S.Africa: Deemed loans under transfer pricing seen as a dividend declared on 1 January 2015
Deemed loans under transfer pricing seen as a dividend declared on 1 January 2015
Authors: Okkie Kellerman, Jens Brodbeck and Arnaaz Camay (ENSafrica)
South African taxpayers who made a transfer pricing adjustment in previous years of assessment will be required to pay dividend tax at the end of