection (1) of the following proviso:

"Provided that, if in the case of any such stock or securities issued in respect of a loan raised in a country outside the Republic, the Treasury has, with the approval of the Minister of Finance, given an undertaking that the interest derived therefrom by any person [not ordinarily] who is not a resident [in the Republic or by any external company] shall be exempt from taxes in the Republic, the interest received by or accrued to such a person or company from such of the said stock or securities as were acquired by such person or company outside the Republic and paid for by such person or company in the currency of any country other than the Republic shall be exempt from normal tax even if that person or company carries on business in the Republic:";

8. by the substitution for the words preceding subparagraph (i) and subparagraph (i) of paragraph (hA) of subsection (1) of the following words and subparagraph:

"interest received by or accrued to a person [(other than a company) who is ordinarily resident outside the Republic or a company which is managed and controlled outside the Republic] who is not a resident: Provided that—

(i) the exemption under this section shall not apply to any natural person who was at any time [ordinarily] a resident [in] of the Republic if such person has during the year of assessment carried on business in the Republic; ";

9. by the substitution for subparagraph (v) of the proviso to paragraph (hA) of subsection (1) of the following subparagraph:

"(v) the exemption under this paragraph shall not apply to any interest received by or accrued to a company which is [managed and controlled outside] not a resident of the Republic, if such interest is effectively connected with the business carried on by that company in the Republic;";

10. by the substitution for paragraph (iA) of subsection (1) of the following paragraph:

"(iA) in the case of any unit portfolio referred to in paragraph (e)(i) of the definition of 'company' in section 1, so much of the [interest] income or foreign dividends contemplated in section 9E received by or accrued to such unit portfolio as has been distributed, or as the Commissioner is satisfied will be distributed, by way of a dividend or a portion of a dividend, to persons who have become entitled to such dividend by virtue of their being registered as holders of units in such unit portfolio on a date falling on or after the first day of April, 1971;";

11. by the substitution for item (A) of subparagraph (bb) of the proviso to paragraph (k) of subsection (1) of the following item:

"(A) out of [interest] income derived by such unit portfolio which is exempt from tax in the hands of such unit portfolio under the provision of paragraph (iA); and";

12. by the substitution for item (aa) of subparagraph (i) of paragraph (k) of subsection (1) of the following item:

"(aa) to dividends (other than those distributed out of profits of a capital nature and those received by or accrued to or in favour of any person who is not [ordinarily] a resident of, nor carrying on business in, the Republic) distributed by a fixed property company as defined in section 1 of the Unit Trusts Control Act, 1981 (Act No. 54 of 1981), on shares included in a unit portfolio comprised in any unit trust scheme in property shares authorized under the said Act; or";

13. by the substitution for item (dd) of subparagraph (i) of paragraph (k) of subsection (1) of the following item:

"(dd) to the amount of any foreign dividend contemplated in section 9E received by or accrued to any resident [as defined in section 9C];";

14. by the insertion after paragraph (k) of subsection (1) of the following paragraphs:

"(kA) so much of any amount received by or accrued to any company which is a resident from a source outside the Republic as determined in accordance with the provisions of section 9F(2);

(l) any amount received by or accrued to any person which has been subject to withholding tax in terms of the provisions of section 35;";

15. To follow.
16. by the substitution for paragraph (p) of subsection (1) of the following paragraph:

"(p) any amount received by or accrued to any person who is not [ordinarily] a resident [in] of the Republic, for services rendered or work or labour done by him outside the Republic for or on behalf of any employer in the national or provincial spheres of Government, [including the Railway Administration and any provincial administration], or any local authority in the Republic or [the South African Tourist Corporation or the Council for Scientific and Industrial Research] any national or provincial public entity if 80 per cent or more of its expenditure is defrayed directly or indirectly from funds voted by Parliament, if such amount is chargeable with income tax in the country in which he is ordinarily resident and the income tax so chargeable is borne by himself and is not paid on his behalf by the Government, the provincial administration or local authority concerned [or the said Corporation or the said Council];".

. Section 10A of the Income Tax Act, 1962, is hereby amended by the substitution for the words preceding the proviso to subsection (4) of the following words:

"(4) The valuator of an insurer who is a party to an annuity contract shall, before payment of the first annuity amount is made under such contract or [where such payment was made before the date on which this section or section 9C comes into operation, within one month after the date, or in either case] within such period as the Commissioner may allow, make a calculation (with due regard to the provisions of subsection (5)) in the manner prescribed in paragraph (a) of subsection (3) or, if the provisions of paragraph (b) of that subsection are applicable, in accordance with that paragraph, of the capital element of all the annuity amounts to be paid under the said contract:".

. Section 11 of the Income Tax Act, 1962, is hereby amended¾

1. by the substitution for the words preceding paragraph (a) and paragraph (a) of the following words and paragraph:

"For the purpose of determining the taxable income derived by any person from carrying on any trade [within the Republic], there shall be allowed as deductions from the income of such person so derived—

(a) expenditure and losses actually incurred [in the Republic] in the production of the income, provided such expenditure and losses are not of a capital nature;";

2. by the deletion of paragraph (b);
3. by the addition of the following subparagraph to the proviso to paragraph (e):

"(ix) where any such machinery, plant, implement, utensil or article was used by the taxpayer during any previous financial year or years for the purposes of any trade carried on by such taxpayer, the receipts and accruals from which were not included in the income of such taxpayer during such year or years, the Commissioner shall take into account the period of use of such asset during such previous year or years in determining the amount by which the value of such machinery, plant, implement, utensil or article has been diminished;";

4. by the substitution for subparagraph (ii) of paragraph (gA) of the following subparagraphs:

"(ii) in obtaining any patent or the restoration of any patent under the Patents Act, 1978, or the registration of any design under the Designs Act, 1993, or the registration of any trade mark under the Trade Marks Act, 1993, or under similar laws of any other country; or";

5. by the substitution for the words preceding subparagraph (A) of paragraph (cc) of the proviso to paragraph (gA) of the following words:

"(cc) no allowance shall be made in respect of any such invention, patent, design, trade mark, copyright or other property or knowledge so acquired or obtained by the taxpayer on or after 24 June 1988, but prior to 1 July 1993 from any other person who is a resident of the Republic or who is ordinarily resident in a neighbouring country (or, in the case of a company, [a domestic company or a company] is incorporated [managed or controlled] or has its place of effective management in a neighbouring country), if—

6. by the substitution for paragraph (dd) of the proviso to paragraph (gA) of the following paragraph:

"(dd) where any such invention, patent, design, trade mark, copyright or other property or knowledge was so acquired or obtained by the taxpayer on or after 1 July 1993 from any other person who is a resident of the Republic or [a] who is ordinarily resident in a neighbouring country (or, in the case of a company, [a domestic company or a company] is incorporated [managed or controlled] or has its place of effective management in a neighbouring country), and who is a connected person in relation to the taxpayer, the allowance under this paragraph shall be calculated on an amount not exceeding the lesser of the cost of such invention, patent, design, trade mark, copyright or other property or knowledge to such connected person or the market value thereof as determined on the date upon which such invention, patent, design, trade mark, copyright or other property or knowledge was acquired or obtained by the taxpayer;"

7. by the substitution for paragraph (gB) of the following paragraph:

"(gB) expenditure (other than expenditure which has qualified in whole or part for deduction or allowance under any of the other provisions of this section) actually incurred by the taxpayer during the year of assessment in obtaining the extension of the term of any patent under the Patents Act, 1978 (Act No. 57 of 1978), or the extension of the registration period of any design under the Designs Act, 1993 (Act No. 195 of 1993), or the renewal of the registration of any trade mark under the Trade Marks Act, 1993 (Act No. 194 of 1993), or under similar laws of any other country, if such patent, design or trade mark is used by the taxpayer in the production of his income or income is derived by him therefrom;";

8. by the deletion of paragraph (gC);

(g) by the substitution for the words following subparagraph (vii) of paragraph (o) and preceding the proviso thereto of the following words:

"which have been scrapped by such taxpayer during the year of assessment, such allowance to be the excess of the original cost to such taxpayer of such building (or portion thereof), improvements (or portion thereof) to such building, shipbuilding structure, improvements to such shipbuilding structure, residential unit, permanent work, road pavement, ancillary service, machinery, plant, implements, utensils, articles, transmission line or cable or railway line over the total amount arrived at by adding¾

1. all the allowances made in respect thereof under the provisions of paragraph (e) of this section, or section 12(1), or section 12(1) as applied by section 12(3), or section 12A(2), or section 12B, or section 12C, or section 12D, or section 13(1), or section 13(1) as applied by section 13(4) or (8), or section 13bis(1), (2) or (3), or section 13ter(2) or (3), or section 14(1)(a) or (b), or the corresponding provisions of any previous Income Tax Act, or section 14bis(1)(a), (b) or (c), or section 24F, or section 24G, or section 27(2)(b) or (d); or
2. in the case of any building (or portion thereof), improvements (or portion thereof) to such building, shipbuilding structure, improvements to such shipbuilding structure, residential unit, permanent work, road pavement, ancillary service, machinery, plant, implements, utensils, articles, transmission line or cable or railway line, which was during any previous financial year or years used by the taxpayer in the course of any trade carried on by such taxpayer, the receipts and accruals of which were not included in the income of such taxpayer during such year or years, all the allowances which could have been made in terms of the provisions referred to in item (aa) as if such receipts and accruals been included in such taxpayer’s income,

to any amount or the value of any advantage accruing to the taxpayer in respect of the sale or other disposal of such building, shipbuilding structure, improvements, residential unit, permanent work, road pavement, ancillary service, machinery, plant, implements, utensils articles, transmission line or cable or railway line:".

. Section 11bis of the Income Tax Act, 1962, is hereby amended¾

1. by the substitution for paragraph (ii) of the proviso to subsection (3) of the following paragraph:

"(ii) any amount by which the marketing expenditure is reduced under paragraph (i) shall be deemed for the purposes of this section to be an amount of marketing expenditure which was incurred in the succeeding year of assessment and which was allowed to be deducted from his income under section 11 [or 17] during such year.";

2. by the substitution for the words preceding paragraph (a) of subsection (4) of the following words:

"(4) For the purposes of subsection (3) the marketing expenditure on which the marketing allowance is to be calculated shall be so much of the expenditure incurred by the exporter during the year of assessment and allowed to be deducted from his income under [sections] section 11 [and 17] as is proved to the satisfaction of the Commissioner to have been incurred directly—";

3. by the substitution for the words following paragraph (e) of subsection (4A) of the following words:

"so much of such expenditure as the Commissioner is satisfied was in effect borne by any producer of any pastoral, agricultural or other farming produce exported by the said Association or by any such committee, board, society or company or by some other person under marketing arrangements controlled by the said Association or by such committee, board, society or company, shall for the purposes of this section be deemed to be marketing expenditure incurred by such producer, provided such expenditure, had it been incurred directly by such producer, would have ranked for deduction from his income under section 11 [or 17], and, where such expenditure was incurred by any such co-operative agricultural society or company or farmers’ special co-operative company, the expenditure shall be excluded from any marketing expenditure taken into account for the purposes of any allowance to such society or company under this section.".

. Section 12B of the Income Tax Act, 1962, is hereby amended by the insertion of the following subsection after subsection (4A):

"(4B) Where any asset in respect of which any deduction is claimed in terms of this section was during any previous financial year brought into use for the first time by the taxpayer for the purposes of any trade carried on by such taxpayer, the receipts and accruals from which were not included in the income of such taxpayer during such year, any deduction which could have been allowed in terms of this section during such previous year or any subsequent year that such asset was used by such taxpayer shall for the purposes of this section be deemed to have been allowed during such previous year or years as if the receipts and accruals of such trade been included in the income of such taxpayer.".

. Section 12C of the Income Tax Act, 1962, is hereby amended¾

1. by the insertion of the following subsection after subsection (4):

"(4A) Where any asset in respect of which any deduction is claimed in terms of this section was during any previous financial year brought into use for the first time by the taxpayer for the purposes of any trade carried on by such taxpayer, the receipts and accruals from which were not included in the income of such taxpayer during such year, any deduction which could have been allowed in terms of this section during such previous year or any subsequent year that such asset was used by such taxpayer shall for the purposes of this section be deemed to have been allowed during such previous year or years as if the receipts and accruals of such trade been included in the income of such taxpayer.";

2. by the substitution for subsection (5) of the following subsection:

"(5) The deductions which may be allowed or deemed to have been allowed in terms of this section and section 11(o) in respect of any asset shall not in the aggregate exceed the cost to the taxpayer of such asset.".

. Section 12D of the Income Tax Act, 1962, is hereby amended¾

1. by the substitution for subsection (2) of the following subsection:

"(2) In respect of any new and unused affected asset which ¾

(a) is owned by the taxpayer and is brought into use for the first time by such taxpayer on or after the effective date; and

(b) is used directly by such taxpayer¾

[(i) in the production of his income; and]

[(ii)] in the carrying on his sole business of¾

[(aa)](i) the transportation of persons, goods, things or natural oil; or

[(bb)](ii) the transmission of electricity or any telecommunication signal,

there shall be allowed to be deducted an allowance in respect of the cost actually incurred by the taxpayer in respect of the acquisition of such asset to the extent that such affected asset is used in the production of his income.";

(b) by the insertion of the following subsection after subsection (3):

"(3A) Where any affected asset in respect of which any deduction is claimed in terms of this section was during any previous financial year brought into use for the first time by the taxpayer for the purposes of any trade carried on by such taxpayer, the receipts and accruals from which were not included in the income of such taxpayer during such year, any deduction which could have been allowed in terms of this section during such previous year or any subsequent year in which such asset was used by such taxpayer shall for the purposes of this section be deemed to have been allowed during such previous year or years as if the receipts and accruals of such trade been included in the income of such taxpayer.";

2. by the substitution for subsection (6) of the following subsection:

"(6) The deductions which may be allowed or deemed to have been allowed in terms of this section and any other provision of this Act in respect of the cost of any affected asset shall not in the aggregate exceed the amount of such cost.";

. Section 13 of the Income Tax Act, 1962, is hereby amended¾

1. by the insertion of the following subsection after subsection (1):

"(1A) Where any building in respect of which any deduction of an allowance is claimed in terms of this section was during any previous financial year or years used by the taxpayer for the purposes of any trade carried on by such taxpayer, the receipts and accruals from which were not included in the income of such taxpayer during such year or years, any deduction which could have been allowed during such previous year or years in terms of this section shall for the purposes of this section be deemed to have been allowed during such previous year or years as if the receipts and accruals of such trade been included in the income of such taxpayer.";

2. by the substitution for subsection (2) of the following subsection:

"(2) The aggregate of the allowances allowed under subsection (1) or the corresponding provisions of any previous Income Tax Act, or deemed to have been allowed as contemplated in subsection (1A), in respect of any building or improvements shall not exceed the cost (after the deduction of any amount referred to in subsection (3) or the corresponding provisions of any previous Income Tax Act) of such building or improvements, as the case may be, less the aggregate of any allowances made to the taxpayer in respect of such building or improvements, as the case may be, under subsection (7) or section 11(g) or the corresponding provisions of any previous Income Tax Act.".

. Section 13bis of the Income Tax Act, 1962, is hereby amended¾

1. by the insertion of the following subsection after subsection (3):

"(3A) Where any building in respect of which any deduction of an allowance is claimed in terms of this section was during any previous financial year or years used by the taxpayer for the purposes of any trade carried on by such taxpayer, the receipts and accruals from which were not included in the income of such taxpayer during such year or years, any deduction which could have been allowed during such previous year or years in terms of this section shall for the purposes of this section be deemed to have been allowed during such previous year or years as if the receipts and accruals of such trade been included in the income of such taxpayer.";

2. by the substitution for subsection (5) of the following subsection:

"(5) The aggregate of the allowances under the preceding provisions of this section and subsection (1) of section thirteen, as applied by subsection (4) of that section, and the corresponding provisions of any previous Income Tax Act, or any amount deemed to have been allowed as contemplated in subsection (3A) in respect of the cost of any building or portion thereof or any improvements or portion thereof shall not exceed such cost or, if such allowances have been calculated on a portion of such cost, such portion.".

. Section 13ter of the Income Tax Act, 1962, is hereby amended¾

1. by the insertion of the following subsection after subsection (6):

"(6A) Where any building in respect of which any deduction of an allowance is claimed in terms of this section was during any previous financial year used by the taxpayer for the purposes of any trade carried on by him or her the receipts and accruals from which were not included in the income of such taxpayer during such year, any deduction which could have been allowed during such previous year in terms of this section shall for the purposes of this section (excluding the provisions of subsection (7)(a)) be deemed to have been allowed during such previous year as if the receipts and accruals of such trade been included in the income of such taxpayer.";

2. by the substitution for subsection (10) of the following subsection:

"(10) The aggregate of the allowances allowed or deemed to have been allowed under the preceding provisions of this section in respect of the cost of any residential unit shall not exceed such cost or, if such allowances have been calculated on a portion of such cost, such portion.".

. Section 14 of the Income Tax Act, 1962, is hereby amended¾

1. by the substitution for the words preceding paragraph (a) of subsection (1) of the following words:

"(1) There shall be allowed to be deducted from the income of any [person referred to in section 9(1)(c)] resident who carries on any business as owner or charterer of any ship¾ ";

2. by the substitution for the words preceding paragraph (a) of subsection (1C) of the following words:

"(1C) Where on or after 1 January 1974 any [South African company] association, corporation or company contemplated in paragraph (a) of the definition of "company" (being a [person referred to in section 9(1)(c)] resident who carries on any business as owner or charterer of any ship) has concluded a contract for the acquisition by it of a ship and such company (hereinafter referred to as the taxpayer company) satisfies the Commissioner that¾ ";

3. by the substitution for the definition of "South African ship" in subsection (2) of the following definition:

"’South African ship’ means¾

(a) a ship which is owned by a [person referred to in section 9(1)(c)] resident who carries on any business as owner or charterer of any ship, if such ship is a South African ship as defined in section 2 of the Merchant Shipping Act, 1951 (Act No. 57 of 1951); or

(b) if the Minister of Finance, having regard to the circumstances of the case, so directs, a ship which is owned by a company (in this section referred to as a subsidiary company) which is managed and controlled in the Republic if the sole beneficial shareholder in that company is a [South African company] association, corporation or company contemplated in paragraphs (a) of the definition of "company" in section 1 (in this section referred to as a parent company) which is managed and controlled in the Republic.".

. Section 14bis of the Income Tax Act, 1962, is hereby amended¾

1. by the substitution for paragraph (b) of subsection (1) of the following paragraph:

"(b) if such person is a [person referred to in paragraph (c) of subsection (1) of section nine] resident who carries on any business as owner or charterer of any aircraft and such [person] resident on or after the first day of April, 1965, concludes a contract for the acquisition by him of a new aircraft (whether built or still to be built), or of an aircraft which is not new and is proved to the satisfaction of the Secretary for Transport at all times since its construction to have been maintained in the highest class applicable to an aircraft of its type, and such person satisfies the Commissioner that the aircraft in question is or will be registered by him in the Republic and is or will be used by him in his business of transporting by air and for reward persons, livestock, goods or mail, an allowance in respect of the year of assessment during which such contract is concluded equal to forty per cent. of the adjustable cost to such person of that aircraft, or, if at the time at which the allowance under this paragraph has to be made, the cost price of the aircraft has not yet been determined, of the adjustable estimated cost price of that aircraft, provided the said person satisfies the Commissioner that not less than forty per cent. of the cost price or of the estimated cost price, as the case may be, of the aircraft will be paid by him within a period of two years, or, if the Commissioner agrees, three years after the end of that year of assessment or, if the said person does not so satisfy the Commissioner, an allowance in respect of any year of assessment equal to forty per cent. of the portion, if any, of the adjustable cost price of the aircraft paid by him during that year of assessment: Provided that—";

2. by the substitution for subparagraph (iii) of paragraph (b) of subsection (1) of the following subparagraph:

"(iii) if in respect of any year of assessment the Commissioner is no longer satisfied that an aircraft in respect of which an allowance has been made under the preceding provisions of this paragraph (whether in the current or any previous year of assessment) will be registered in the Republic or will be used by the taxpayer as aforesaid, or if in any year of assessment any such aircraft which has been registered in the Republic or has been used by the taxpayer as aforesaid, ceases to be so registered or used, or if in any year of assessment the taxpayer ceases to be a [person referred to in paragraph (c) of subsection (1) of section nine] resident, so much of the amount of the said allowance as is not in terms of subsection (4) of section eight required to be included in the taxpayer’s income for the current or any other year of assessment and is not in terms of paragraph (a) of subsection (2) of this section required to be deducted from the cost or estimated cost price of a further aircraft acquired to replace such aircraft, less such amount as would, if this paragraph had not been enacted, have been allowed to the taxpayer by way of deductions (in addition to those actually allowed) under paragraph (a) of this section or paragraph (o) of section eleven, either in the current or any previous year of assessment, shall in terms of this proviso be included in the income of the taxpayer for the current year of assessment;";

3. by the substitution for subparagraph (i) of paragraph (c) of subsection (1) of the following subparagraph:

"(i) the person is a [person mentioned in section 9(1)(c)] resident who carries on any business as owner or charterer of any ship, who has acquired a new or used aircraft under a contract concluded by him on or after 1 August 1992;";

4. by the substitution for the words preceding paragraph (a) of subsection (3) of the following words:

" If during any year of assessment any aircraft in respect of which an allowance has been granted to the taxpayer under subsection (1)(c) (whether in the current or any previous year of assessment) ceases to be registered by him in the Republic or ceases to be used by him in his business of transporting by air and for reward persons, livestock, goods or mail, or if the taxpayer to whom such allowance was granted ceases to be a [person mentioned in section 9(1)(c)] resident, there shall be included in the taxpayer’s income in such first-mentioned year of assessment the amount (if any) by which the said allowance exceeds the sum of—".

. Section 17 is hereby repealed.

. Section 18 of the Income Tax Act, 1962, is hereby amended by the substitution for paragraph (a) of subsection (1) of the following paragraph:

"(a) any contributions made by him during the year of assessment to any medical scheme registered under the provisions of the Medical Schemes Act, [1967 (Act No. 72 of 1967)] 1998 (Act No. 131 of 1998), or any fund which is registered under any similar provision contained in the laws of any other country where the medical scheme is registered,".

. Section 20 of the Income Tax Act, 1962, is hereby amended¾

1. by the substitution for the words preceding paragraph (a) of subsection (1) of the following words:

"For the purpose of determining the taxable income derived by any person from carrying on any trade [within the Republic], there shall be set off against the income so derived by such person¾ ";

2. by the substitution for paragraph (b) of subsection (1) of the following paragraph:

"(b) any assessed loss incurred by the taxpayer during the same year of assessment in carrying on [in the Republic] any other trade either alone or in partnership with others, otherwise than as a member of a company the capital whereof is divided into shares.";

3. by the substitution for the proviso to subsection (1) of the following proviso:

"Provided that there shall not be set off against any amount¾

(a) distributed to such person by any pension fund or provident fund which is included in the gross income of such person in terms of paragraph (eB) of the definition of ‘gross income’ in section 1, any¾

[(a)](i) balance of assessed loss; or

[(b)](ii) ‘assessed loss’ as defined in subsection (2) incurred in such year before taking into account any amount of such distribution;

in carrying on any trade outside the Republic.

. (1) Section 23F of the Income Tax Act, 1962, is hereby amended¾

1. by the substitution for paragraph (c) of the following paragraph:

"(c) it is shown by him that by reason of the loss or destruction of such trading stock or the termination of the agreement in terms of which such trading stock was acquired by him or for any other reason, such trading stock will neither be disposed of nor held by him, to the extent that such expenditure was actually paid.";

2. by the deletion of the words following paragraph (c) of subsection (1).".

(2) Subsection (1) shall be deemed to have come into operation on 23 February 2000.

. (1) Section 23H of the Income Tax Act, 1962, is hereby amended by the substitution for paragraph (a) of subsection (1) of the following paragraph:

"(a) which is allowable as a deduction in terms of the provisions of section 11(a), (b), (c) or (d) or section 28(2); and".

(2) Subsection (1) shall be deemed to have come into operation on 23 February 2000, and shall apply in respect of any expenditure incurred on or after that date.

. Section 24F of the Income Tax Act, 1962, is hereby amended¾

1. by the substitution for the words preceding paragraph (a) of subsection (7) of the following words:

"The amount of any print cost or any marketing expenditure contemplated in section 11bis which may be allowed under the provisions of [sections] section 11 [and 17] shall not in the aggregate exceed the total of¾ ";

2. by the substitution for the second proviso to subsection (7) of the following proviso:

"Provided further that any amount of print cost or marketing expenditure which has been disallowed in terms of this subsection shall be carried forward and be deemed for the purposes of [sections] section 11 [and 17] to be an amount of print cost or marketing expenditure, as the case may be, incurred in the succeeding year of assessment.";

3. by the substitution for paragraph (b) of the proviso to paragraph (b) of subsection (9) of the following paragraph:

"(b) any amount of such marketing expenditure which has been allowed as a deduction in terms of subsection (7) and which has not been taken into account in the calculation of the marketing allowance by reason of the provisions of paragraph (a) or (b) of this subsection shall be deemed for the purposes of section 11bis to be an amount of marketing expenditure incurred in the succeeding year of assessment and allowed as a deduction in that year under the provisions of section 11 [or 17].".

. Section 24I of the Income Tax Act, 1962, is hereby amended¾

1. by the substitution for the definition of "foreign currency" in subsection (1) of the following definition:

"’foreign currency’ means¾

1. in respect of any trade carried on by any person within the Republic, any currency which is not legal tender in the Republic, or

(b) in respect of any trade carried on by any person in any country outside the Republic, any currency which is not legal tender in such other country;";

1. by the substitution for the words preceding paragraph (a) of subsection (2) of the following words:

"(2) In determining the taxable income of any person derived from carrying on any trade by him [within the Republic] in respect of any year of assessment ending on or after 1 January 1994, there shall be included in or deducted from the income so derived, as the case may be, any transitional exchange difference (but subject to the provisions of subsection (3)) and any exchange difference¾ ";

2. by the substitution for paragraph (b) of subsection (2) of the following paragraph:

"(b) arising from a loan or advance owing by such person or a debt incurred by such person, where such loan or advance has been utilized or such debt has been incurred in order to finance expenditure incurred by a connected person in relation to such person in the course of the carrying on of any trade [within the Republic] by such connected person.";

3. by the substitution for the words preceding paragraph (a) of subsection (4) of the following words:

"In determining the taxable income of any person derived from carrying on any trade by him [within the Republic], there shall in respect of any year of assessment ending on or after 1 January 1994 be included in or deducted from the income so derived, as the case may be¾ ".

. (1) Section 25B of the Income Tax Act, 1962, is hereby substituted by the following section:

"Income of trusts and beneficiaries of trust.¾

Any loss, assessed loss or balance of assessed loss as contemplated in section 20, incurred in the year of assessment or in any previous year of assessment, as the case may be, by any person in his capacity as trustee of a trust shall not be allowed to be deducted or set off against any amount in respect of which any beneficiary of such trust has a vested right in terms of the trust instrument, as defined in the Trust Property Control Act, 1988 (Act No. 57 of 1988), in terms of which such trust is created (whether or not such vested right is obtained by virtue of the exercise of any discretion by such trustee).".

(2) Subsection (1) shall come into operation on 1 March 2001.

. The following section is hereby inserted after section 25C of the Income Tax Act, 1962:

"Determination of taxable income or losses in foreign currency.¾

25D. The amount of any taxable income derived by any resident from a source outside the Republic (other than by way of any foreign dividend as contemplated in section 9E), shall be determined in the relevant currency of the country from where the income is derived and the amount of the taxable income so determined shall be converted on the last day of the relevant year of assessment to the currency of the Republic and the ruling exchange rate at that date, or any other exchange rate or rates determined with reference to the ruling exchange rates during such year as the Commissioner may approve, shall be applied to determine the value of the amount of the taxable income so derived.".

. Section 27 of the Income Tax Act, 1962, is hereby amended by the substitution for paragraph (a) of subsection (2) of the following paragraph:

"(a) the amounts of any profits distributed by it during the specified period in relation to the year of assessment by way of bonuses (other than bonuses distributed out of the stabilization fund referred to in paragraph (h) to persons entitled to participate in such distribution: Provided that the amounts allowed as deductions under this paragraph shall not in the aggregate exceed an amount which bears to the taxable income of such agricultural co-operative for the year of assessment (as calculated before allowing any deductions under this paragraph and sections 11bis [and 21ter] and before setting off any balance of assessed loss brought forward from a previous year of assessment) the same ratio as the aggregate value of the business conducted by such agricultural co-operative with its members during such year bears to the aggregate value of all business conducted by it during such year;".

. Section 28bis of the Income Tax Act, 1962, is hereby amended¾

1. by the substitution for paragraph (a) of subsection (1) of the following paragraph:

"(a) that any company (hereinafter referred to as the subsidiary) which is [incorporated, managed and controlled in the Republic] a resident has under an arrangement with any other company (hereinafter referred to as the foreign company) which is [incorporated, managed and controlled outside the Republic] not a resident, acquired all the assets and assumed all the liabilities of the foreign company relating to any industrial, commercial or other business undertaking of the foreign company in the Republic which has been transferred by the foreign company to the subsidiary as a going concern; and";

2. by the substitution for paragraph (b) of subsection (1) of the following paragraph:

"(b) that at the time the arrangement was implemented, all the issued shares of the subsidiary were held for its own benefit by the foreign company or a company which was [incorporated, managed and controlled outside the Republic] not a resident and was controlled by or controlled the foreign company,".

. Section 29A of the Income Tax Act, 1962, is hereby amended by the deletion of paragraph (c) of subsection (11).

. Section 31 of the Income Tax Act, 1962, is hereby amended¾

1. by the substitution for the definition of "international agreement’ in subsection (1) of the following definition:

"’international agreement’ means a transaction, operation or scheme entered into between—

(a)(i) a [person who, in the case of a natural person, is ordinarily resident in the Republic or in the case of a person other than a natural person, is managed or controlled in the Republic] resident; and

(ii) any other person who [in the case of a natural person, is ordinarily resident outside the Republic or in the case of a person other than a natural person, is managed or controlled outside the Republic] is not a resident; or

(b)(i) a person who [in the case of a natural person, is ordinarily resident outside the Republic or in the case of a person other than a natural person, is managed or controlled outside the Republic] is not a resident; and

(ii) any other person who [in the case of a natural person, is ordinarily resident outside the Republic or in the case of a person other than a natural person, is managed or controlled outside the Republic] is not a resident,

for the supply of goods or services to or by a permanent establishment [as contemplated in section 9C(1)] of either of such persons in the Republic; and"; or

(c) (i) a person who [in the case of a natural person, is ordinarily resident in the Republic or in the case of a person other than a natural person is managed or controlled in the Republic] is a resident; and

(ii) any other person who [in the case of a natural person, is ordinarily resident in the Republic or in the case of a person other than a natural person is managed or controlled in the Republic] is a resident,

for the supply of goods or services to or by a permanent establishment [as contemplated in section 9C(1)] of either of such persons outside the Republic; and"; or

(d) (i) a person who is a resident; and

(ii) any other person who is a resident,

where either of such persons is as a result of the application of the provisions of any agreement entered into by the Republic for the prevention of double taxation, not subject to tax in the Republic;";

2. by the insertion after the definition of "international agreement" of the following definition:

"’permanent establishment’ means a permanent establishment as defined from time to time in Article 5 of the Model Tax Convention on Income and on Capital of the Organisation for Economic Co-operation and Development;";

3. by the substitution for the words preceding subparagraph (i) and subparagraphs (i) and (ii) of paragraph (a) of subsection (3) of the following words and subparagraphs:

" Where any [natural person ordinarily resident outside the Republic or any person other than a natural person who is managed or controlled outside the Republic] person who is not a resident (hereinafter referred to as the investor) has granted financial assistance contemplated in paragraph (c) of the definition of "services" in subsection (1), whether directly or indirectly, to—

(i) any connected person (in relation to the investor) who [in the case of a natural person, is ordinarily resident in the Republic or in the case of a person other than a natural person, is managed or controlled in the Republic] is a resident; or

(ii) any other person (in whom he has a direct or indirect interest) other than a natural person, [who is managed or controlled in the Republic] which is a resident (hereinafter referred to as the recipient) and, by virtue of such interest, is entitled to participate in not less than 25 per cent of the dividends, profits or capital of the recipient, or is entitled, directly or indirectly, to exercise not less than 25 per cent of the votes of the recipient,".

. Section 33 of the Income Tax Act, 1962, is hereby amended by the substitution for subsection (1) of the following subsection:

"(1) Any person [(not being a person ordinarily resident in the Republic or a domestic company) other than a resident who embarks passengers or loads livestock, mails or goods in the Republic, as an owner or charterer of any ship or aircraft, shall be deemed to have derived therefrom (apart from any taxable income derived by him from other sources) a taxable income of 10 per cent of the amount payable to him or to any agent on his behalf, whether the amount be payable in or outside the Republic, in respect of passengers, livestock, mails and goods so embarked or loaded, but the provisions of this section shall not apply to any such person who renders accounts which satisfactorily disclose the taxable income derived by him from the embarking of passengers or the loading of livestock, mails and goods as aforesaid.".

. Section 35 of the Income Tax Act, 1962, is hereby amended¾

1. by the substitution for subsection (1) of the following subsection:

"(1) Any person [(not being a person who is ordinarily resident in the Republic or a domestic company) to] (other than a resident) by whom any amount [referred to in paragraph (b) or (bA) of subsection (1) of section 9 is deemed to accrue from a source within the Republic] is received or to whom any amount accrues by virtue of¾

shall [(apart from taxable income derived by him from other sources) be deemed to have derived from that amount a taxable income equal to thirty per cent of that amount] be liable for tax, to be known as the withholding tax on royalties, which shall be paid for the benefit of the National Revenue Fund at a rate of 12 per cent of such amount: Provided that the provisions of this subsection shall not apply in respect of any amount which is received by or accrues to any person (other than a person who has his or her or its place of residence in a neighbouring country) in respect of the use (otherwise than for advertising purposes in connection with any motion picture film or otherwise than in connection with television) in any printed publication of any copyright as aforesaid.";

1. by the substitution for the words preceding the proviso to paragraph (a) of subsection (2) of the following words:

"Any person who incurs a liability to pay to any other person [(not being a person] who is [ordinarily] not a resident [in the Republic or a company which has its place of effective management inside the Republic]) any amount referred to in [section 9(1)(b) or (bA)] subsection (1), or who receives payment of any such amount on behalf of such other person, shall within 14 days after the end of the month during which the said liability is incurred or the said payment is received, as the case may be, or within such further period as the Commissioner may approve, make a payment (which shall be [deemed to be an advance] a final payment made on behalf of such other person) to the Commissioner in respect of such other person’s [obligation to pay normal] liability for tax [for the year of assessment during which the said amount accrues to or is received by such other person, calculated at the rate of 12 per cent of the said amount] in terms of subsection (1), and shall submit to the Commissioner at the time of such tax payment a declaration in such form as the Commissioner may prescribe:";

2. by the substitution for paragraph (ii) of the proviso to paragraph (a) of subsection (2) of the following paragraph:

"(ii) for the purposes of this subsection a person having an address outside the Republic shall until the contrary is proved be deemed not to be [not ordinarily resident in the Republic or, in the case of a company, to be a company which is not a domestic company] a resident;";

3. by the substitution for paragraph (c) of subsection (2) of the following paragraph:

"(c) The general provisions contained in Parts I to VI of [subsection (2) of section five] this Act shall mutatis mutandis apply in respect of payments made to the Commissioner in terms of paragraph (a).";

. The following section is hereby substituted for section 54 of the Income Tax Act, 1962:

"Levy of donations tax¾

54. Subject to the provisions of section 56, there shall be paid for the benefit of the National Revenue Fund a tax (in this Act referred to as donations tax) on the value of any property disposed of (whether directly or indirectly and whether in trust or not) under any donation [which took or takes effect on or after 16 March 1988] by any [person] resident (in this Part referred to as the donor) [who in the case of a person other than a company, is ordinarily resident in the Republic, or, in the case of a company, is a domestic company].".

. Section 56 of the Income Tax Act, 1962, is hereby amended by the substitution for subparagraph (i) of paragraph (g) of subsection (1) of the following subparagraph:

"(i) before the donor [being a person other than a company] became [ordinarily] a resident [in] of the Republic for the first time [or, in the case of a company, became for the first time, a domestic company]; or".

. Section 64B of the Income Tax Act, 1962, is hereby amended¾

1. by the substitution for subsection (2) of the following subsection:

"(2) There shall be levied and paid for the benefit of the National Revenue Fund a tax, to be known as the secondary tax on companies, which is calculated at the rate of 12, 5 per cent of the net amount, as determined in terms of subsection (3), of any dividend declared on or after 14 March 1996 by any company which is a resident [on or after 14 March 1996].";

2. by the substitution for the words preceding the proviso to subsection (3) of the following words:

"The net amount of any dividend referred to in subsection (2) shall be the amount by which such dividend declared by a company exceeds the sum of any dividends (other than any dividends contemplated in subsection (5)(b), (c), (d) and (f) or any foreign dividends as defined in section 9E, but including foreign dividends which are exempt in terms of section 9E(7)(a), (b), (c), (d) or (e)(ii) or (iii) or (f), which have during the dividend cycle in relation to such firstmentioned dividend accrued to the company:";

3. by the deletion of paragraph (h) of subsection (5);
4. by the substitution for paragraph (a) of subsection (6) of the following paragraph:

"(a) If any dividend subject to the payment of secondary tax on companies has been declared by a company which derives profits from sources within and outside the Republic, the secondary tax on companies in respect of that dividend shall be calculated on an amount which bears to the net amount of that dividend the same ratio as the sum of the net annual profits of the company derived from¾

1. sources within or deemed to be within the Republic in terms of section 9 [9C or 9E]; and

(ii) sources outside the Republic which are not deemed to be from a source in the Republic and which are not exempt from tax in terms of the provisions of section 10(1)(kA),

bears to the total sum of its net annual profits derived from all sources.".

(2) Subsection (1)(b) shall be deemed to have come into operation on 23 February 2000, and shall apply in respect of any foreign dividend¾

1. received by or accrued to any company on or after that date; or
2. which accrued to the company before 23 February 2000, but which is received on or after that date: Provided that the provisions of this paragraph shall not apply in respect of any foreign dividend which was declared by a company before 23 February 2000, where¾

1. the company declaring the dividend is listed on a recognised stock exchange; or
2. in any other case, the chief executive officer and¾

1. an external auditor of the company declaring the dividend; or
2. where the company declaring the dividend is situated in a country which does not require compulsory appointment of an external auditor, a registered public accountant of the same standing as a qualified chartered accountant,

have declared under oath or affirmation that such dividend was actually declared by the company before 23 February 2000.

. (1) Section 64C of the Income Tax Act, 1962, is hereby amended¾

1. by the deletion of the word "and" at the end of paragraph (h) of subsection (4);
2. by the addition of the word "and" at the end of paragraph (i); and
3. by the addition to subsection (4) of the following paragraph:

"(j) to any loan granted to any recipient which is a company by any other company which holds for its own benefit, whether directly or indirectly through one or more intermediate companies, any of the equity share capital of such recipient company: Provided that the provisions of this paragraph shall not apply where such recipient holds any of the equity share capital in such other company.".

(2) Subsection (1) shall be deemed to have come into operation on 23 February 2000.

. The following section is hereby inserted after section 72 of the Income Tax Act, 1962:

"Return as to participation right in controlled foreign entity¾

3. Every resident who is required to submit a return as contemplated in subsection (1), shall submit the relevant information to any resident contemplated in subsection (2)(d) such information referred to in subsection (2)(a), (b), (d), (e) and (g).

(4) Every resident who receives any information as contemplated in subsection (3), shall submit such information to the Commissioner in such form and in such manner as the Commissioner may prescribe.

. Section 89bis of the Income Tax Act, 1962, is hereby amended¾

1. by the substitution for the words preceding paragraph (a) of subsection (3) of the following words:

"(3) For the purposes of this section "taxes" means the taxes comprehended in the definition of "tax" in section 1, excluding[¾ ] donations tax.";

2. by the deletion of paragraphs (a) and (b).

. Section 89ter of the Income Tax Act, 1962, is hereby amended¾

1. by the substitution for the words preceding paragraph (a) of subsection (3) of the following words:

"(3) For the purposes of subsections (1) and (2) ‘taxes’ means the taxes comprehended in the definition of ‘tax’ in section 1, excluding[¾ ] donations tax and secondary tax on companies.";

2. by the deletion of paragraphs (a), (c) and (d).

. Section 89quat of the Income Tax Act, 1962, is hereby amended¾

1. by the addition of the word "and" at the end of paragraph (c) of the definition of "credit amount" in subsection (1);
2. by the addition of the following paragraph to the definition of "credit amount" in subsection (1):

"(d) any amount of foreign taxes which may be deducted from the tax payable by such taxpayer in respect of the relevant year of assessment in terms of the provisions of section 6quat;".

. Section 90 of the Income Tax Act, 1962, is hereby amended by the substitution for the words preceding paragraph (a) of the following words:

"Subject to the provisions of this Act, any tax (other than [non-resident shareholder’s tax, undistributed profits tax, excess profits duty] donations tax [and non-residents tax on interest]) and any interest payable in terms of section 89(2) or 89quat, shall be payable¾ ".

. Paragraph 1 of the Fourth Schedule to the Income Tax Act, 1962, is hereby amended¾

1. by the substitution for paragraphs (b) and (bA) of the definition of "provisional taxpayer" of the following paragraphs:

"(b) unless the Commissioner in the particular case otherwise directs, any director of a private company if such director [is ordinarily resident in the Republic] or such company is [managed and controlled or has its registered office in the Republic] a resident;

(bA) unless the Commissioner in the particular case otherwise directs, any member of a close corporation if such member is [ordinarily] a resident [in the Republic];";

2. by the substitution for words preceding subparagraph (aa) of paragraph (ii) of the exclusions to the definition of "remuneration" of the following words:

"(ii) any amount paid or payable in respect of services rendered or to be rendered by any person (other than a person who is not [ordinarily] a resident [in the Republic] or an employee contemplated in paragraph (b), (c) [or] (d), (e) or (f) of the definition of 'employee') in the course of any trade carried on by him independently of the person by whom such amount is paid or payable and of the person to whom such services have been or are to be rendered: Provided that for the purposes of this paragraph a person shall not be deemed to carry on a trade independently as aforesaid¾ ";

3. by the substitution for paragraph (d) of the definition of "representative employer" in paragraph 1 of the following paragraph:

"(d) in the case of any employer who is not [ordinarily] a resident [in the Republic], any agent of such employer having authority to pay remuneration who is a resident,".

(2) Subsection (1)(a) shall¾

1. in so far as it inserts the reference to paragraphs (e) and (f) be deemed to have come into operation on 1 August 2000; and
2. in so far as it deletes the words "ordinarily" and "in the Republic" come into operation on 1 January 2001, and shall apply in respect of any year of assessment commencing on or after that date.

. Paragraph 2 of the Fourth Schedule to the Income Tax Act, 1962, is hereby amended by the substitution for subparagraph (1) of the following subparagraph:

"(1) Every ¾

(a) employer who is a resident; or

(whether or not registered as an employer under paragraph 15), who pays or becomes liable to pay any amount by way of remuneration to any employee shall, unless the Commissioner has granted authority to the contrary, deduct or withhold from that amount by way of employees' tax an amount which shall be determined as provided in paragraph 9, 10, 11 or 12, whichever is applicable, in respect of the liability for normal tax of that employee, or, if such remuneration is paid or payable to an employee who is married and such remuneration is under the provisions of section 7(2) of this Act deemed to be income of the employee's spouse, in respect of such liability of that spouse, and shall pay the amount so deducted or withheld to the Commissioner within seven days after the end of the month during which the amount was deducted or withheld, or in the case of a person who ceases to be an employer before the end of such month, within seven days after the day on which he ceased to be an employer, or in either case within such further period as the Commissioner may approve.";

. Paragraph 9 of the Fourth Schedule to the Income Tax Act, 1962, is hereby amended by the substitution for subparagraph (1) of the following subparagraph:

"(1) The Commissioner may from time to time, having regard to the rates of normal tax as fixed by Parliament or foreshadowed by the Minister of Finance in his budget statement or as varied by the said Minister under section 5 (3) of this Act, to the rebates applicable in terms of section 6 and section 6quat of this Act and to any other factors having a bearing upon the probable liability of taxpayers for normal tax, prescribe deduction tables applicable to such classes of employees as he may determine, and the manner in which such tables shall be applied, and the amount of employees’ tax to be deducted from any amount of remuneration shall, subject to the provisions of subparagraph (3) of this paragraph and paragraphs 10, 11 and 12, be determined in accordance with such tables or where subparagraph (3) is applicable, in accordance with that subparagraph.".

. Paragraph 17 of the Fourth Schedule to the Income Tax Act, 1962, is hereby amended by the substitution for subparagraph (5) of the following subparagraph:

"(5) The Commissioner may from time to time, having regard to the rates of normal tax as fixed by Parliament or foreshadowed by the Minister of Finance in his budget statement or as varied by the said Minister under section 5 (3) of this Act, to the rebates applicable in terms of section 6(2) and (3)(a) and section 6quat of this Act and to any other factors having a bearing upon the probable liability of taxpayers for normal tax, prescribe tables for optional use by provisional taxpayers falling within any category specified by the Commissioner, or by provisional taxpayers generally, for the purpose of estimating the liability of such taxpayers for normal tax, and the Commissioner may prescribe the manner in which such tables shall be applied.".

. Paragraph 2 of the Fifth Schedule to the Income Tax Act, 1962, is hereby amended by the substitution for subparagraph (3) of the following paragraph:

"(3) Any person (other than a company) who is not [ordinarily] a resident and is not carrying on business in the Republic [and any company which is not a South African company and is not carrying on business in the Republic], shall not be liable for the payment of any loan portion: Provided that any person (other than a company) who proves to the satisfaction of the Commissioner that his business operations in the Republic are of a temporary and non-recurrent nature shall for the purposes of this paragraph not be deemed to be carrying on business in the Republic.".

. Paragraph 1 of the Seventh Schedule to the Income Tax Act, 1962, is hereby amended by the substitution for the definition of "official rate of interest" of the following definition:

"’official rate of interest’ means¾

1. in the case of a loan which is denominated in the currency of the Republic, the rate of interest fixed by the Minister from time to time by notice in the Gazette; or
2. in the case of a loan which is denominated in a foreign currency, a market related rate of interest;".

. (1) Item 15 of Schedule 1 to the Stamp Duties Act, 1968, is hereby amended by the substitution for subparagraph (i) of paragraph (hA) of the Exemptions to paragraph 3 of the following subparagraph:

"(i) any pension fund established by law to any other pension fund established by law or to any other pension fund which is registered under the Pension Funds Act, 1956;".

(2) Subsection (1) shall be deemed to have come into operation on 1 March 2000.

. Section 1 of the Value-Added Tax Act, 1991, is hereby amended by the substitution for the definition of "resident of the Republic" of the following section:

"'resident of the Republic' means a [person (other than a company) who is ordinarily resident in the Republic or a company which is a domestic company] resident as defined in section 1 of the Income Tax Act: Provided that any other person or any other company shall be deemed to be a resident of the Republic to the extent that such person or company carries on in the Republic any enterprise or other activity and has a fixed or permanent place in the Republic relating to such enterprise or other activity;".

. Section 1 of the Tax on Retirement Funds Act, 1996, is hereby amended¾

1. by the substitution for the definition of "guaranteed annuity" in subsection (1) of the following definition:

"’guaranteed annuity’ means an annuity contemplated in section [29(4)(a)(iii)] 29A(4)(a)(iii) of the Income Tax Act, where such annuity is contractually subject to a guaranteed increase at a fixed rate, which rate may be zero, over the full term of the annuity, excluding any annuity which may participate in any bonus distributions by the insurer;"; and

2. by the substitution for the definition of "untaxed policyholder fund" of the following definition:

"’untaxed policyholder fund’ means a fund contemplated in section [29(4)(a)] 29A(4)(a) of the Income Tax Act.".

. Section 3 of the Tax on Retirement Funds Act, 1996, is hereby amended by the substitution for paragraphs (b) and (c) of the following paragraphs:

"(b) "I" represents the gross amount of any interest received by or accrued to such fund during such tax period [from a source within the Republic or deemed to be within the Republic as contemplated in sections 9 and 9C of the Income Tax Act];

(c) "R" represents the gross amount of any rental income received by or accrued to such fund during such tax period [from a source within the Republic or deemed to be within the Republic as contemplated in the last-mentioned sections 9 and 9C]; and".

. Section 4 of the Tax on Retirement Funds Act, 1996, is hereby amended¾

1. by the substitution for paragraph (c) of the following paragraph:

"(c) "B" represents the portion of symbol "A" attributable to assets referred to in section [29(4)(a)(i)] 29A(4)(a)(i) of the Income Tax Act as allocated to retirement funds in terms of section 9 during such tax period;";

2. by the substitution for subparagraphs (i) and (ii) of paragraph (d) of the following subparagraphs:

"(i) representing business of such untaxed policyholder fund as contemplated in section [29(4)(a)(iii)] 29A(4)(a)(iii) of the Income Tax Act (excluding assets contemplated in paragraph (c));

(ii) equal to the [statutory] actuarial value of liabilities under guaranteed annuities; and";

3. by the substitution for subparagraph (i) of paragraph (f) of the following subparagraph:

"(i) section [29(4)(a)(ii)] 29A(4)(a)(ii) of the Income Tax Act (excluding assets in respect of amounts allocated to retirement funds contemplated in paragraph (c) and assets representing guaranteed annuities contemplated in paragraph (d)); and"; and

4. by the substitution for the words preceding item (aa) of subparagraph (ii) of paragraph (f) of the following words:

"section [29(4)(a)(iii)] 29A(4)(a)(iii) of the Income Tax Act (excluding assets—".

. Section 16 of the Tax on Retirement Funds Act, 1996, is hereby amended¾

1. by the substitution for paragraph (k) of the following paragraph:

"(k) income of controlled foreign entities and [investment] income arising from any donation, settlement or other disposition,"; and

2. by the substitution for subparagraph (viii) of the following subparagraph:

"(viii) in respect of the inclusion of any [investment] income in the income of any fund.".

. Section 13 of the Skills Development Levies Act, 1999, is hereby amended¾

1. by the deletion of the word "and" at the end of paragraph (h);
2. by the addition of the word "and" at the end of paragraph (i);
3. by the addition of the following paragraph:

"(j) jurisdiction of courts as contained in section 105,";

4. by the addition of the word "and" at the end of subparagraph (vi); and
5. by the addition of the following subparagraph:

"(vii) jurisdiction of courts.".

. Section 12 of the Taxation Laws Amendment Act, 2000, is hereby amended by the substitution for paragraph (c) of the following paragraph:

"(c) the taxable income of any company contemplated in paragraph 2(b) or (c) of Schedule 1 to this Act, for the year of assessment commencing on or after 1 April 2000 and ending during the period of twelve months ending on 31 March [2000] 2001,".

. Section 24 of the Taxation Laws Amendment Act, 2000, is hereby amended by the substitution for subparagraph (ii) of paragraph (b) of subsection (1) of section 18A of the Income Tax Act, 1962, of the following subparagraph:

"(ii) during the year of assessment preceding the year of assessment of such public benefit organisation during which the donation is received, distributed or incurred the obligation to so distribute at least 75 per cent of the funds received by [or accrued to] such organisation by way of donations which qualified for a deduction in terms of this section,".

. Section 35 of the Taxation Laws Amendment Act, 2000, is hereby amended by the substitution for paragraph (a) of subsection (2) of section 30 of the Income Tax Act, 1962, of the following paragraph:

"(a) The Minister shall, by notice in the Gazette, determine any activity which is of a philanthropic [and] or benevolent nature, having regard to the needs, interests and well-being of the general public for the purposes of this section.".

. Section 59 of the Taxation Laws Amendment Act, 2000, is hereby amended by the addition to subsection (2) of the following proviso:

"Provided that the provisions of subsection (1) shall not apply in respect of the carriage of any chargeable passenger, where the ticket in respect of such flight was purchased and issued before 1 August 2000.".

. Paragraph 4 of Schedule 1 to the Taxation Laws Amendment Act, 2000, is hereby amended by the substitution for item (iii) of subparagraph (b) of the following item:

"(iii) ‘investment income’ means [any investment income as defined in section 9C of the Income Tax Act, 1962, and includes]¾

1. dividends; [and]
2. any proceeds derived from investment or trading in financial instruments (including futures, options and other derivatives), marketable securities or immovable property;
3. any annuity, other than¾

(ff) any amount received by or accrued as consideration for the use of, or the right to use, any copyright or literary, artistic or scientific work (including cinematograph films and films, tapes or discs for radio or television broadcasting), any patent, trade mark, design or model, plan, secret formula or process, or any other property or right of a similar nature, or for information concerning industrial, commercial or scientific experience;".

EXPLANATORY MEMORANDUM ON THE REVENUE LAWS AMENDMENT BILL, 2000

[W.P. 2 ¾ ’00]

INTRODUCTION

The Revenue Laws Amendment Bill, 2000, introduces amendments to…

As was announced by the Minister of Finance in the Budget Review this year, legislative measures will be introduced to change the current source-based principle of taxation to a residence (world-wide) basis with effect from years of assessment commencing on or after 1 January 2001.

The South African income tax system is currently based primarily on the source principle of taxation and all income which, therefore, originates in the Republic, or which is deemed to be from a source within the Republic is taxable in terms of the Income Tax Act, 1962. In 1997, however, a new principle was introduced in the Act to tax residents of the Republic on their worldwide passive income.

These provisions were introduced in the Act to protect the South African tax base from the effects of the relaxation of the exchange control provisions that came into effect on 1 July 1997. The amendments to the Act were, however, limited to the inclusion of certain forms of passive income, such as interest, annuities, rentals and royalties. These forms of income were included within the ambit of the Act by the introduction of¾

• section 9C which extended the deeming source provisions to provide that these forms of income will be deemed to be received by, or accrued to, a resident from a source in the Republic; and
• section 9D in terms of which the passive income of certain controlled foreign entities (i.e. foreign entities in which South African residents have more than 50 per cent control or participation) and income which accrues to a foreigner as a result of a donation by a resident, became taxable in the hands of the resident/s that control such entities or who made the donation.

As was announced in the Budget Review, a "residence minus" system will be adopted, i.e. taxpayers will be taxed on their world-wide income, but certain categories of income and activities undertaken outside South Africa will be exempt from South African tax.

As an interim measure it was announced that dividends declared out of foreign profits on or after 23 February 2000, would be subject to tax. Section 9E was introduced in the Income Tax Act, 1962, to give effect to this proposal to tax foreign dividends.

Elements of the proposed tax structure relating to the world-wide basis of taxation include the following:

• The income tax base will be extended to include all income of residents of South Africa, subject to certain exclusions mentioned hereafter. Foreign taxes paid by these residents will be allowed as a credit against the South African tax liability.
• The existing provisions of section 9D of the Income Tax Act, 1962, will be extended in order to impute all income of controlled foreign entities to the residents with an interest in such entities, subject to certain exclusions mentioned hereafter.
• The income of a controlled foreign entity which is a company will not be imputed if the income was subject to tax in a designated country on a basis substantially the same as that of South Africa and at a statutory rate of tax of at least 27 per cent, or if the income complies with certain business tests.
• Business profits of a foreign branch of a resident will also not be taxed if the income was subject to tax in a designated country at a statutory rate of at least 27 per cent on a basis similar to that of the Republic.
• Foreign residents will continue to be taxed on their South African source income only.

The definition of "gross income" in section 1 of the Act is amended and most of the references to income from a source in the Republic are deleted. Residents, therefore, will become taxable on their world-wide income with effect from years of assessment commencing on or after 1 January 2001.

Non-residents will, however, still only be taxed in the Republic on income which is derived from a source in the Republic.

A definition of "resident" is introduced in the Act, as there are currently a number of references throughout the Act to persons "resident" and "ordinarily resident" in the Republic. As far as companies are concerned the current wording of the Act is also somewhat inconsistent as some provisions require a "managed and controlled" test, whereas others refer to "managed or controlled" and some provisions use the expression "effectively managed" in the Republic. The definition of a "resident" is crucial to the whole basis of the residence basis of taxation and the different provisions and definitions, therefore, need to be aligned.

In this regard the following definition of "resident" is proposed:

’resident’ means any¾

• natural person who is ordinarily resident in the Republic;
• natural person who is not at any stage during the relevant year of assessment ordinarily resident in the Republic, but who is physically present in the Republic for at least 91 days during the year of assessment and¾
• was on average during the three preceding years physically present in the Republic for at least 183 days; and
• physically present in the Republic for at least 90 days in each of such three preceding years. Where such a person is outside the Republic for a period or periods exceeding 330 days in aggregate during the 12 month period after such person ceases to be physically present in the Republic, such person shall be deemed not to have been a resident from the day that such person so ceased to be physically present in the Republic;
• any person (other than a natural person), which is incorporated, established, formed or which has its place of effective management in the Republic.

The Courts have interpreted "ordinarily resident" to mean the place where a person has his or her place of permanent residence. If a person is outside the Republic and has the intention to return to the Republic, such person will, therefore, be regarded as a resident regardless of the period of time spent outside the Republic. The majority of countries use a similar basis which, although effectively the same test, are referred to as "domicile, habitual abode, permanent home". A person will, therefore, become a resident and be taxed on his or her world-wide income by virtue of him or her being ordinarily resident from the date that such person so becomes ordinarily resident, until such person ceases to be ordinarily resident in the Republic.

Any foreign income received by or accrued to an individual who is a resident will be taxable in his or her hands and a foreign tax credit will be granted in respect of any foreign taxes which are proved to be payable. This income includes any active or passive income. There are, however, a number of exceptions to this rule which are discussed below.

To follow.

It is, however, international practice for a country of residence to tax foreign pensions. Many reasons have been put forward as to why foreign pensions should not be taxable once South Africa moves to a worldwide basis of taxation. It is argued that this may discourage foreigners from retiring in South Africa. Furthermore, it is argued that the income from a pension is static and that any tax imposed thereon will effectively reduce the pensioners income. This argument is not necessarily correct as in most instances the country of source in any event taxes the pension if it is not taxed in the country of residence.

Various other problems such as the deductibility of contributions to foreign pension funds and the taxation of lump sum payments from these funds will have to be addressed. Foreign funds would also have to be approved by the Commissioner based on whether the rules of the fund comply with the requirements of the Income Tax Act, 1962, and this may place a significant administrative burden on SARS.

From a practical point of view, it is, therefore, proposed that foreign pensions not be taxed at this stage. It must, however, be noted that this is merely an interim measure and that the whole issue of the taxation for foreign pensions will be revised over the next three years. This should provide sufficient time to determine how contributions to these funds and the taxation of payments from foreign funds should be dealt with and to determine what the economic impact of taxing foreign pensions may be.

The foreign income of any branch of a resident company will generally be subject to tax. However, branch income will be exempt if such income was subject to tax in a designated country at a statutory rate of at least 27 per cent and the basis of taxation in that country is similar to that of South Africa. Any other income which was not taxed at that rate or which was taxed at a high rate in a non-designated country will be taxable in the Republic and a credit will be granted in respect of any foreign taxes which are proved to be payable in respect of such income.

It is proposed that the losses of foreign branches of a resident company should not be set off against the South African income of the company. This is proposed in order to protect the existing tax base as there is no information available relating to the magnitude of foreign losses and to what extent this may erode the current South African tax base. Such a measure will also limit the possibility of enabling a company to start a foreign operation in a branch in order to utilise the losses against the South African income. It may then happen that once such operation starts showing a profit it is converted to a separate subsidiary company which complies with the legitimate business test with the result that the income may be exempt.

A foreign loss incurred in one foreign country may, however, be set off against the income of any other foreign country and South African losses may also be set off against foreign income.

Currently, section 9D provides for the imputation of passive income of a CFE to any resident in the same ratio as the participation rights of the resident. A CFE includes any foreign entity in which residents holds more than 50 per cent of the participation rights or votes or control of the entity.

All income, active and passive will, however, be imputed under the new residence basis of taxation, subject to a number of exclusions discussed hereunder. In this regard, a new rule is proposed to provide that the income of a CFE will only be imputed to any resident who, together with any connected person in relation to such resident, holds at least 10 per cent of the participation rights in such CFE. The amount to be imputed to the resident will be an amount equal to the proportional amount of the net income of the CFE, determined at the same ratio as such resident’s participation rights in the CFE.

The ‘net income’ of the CFE means an amount equivalent to what the taxable income of the CFE would have been if such CFE had been a resident. The deductions and allowances of the CFE are, however, limited to the income and the losses are, therefore, not imputed to the resident, but are carried forward to future years of assessment.

The first exclusion from section 9D relates to income of the CFE which is a company, which has been or will be subject to tax in a designated country (on a similar basis as that of South Africa) at a statutory rate of at least 27 per cent. This income will, therefore, not be imputed to the resident shareholders.

Similarly, any foreign dividend declared by the CFE from profits which were not previously imputed to the resident will also be exempt as the underlying profits would have been subject to tax in a designated country (on a similar basis as that of South Africa) at a rate of 27 per cent.

Where the income of the CFE which is a company is not taxed at a statutory rate of at least 27 per cent, the income of the CFE will be taxed in the hands of the resident as it arises and any subsequent dividend declared thereafter by the company to the resident will be exempt.

The Income will, however, not be imputed if such income complies with a legitimate business establishment test, which contains a number of objective criteria which are more stringent than the normal tests found in most other countries. In these instances, the tax on the income will be deferred until a dividend is distributed. This exemption will, however, not apply to passive income in the form of dividends, interest, royalties, rental income, annuities, insurance income or income of a similar nature, as well as receipts and accruals from dealing in shares, securities and other properties which give rise to such receipts and accruals if the CFE does not as its principal business deal in such properties. The exemption will, however, apply in respect of passive income¾

• which does not exceed 5 per cent of the total receipts and accruals of the CFE;
• which arises from any active banking, insurance or rental business (as defined below), except where the income is received from any connected person, or from a resident as part of a scheme for the avoidance of taxes, duties or levies.

The income of a CFE will also not be imputed to the residents if the income of the CFE is subject to South African tax in the hands of the entity. This would, for example, be the case where the income was derived from a source or deemed to be from a source in the Republic.

Where the income of the CFE is derived by way of any dividend declared or interest paid or payable to such CFE by any other CFE (in relation to the resident), such income will also not be imputed to the resident.

Provisions is also made for an exemption in respect of any income of a CFE which is listed on a stock exchange as defined in section 1 of the Stock Exchanges Control Act, 1982, or any subsidiary of such listed CFE, if the income is attributable to the resident by virtue of his or her shareholding in such listed CFE and the resident (together with any connected person) directly or indirectly holds less than 10 per cent of the equity share capital in such CFE or subsidiary.

"Active banking, insurance or rental business" is defined as an active business which¾

• is licensed or permitted to perform as such within the country of residence of a CFE which carries on such business;
• generates more than 50 per cent of its total receipts and accruals from unconnected persons in relation to the CFE;
• in the case of an insurance business, would have been taxed in terms of section 28 or 29A of the Act, if such business had been carried on in the Republic.

The taxation of income of trusts is currently dealt with in section 25B of the Income Tax Act, 1962. In reality a trust is not a separate legal persona and a trustee effectively receives and holds assets on behalf of the beneficiaries of the trust. The principle of a trust being a person for tax purposes has been incorporated in the Income Tax Act, 1962, in 1992. Section 25B currently provides that where the income of the trust vests in the beneficiaries, it is taxed in the hands of the beneficiaries, whereas in the case where the beneficiaries are not entitled to the income, i.e. a discretionary trust, the trust is taxed on the income. Similarly, deductions are allowed in the hands of the beneficiaries or the trust, as the case may be, depending on whether the income vests in the beneficiaries or not. Section 25B(4) to (6) makes provision for the limitation of losses in the hands of the beneficiaries by deeming so much of the expenses as exceeds the income of the beneficiaries to be incurred by the trust.

The introduction of the residence basis of taxation may create certain practical difficulties with the application of the provisions of section 25B, due to the fact that that there are many possibilities as far as the residence of the trust and beneficiaries, respectively, are concerned.

As mentioned above the income from certain designated countries, which were subject to tax at a rate of at least 27 per cent, will be exempt. The Minister must determine these designated countries. In the current section 9E of the Act, which deals with the taxation of foreign dividends, it is one of the requirements that a country must have a tax treaty with the Republic in place before such a country may be designated by the Minister. Foreign dividends declared from profits that were generated in these countries are exempt if these profits were subject to tax at a statutory rate of 27 per cent and the basis of taxation is similar to that of South Africa.

Section 6quat of the Income Tax Act, 1962, provides for a deduction from South African tax payable by the resident in respect of any income, of any tax proved to be payable to the government of any other country in respect of such income.

Currently section 6quat limits the credits per country, i.e. foreign tax credits of one country may not be used as a credit against tax on income from another country. The fact that the list of designated countries is to be extended to include non-treaty countries, will to a large extent eliminate excess credits as any income which has been subject to a statutory tax rate of 27 per cent will be exempt and no foreign credits will apply.

Following the above it is proposed that onshore mixing of foreign tax credits be allowed.

Furthermore, it is proposed that the carry forward rule of unutilised credit be extended from three to seven years. However, the rule that unutilised credits may be offset against STC will fall away at the same time.

Various provisions in the Income Tax Act, 1962, provide for the write-off of certain assets used by a taxpayer for the purposes of his or her trade. As these deductions will now become available in respect of certain assets which are used by a taxpayer in his trade outside the Republic which was not previously taxed in the Republic, it is proposed that these provisions should be amended to provide that where such asset was used by the taxpayer in any previous year, the period of use of such asset during such previous years must be taken into account in determining the amount by which the asset may still be written off. This will ensure that if any asset was used previously in a trade which was not taxable and which now becomes taxable the taxpayer will not be entitled to the full depreciation. Only a proportionate amount of the depreciation which relates to the period that the income is subject to tax will, therefore, be allowed.

When an asset in respect of which a deduction has been allowed is sold by a taxpayer, any amount of such a deduction which is recovered or recouped is included in the income of such taxpayer in terms of the provisions of section 8(4). Although for the purposes of sections 11(e), 11(o), 12B, 12C, 12D, 13, 13bis and 13ter the depreciation of assets, which are used in any previous year in the production of any income which was not subject to tax in the Republic, is deemed to have been allowed in such previous years for purposes of determining the balance of the depreciation allowance, such depreciation was not allowed in such previous years as contemplated in section 8(4) and any amount thereof recovered or recouped in respect of such years will, therefore, not be included in the income of the taxpayer in terms of that section.

The Tax on Retirement Funds Act, 1996, will have to be amended to include foreign income in the form of interest and rental income in the formula for determining taxable income.

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Section 4(q) of the Act provides that in the determination of the net value of the estate of a deceased person, the value of the property which accrues to the surviving spouse of the deceased must be deducted from the total value of all property included. The word "spouse" is not defined in the Act. SARS has always interpreted the word to mean the surviving spouse in a legal marriage dissolved by death. This section, therefore, only allows a deduction in respect of property which accrues to such a surviving spouse of a deceased.

It confers the benefit exclusively on spouses in a legal marriage and, therefore, unfairly discriminates against same-sex life partners, which is inconsistent with the provisions of section 9(3) of the Constitution. It is, therefore, proposed that the Estate Duty Act, 1955, be amended, to include a definition of the word "spouse" in section 1 of the Act, to ensure that the meaning thereof is extended to include partners in a permanent same-sex life partnership.

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Subclauses (a), (b), and (f): A new definition of a resident is being introduced which will ensure that a company is for all purposes of the Act treated consistently as far as residency is concerned. The definitions of "domestic company", "external company’ and "South African company" have, therefore, become obsolete.

Subclause (c): The definition of "gross income" is amended to ensure that for purposes of any resident, it includes all income regardless of the source and as far as non-residents are concerned, it will still only include income which are received or accrued from a source within or deemed to be within the Republic.

Subclause (d): Paragraph (gA) of the definition of "gross income" includes any amount received or accrued as consideration for imparting of any scientific, technical, industrial or commercial knowledge or information for use in the Republic. The reference to "for use in the Republic" is deleted to ensure that where a resident receives any amount in respect of the imparting of such knowledge or information in any other country, such amount should also be included in gross income.

Subclause (e): This subclause introduces the new definition of resident. See notes on DEFINITION OF RESIDENT.

Subclause (g): Deletion of obsolete provision.

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These amendments are consequential upon the repeal of section 9C in this Bill and the deletion of section 10(1)(cB), (cI) and (cJ) by the Taxation Laws Amendment Act, 2000 (Act 30 of 2000).

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Section 6quat of the Income Tax Act, 1962, deals with the granting of credits in respect of foreign taxes paid.

Subsection (1) of section 6quat is amended to delete a reference to section 9C which has been repealed as well as the reference to a resident shareholder as defined in section 9E, which has also been deleted. Paragraph (a) of subsection (1) currently provides for a rebate of foreign tax paid in respect of any income "from any country outside the Republic" which was included in the taxable income of a person. These provisions specifically did not refer to the words "source outside the Republic", as residents are currently only taxed on South African source income and any amount received or accrued from an actual source outside the Republic, would only have been included in his or her income if it was deemed to be from a source in the Republic.

It is proposed that paragraph (a) of subsection (1) be amended to refer to a source outside the Republic which is not deemed to be from a source in the Republic, or which are deemed to be from a source in the Republic in terms of section 9(1)(cA), (e) or (fA) or section 9(6). No credit will, therefore, be granted in respect of any other amounts which are deemed to be from a source in the Republic. The amendment to paragraphs (b) and the deletion of paragraph (c) are consequential upon the repeal of section 9C and the deletion of section 9(1)(d), (d)bis and (f).

Subsection (1A) provides for the determination of the amount of the rebate and currently provides that the taxes paid in one country may only be deducted from the income included in the taxable income of any person which is derived from that country. The amendments to section (1A) enables a resident to deduct all foreign taxes proved to be payable in any country in respect of foreign income included in his or her taxable income from the tax payable in the Republic on the total amount of such income.

A proviso is also added to provide that where a resident is a member of a partnership or the beneficiary of any trust in any other country and such partnership or trust is taxed as a separate entity in such other country, the proportional amount of the tax which is payable by the partnership or trust which relates to the resident’s interest in such partnership or trust shall be deemed to have been payable by the resident. This provision will ensure that the resident will be entitled to the credit of the proportional amount of tax which is paid by the partnership or trust.

The amendments to subsection (1B) also allow for the onshore mixing of foreign tax credits.

Currently any excess credits, i.e. foreign tax credits that exceed the tax payable in the Republic, may be carried forward for a period of three years reckoned from the year of assessment when the excess amount was for the first time carried forward. It is proposed that this period be extended to seven years. The carry forward of excess credits against STC liability will fall away.

The other changes to subsection (1B) and subsection (2) are of a textual nature.

The definition of "resident of the Republic" in subsection (3) is deleted and is consequential upon the introduction of a definition of "resident" in section 1 of the Act.

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The provisions of section 9D currently provide for the taxation of investment income of controlled foreign entities and investment income arising from donations, settlements or other dispositions. It is proposed that the provisions of section 9D should deal solely with the income of controlled foreign entities and that the anti-avoidance provisions relating to donations, settlements or other dispositions should be included in section 7 which contains similar provisions.

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This amendment is consequential upon the deletion of section 9(1)(c).

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Subclause (a): As residents will now be taxed on their world-wide income, there is no need to deem certain forms of income to be from a source within the Republic.

Subclause (b): Section 9(1)(e)(i) deems certain income received or accrued for services rendered by a person for or on behalf of the Government, the South African Tourist Corporation (SATOUR) or the Council for Scientific and Industrial Research (CSIR) to be from a source in the Republic. The reason for this is that these services are funded by Government and that the Government should, therefore, retain the right to tax such income. It is proposed that the reference to SATOUR and CSIR should be deleted and that all income received or accrued for services rendered for or on behalf of any national or provincial public entity should be subject to tax if 80 per cent or more of the entity’s expenditure is defrayed directly or indirectly from funds voted by Parliament.

Subclause (c): This amendment is consequential upon the deletion of section 9(1)(d), (d)bis and (f).

Subclause (d): This amendment is consequential upon the fact that residents will be taxed on income on a world-wide basis.

CLAUSE

This amendment is consequential upon the fact that residents will be taxed on income on a world-wide basis.

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Section 9C of the Income Tax Act, 1962, provides for the taxation of certain types of passive foreign income which is received by or accrues to a resident. As all foreign income will now be taxable in the hands of a resident, section 9C has become obsolete.

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See notes on ACTIVE INCOME OF CONTROLLED FOREIGN ENTITIES

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Subclauses (a), (b) and (c): Currently a foreign dividend is defined as any dividend which is distributed by a company from any profits which were derived by such company from a source outside the Republic which are not deemed to be from a source within the Republic, or which are deemed to be from a source within the Republic which have not been subject to tax in the Republic. This effectively means that a South African company can also declare a foreign dividend. As resident companies will become taxable on their foreign income, it is proposed that the foreign dividend definition only include dividends declared by non-resident companies, as dividends which are declared from profits which were already taxed in the Republic will in any event be exempt.

Subclause (d): The deletion of the definition of "resident" in subsection (1) is consequential upon the introduction of a definition of "resident in section 1 of the Act.

Subclause (e): Currently section 9E(2) deems any foreign dividend received by or accrued to a resident to be from a source within the Republic for the purposes of the definition of "gross income". As residents will now be taxable on their world-wide income the requirement of deemed source is no longer necessary.

Subclause (f): See notes on DEDUCTION OF INTEREST INCURRED IN RESPECT OF FOREIGN DIVIDENDS. This amendment will be deemed to have come into operation on 23 February 2000, the date from which foreign dividends became taxable.

Subclause (g): These amendments are consequential upon the amendment to the definition of "foreign dividend" to only include dividends distributed by a non-resident company. The exemptions contained in section 9E(7)(a) and (b) are, therefore, no longer necessary.

Subclause (h): Section 9E(7)(d) provides for an exemption of any foreign dividend distributed to a resident who holds a qualifying interest in the company, to the extent that the profits from which the dividend is distributed were generated in a designated country and has been or will be subject to tax at a rate of at least 27 per cent. It was, however, the intention that the profits must have been subject to a statutory rate (as opposed to an effective rate) of at least 27 per cent. This amendment gives effect to this intention. The amendment will be deemed to have come into operation on 23 February 2000, the date from which foreign dividends became taxable.

Subclause (i), (k) and (l): Section 9E(7) provides for the exemption from tax of certain foreign dividends. Where, however, a dividend is distributed by a company from dividends received by that company which were previously exempt from tax in terms of this subsection, this will once again be taxable under the provisions of section 9E. It is not the intention to tax these profits if they were initially exempt under any of the other provisions of subsection (7) and it is proposed that a specific exemption be introduced to provide that such dividends will not be taxable.

Subclause (j): This amendment is consequential upon the extension of section 9D to include all foreign income and not just investment income as was previously the case.

Subclause (m): See notes on DESIGNATED COUNTRIES.

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This section deals with the foreign source income of a branch of a South African resident. The foreign source income of a branch of a resident company will not be taxable if it has been or will be subject to tax in any designated country at a statutory rate of at least 27 per cent. The amount determined in accordance with this section will be exempt in terms of the new section 10(1)(kA) which is inserted in the Act.

A general provision is also inserted to provide that where the foreign income cannot be repatriated to the Republic due to the limitations imposed by exchange control regulations of the foreign country, the income will only be taxed in the Republic when the income can be repatriated.

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Subclause (a), (b), (c), (f), (g), (h) (i) and (l): These amendments are consequential upon the introduction of a definition of "resident" in section 1 of the Act.

Subclause (d): This amendment is consequential upon the fact that residents will be taxed on their world-wide income.

Subclause (e): See notes on INCOME OF INDIVIDUALS: Foreign pension payments.

Subclause (j) and (k): These amendment regulate the tax treatment of income other than in the form of interest and foreign dividends.

Subclause (m): This amendment is consequential upon the repeal of section 9C.

Subclause (n): See notes on the insertion of section 9F.

Subclause (o): To follow.

Subclause (p): Section 10(1)(p) provides for an exemption from income of any amount received by or accrued to a person who is not a resident for services rendered or work or labour done by him or her outside the Republic for or on behalf of the Government, the South African Tourist Corporation (SATOUR) or the Council for Scientific and Industrial Research (CSIR), if the amount is taxable in the country in which such non-resident is ordinarily resident and the tax is not paid by the Government. This income becomes taxable in the hands of the non-resident by virtue of the fact that it is deemed to be from a source in the Republic in terms of section 9(1)(e)(i). As section 9(1)(e)(i) is amended to delete the reference to SATOUR and CSIR and to provide that all income received or accrued for services rendered for or on behalf of any national or provincial public entity should be subject to tax if 80 per cent or more of the entity’s expenditure is defrayed directly or indirectly from funds voted by Parliament, it is proposed that section 10(1)(p) be amended to coincide with this provision.

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This amendment is consequential upon the repeal of section 9C.

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Subclause (a): Section 11 provides for the general deductions which may be allowed in the determination of taxable income derived from carrying on any trade in the Republic. As residents will now be taxed on their world-wide income, it is proposed that the provisions of section 11 be extended to trade outside the Republic and this amendment gives effect to this proposal.

Subclause (b): Currently section 11(a) provides for the deduction of expenses and losses actually incurred in the Republic in the production of income which expenses and losses are not of a capital nature. Section 11(b) on the other hand provide for the deduciton of expenses and losses actually incurred outside the Republic in the production of income which expenses and losses are not of a capital nature. It is proposed that the provisions of section (a) and (b) be combined and that there be no distinction between expenses and losses incurred in or outside the Republic.

Subclause (c): See notes on GENERAL: Depreciation and write-off of certain assets

Subclauses (d), (g) and (h): Section 11(gA) provides for an allowance in respect of expenditure incurred in obtaining any patent or the restoration of any patent, design or trade mark under the specific Acts regulating patents, designs or trade marks. Similarly section 11(gB) provides for a deduction of expenditure incurred in respect of expenditure in obtaining the extension of the tem of a patent, design or trade mark. These allowances are, therefore, only allowed in respect of the registration or restoration, or extension of the term, of a patent, design or trade mark registered in the Republic. As the income derived from any foreign patent, design or trade mark will now become taxable in the hands of the resident, it is proposed that this provision be extended to allow the allowance in respect of expenditure incurred in registering any patent, design or trade mark under any similar law of any other country. Section 11(gC) provides for a deduction of expenditure actually incurred by an exporter in obtaining in any export country the registration of any patent, design or trade mark or the extension of the registration period of any patent design or trade mark. In the light of the amendment to section 11(gA) and (gB), it is proposed that section 11(gC) be deleted.

Subclause (e) and (f) : These amendments are consequential upon the introduction of a definition of "resident" in section 1 of the Act.

Subclause (i): See notes on GENERAL: Depreciation and write-off of certain assets

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Subclauses (a), (b) and (c): These amendments are consequential upon the repeal of section 17.

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See notes on GENERAL: Depreciation and write-off of certain assets

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See notes on GENERAL: Depreciation and write-off of certain assets

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See notes on GENERAL: Depreciation and write-off of certain assets

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See notes on GENERAL: Depreciation and write-off of certain assets

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See notes on GENERAL: Depreciation and write-off of certain assets

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See notes on GENERAL: Depreciation and write-off of certain assets

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Subclause (a): This amendment is consequential upon the deletion of section 9(1)(c).

Subclause (b) and (c): These amendments are consequential upon the introduction of a definition of "resident" in section 1 of the Act and the deletion of section 9(1)(c).

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Subclauses (a), (b), (c) and (d): These amendments are consequential upon the deletion of section 9(1)(c).

CLAUSE

Section 17 provides for the deduction of any expenditure incurred by any person, who in the course of any trade carried on in the Republic manufactures goods, in connection with the appointment of any agent outside the Republic for the sale of such goods to persons outside the Republic. This provision was inserted to provide for the deduction of what could otherwise not have qualified as a capital expense. As world-wide income will now be taxable it is proposed that this section be deleted to ensure equal treatment between any trade carried on in and outside the Republic.

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Subclauses (a) and (b): Section 20 provides for the set off from any trade carried on by any person in the Republic, of any assessed losses incurred by such person. As residents will be taxed on their world-wide income, it is proposed that the reference to trade in the Republic be deleted.

Subclause (c): It is proposed that the foreign losses incurred by individuals or a company should not be set off against the South African income of the individual or company. This is proposed in order to protect the existing tax base as there is no information available relating to the magnitude of foreign losses and to what extent this may erode the current South African tax base. Such a measure will also limit the possibility of enabling a company to start a foreign operation in a branch in order to utilise the losses against the South African income. It may then happen that once such operation starts showing a profit it is converted to a company which complies with the legitimate business test with the result that the income may be exempt.

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Section 23F, which regulates the deduction of expenditure incurred by a taxpayer for the acquisition of trading stock and more specifically subsection (1) provides that where a taxpayer incurs expenditure for the acquisition of trading stock which was neither disposed of by him during the year nor held by him at the end of such year, the deduction in terms of the Act of such expenditure shall not be allowed in such year, but shall be deemed to have been incurred in the first subsequent year in which either¾

• such trading stock is disposed of by him;
• the value of such trading stock falls to be included in this income under the provisions of section 22(1); or
• it is shown by him that by reason of the loss or destruction of such trading stock or any other reason, such trading stock will neither be disposed of nor held by him,

to the extent that such expenditure has actually been paid by such taxpayer.

It was, however, not the intention that the requirement that the expenditure has actually been paid should apply in the first two instances, i.e. where the trading stock is disposed of by him, or where the value of the trading stock falls within his income. It is, therefore, proposed that section 23F(1) be amended to apply the actually paid requirement only to the instance where it is shown by the taxpayer that the trading stock will neither be disposed of nor held by him. This amendment shall be deemed to have come into operation on 23 February 2000.

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Income Tax: Amendment of section 24F of the Income Tax Act, 1962

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Section 24I provides for the determination for tax purposes of any gains or losses on foreign exchange transactions. As residents will now also be taxed on any trade carried on outside the Republic, it is proposed that the reference to any trade carried on in the Republic in this section be deleted. The definition of "foreign currency" is also amended to provide that¾

• in respect of any trade carried on within the Republic, foreign currency shall mean any currency which is not legal tender in the Republic; and
• in respect of any trade carried on in any country outside the Republic, foreign currency shall mean any currency which is not legal tender in such country.

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See notes on TRUSTS.

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Once the amount of the taxable income is determined, that amount shall be converted on the last day of the year of assessment to the currency of the Republic at the ruling exchange rate at that date. Any other exchange rate or rates determined with reference to the ruling exchange rates during the year as the Commissioner may approve, may also be applied at the request of the taxpayer.

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This amendment is consequential upon the repeal of section 21ter by the Revenue Laws Amendment Act, 1999 (Act no. 53 of 1999).

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This amendment is consequential upon the fact that residents will be taxed on their world-wide income.

CLAUSE

Subclause (a): The amendments to paragraphs (a), (b) and (c) of the definition of "international agreement" in section 31(1), are consequential upon the introduction of a definition of "resident" in section 1 of the Act. A new paragraph (d) is inserted to also include in the definition of "international transaction" any agreement between two residents where either of such residents are as a result of the application of the provisions of any double taxation agreement not subject to tax in the Republic.

Subclause (b): The definition of "international agreement" contains references to a permanent establishment which is not defined in the Act. It is proposed that a definition be inserted in this section to provide that a permanent establishment means a permanent establishment as defined in Article 5 of the Model Tax Convention on Income and on Capital of the OECD.

Subclause (c): These amendments are consequential upon the introduction of a definition of "resident" in section 1 of the Act.

CLAUSE

This amendment is consequential upon the introduction of a definition of "resident" in section 1 of the Act.

CLAUSE

Currently section 35 provides for the assessment of non-residents in respect of income derived from royalties or similar payments contemplated in section 9(1)(b) and (bA). These royalties include amounts received by or accrued to such person by virtue of¾

• the use or right of use in the Republic of any patent, design, trade mark, copyright, model, pattern, plan, formula or process or any other property or right of a similar nature or any motion picture film, or any film or video tape or disc for use in connection with television, or any sound recording or advertising matter used or intended to be used in connection with such motion picture film, film or video tape or disc;
• the imparting of or the undertaking to impart any scientific, technical, industrial or commercial knowledge or information for use in the Republic.

In terms of the existing provisions an amount of 30 per cent of such receipts and accruals will be included in taxable income. Any person now becomes liable to pay any such royalty to any non-resident must withhold an amount equal to 12 per cent of such amount and pay such amount over to the Commissioner.

It is proposed that section 35 be amended to constitute a final withholding tax on royalties.

CLAUSE

CLAUSE

This amendment is consequential upon the introduction of a definition of "resident" in section 1 of the Act.

CLAUSE

Subclause (a): This amendment is consequential upon the introduction of a definition of "resident" in section 1 of the Act.

Subclause (b): This amendment is consequential upon the insertion of paragraphs (e)(iii) and (f) in section 9E(3).

Subclause (c): This amendment is consequential to the move to tax residents on a world-wide basis and the fact that STC is imposed only on residents.

Subclause (d): These amendments are consequential upon the fact that residents will be taxed on their world-wide income.

CLAUSE

This amendment limits the scope of the deemed dividend and will not apply to any loan granted to any recipient which is a company by any other company which holds for its own benefit, whether directly or indirectly through one or more intermediate companies, any of the equity share capital of such recipient company: Provided that the provisions of this paragraph shall not apply where such recipient holds any of the equity share capital in such other company

CLAUSE

A new section 72A is inserted in the Act to make provision for a reporting requirement relating to the participation rights of residents in a controlled foreign entity (CFE), as well as the income of such CFE. In terms of this section, (1) every resident who¾

• directly or indirectly holds 10 per cent or more of the participation rights in any controlled foreign entity as contemplated in section 9D; and
• together with any connected person in relation to such resident, holds more than 50 per cent of the total participation rights in any controlled foreign entity,

must submit to the Commissioner a return reflecting certain information to the Commissioner. This will, however, only apply to the resident who holds the greatest percentage of the participation right in the CFE.

The following information relating to the controlled foreign entity must be provided¾

• the name, address and country of residence of such controlled foreign entity;
• a description of the various classes of the participation rights in such controlled foreign entity;
• the percentage and class of participation rights held by such resident whether directly, indirectly or together with connected persons;
• the percentage and class of participation rights held by any other resident (who is a connected person in relation to such resident) who directly or indirectly holds 10 per cent or more of the participation rights in such controlled foreign entity;
• an income statement and balance sheet of such controlled foreign entity prepared in pursuance of the laws of the country of which such controlled foreign entity is a resident;
• a description of the receipts and accruals of such controlled foreign entity which are¾
• included in the income of such resident in terms of the provisions of section 9D;
• not included in the income of such residents in terms of the provisions of section 9D(9);
• a description of any amount of tax paid such controlled foreign entity to the government of any other country in respect of any income contemplated in paragraph (f), including the particulars relating to the country in which such tax was paid and the underlying profits to which such foreign tax relates.

Such resident who is required to submit this return must also provide the relevant information to any connected person who is a resident who holds at least 10 per cent of the participation rights in the CFE. Such other resident who receives this information must then also submit this information to the Commissioner.

CLAUSE

CLAUSE

CLAUSE

Section 89quat makes provision for the determination of interest on the underpayment or overpayment of provisional tax. Where the taxable income as finally determined exceeds the credit amount which has been paid by the taxpayer under the provisions of the Fourth Schedule, interest is payable by the taxpayer. Where, however, such credit amount paid by the taxpayer exceeds the amount of the tax as assessed, the Commissioner must pay interest to the taxpayer on the excess amount.

The credit amount as defined includes the sum of¾

• provisional tax paid by the taxpayer;
• any additional provisional tax paid by the taxpayer; and
• any amount of employees’ tax withheld by the taxpayer’s employer.

No provision is currently made for foreign taxes which may be paid to the government of any other country on any foreign source income, which must be deducted from the South African tax payable on such foreign source income.

It is, therefore, proposed that in determining the credit amount of taxes already paid for purposes of section 89quat, any foreign taxes payable to the government of any other country, which may be deducted from the South African tax, must also be taken into account. This amendment gives effect to this proposal.

CLAUSE

CLAUSE

Subclauses (a) and (c): These amendments are consequential upon the introduction of a definition of "resident" in section 1 of the Act.

Subclause (b): In so far as this subclause deletes the reference to "ordinarily resident in the Republic" it is consequential upon the introduction of a definition of "resident" in section 1 of the Act.

In so far as the amendment inserts a reference to paragraphs (e) and (f), this amendment is consequential upon the amendment of the definition of "employee" by the Taxation Laws Amendment Act, 2000 (Act No. 30 of 2000), to include any personal service company and any personal service trust.

CLAUSE

As residents of the Republic will now become taxable on their world-wide income (including employment income) it is proposed that the provisions in the Act relating to the withholding of employees’ tax be extended to include resident employers as well as representative employers of foreign employers. This will ensure that where a foreign employer has a representative employer as defined in the Republic, that employees’ tax will be deducted from the remuneration of the resident employee and pay such tax over to the Commissioner.

CLAUSE

As residents will become taxable on their world-wide income and such remuneration may be taxable in another country where the services are rendered, it is proposed that Paragraph 9 be amended to provide that the Commissioner may also take into account any foreign tax credits which may be deductible from the normal tax payable in the Republic, when prescribing these deduction tables for employees’ tax purposes.

CLAUSE

As residents will become taxable on their world-wide income and such income may be taxable in another country, it is proposed that Paragraph 17 be amended to provide that the Commissioner may also take into account any foreign tax credits which may be deductible from the normal tax payable in the Republic, when prescribing these deduction tables for provisional tax purposes.

CLAUSE

CLAUSE

Currently, the official rate of interest is a rate of interest fixed by the Minister of Finance from time to time by notice in the Gazette. As residents will be taxed on their foreign income, including foreign employment income (subject to a number of exclusions) which could include fringe benefits, it is proposed that the definition of "official rate of interest" be amended to include that where the loan to the employee is denominated in a foreign currency, it shall mean a market related interest. This will have the effect that a fringe benefit on such a loan will only arise to the extent that the interest rate charged on such a loan is below the relevant market related rate of interest.

CLAUSE

This amendment provides for an exemption where assets from one fund established by law to another fund established by law.

CLAUSE

CLAUSE

CLAUSE

These amendments are consequential upon the introduction of a world-wide basis of taxation for residents of the Republic.

CLAUSE

Tax on Retirement Funds: Amendment of section 4 of the Tax on Retirement Funds Act, 1996

CLAUSE

These amendments are consequential upon the introduction of a world-wide basis of taxation for residents of the Republic.

CLAUSE

Section 13 of the Skills Development Levies Act, 1999, makes certain provisions of the Income Tax Act, 1962, relating to, inter alia, returns, obtaining of information, assessment, recovery of tax, etc. applicable to the levies collected in terms of the Skills Development Levies Act, 1999. It is proposed that this section be extended to also make applicable the provisions of section 105 of the Income Tax Act, 1962, which provides that a person that is charged with an offence under the Act, may notwithstanding anything to the contrary contained in any law, be tried in respect of that offence by any court having jurisdiction within any area in which such person resides or carries on business.

CLAUSE

1. the taxable income of persons other than companies for the year of assessment ending on 28 February 2001 or 30 June 2001;
2. the taxable income of companies for the year of assessment ending during the period of 12 months ending on 21 March 2001; and
3. the taxable income of small business corporations and employment companies, for the year of assessment commencing on or after 1 April 2000 and ending during the period of twelve months ending on 31 March 2001.

The English text of section 12, however, contained a printing error in paragraph (c) thereof, which erroneously referred to years of assessment commencing on or after 1 April 2000 and ending during the period of twelve months ending on 31 March 2000. It is, therefore, proposed that this section be amended to reflect the correct date, i.e. 31 March 2001.

CLAUSE

Section 24 of the Taxation Laws Amendment Act, 2000 (Act No. 30 of 2000) replaces section 18A of the Income Tax Act, 1962, relating to the deduction of donations made to public benefit organisations, with effect from a date to be determined by the President. In terms of the new section 18A, there shall be allowed to be deducted a certain percentage of donations made to certain public benefit organisation which provide funds solely to other public benefit organisations, if 75 per cent or more of the donations received by or accrued to such organisation by way of donations are distributed to such other organisations during the preceding year of assessment. As only the donations that are actually received by the organisation can be so distributed, it is proposed to change the provision to delete the reference to donations which accrued to such organisation.

CLAUSE

Section 35 of the Taxation Laws Amendment Act, 2000 (Act No. 30 of 2000) inserts a new section 30 in the Income Tax Act, 1962, to regulate the income tax exemption of public benefit organisations. This section will, however, only come into operation on a date to be determined by the President.

In terms of the new provisions, certain organisations that carry on public benefit activities shall be exempt from tax. Section 30(2)(a) provides that the Minister of Finance shall by notice in the Gazette determine as public benefit activities any activities, which are of a philanthropic and benevolent nature, having regard to the needs, interests and well-being of the general public.

It is proposed that, as certain activities may be either "philanthropic" or "benevolent" and not necessarily both, the provisions of section 30(2)(a) be amended to delete the requirement that the activities should be both philanthropic and benevolent. If it complies with either test, the Minister may determine such activity as a public benefit activity.

CLAUSE

In terms of the Taxation Laws Amendment Act 30 of 2000, section 47B is to come into operation on 1 November 2000, in respect of the carriage of chargeable passengers on any flight which commences after that date. Subsequent to the promulgation of that Act, representations were made to the Minister of Finance, and it was pointed out that tickets have already been sold for flights which are to depart after 1 November 2000. A large number of these tickets do not include the prescribed tax, and practical problems are envisaged in collecting the tax on such tickets. As the relevant operators have indicated that they are in a position to include the tax in tickets sold after 1 August 2000, for flights which depart on or after 1 November 2000, the Minister has agreed to limit the date from which the operators are liable for payment of the tax, to 1 August 2000.

CLAUSE

CLAUSE

This clause provides the short title and commencement date of the Bill.

The following bodies were consulted on the draft legislation:

ACCOUNTING FORUM

AFRIKAANSE HANDELSINSTITUUT (AHI)

AIRLINES ASSOCIATION OF SOUTHERN AFRICA (AASA)

ASSOCIATION FOR THE ADVANCEMENT OF BLACK ACCOUNTANTS OF SOUTH AFRICA (ABASA)

ASSOCIATION OF LAW SOCIETIES (ALS)

ASSOCIATION OF UNIT TRUSTS (AUTSA)

BANKING COUNCIL

COMMERCIAL AND FINANCIAL ACCOUNTANTS (CFA)

COSATU

FINANCIAL AND FISCAL COMMISSION (FFC)

INSTITUTE OF RETIREMENT FUNDS (IRF)

JOHANNESBURG STOCK EXCHANGE (JSE)

LIFE OFFICES ASSOCIATION (LOA)

NATIONAL AFRICAN FEDERATED CHAMBER OF COMMERCE AND INDUSTRY (NAFCOC)

NATIONAL ECONOMIC DEVELOPMENT AND LABOUR COUNCIL (NEDLAC)

SOUTH AFRICAN CHAMBER OF BUSINESS (SACOB)

SOUTH AFRICAN INSTITUTE OF CHARTERED ACCOUNTANTS (SAICA)

TAX ADVISORY COMMITTEE (TAC)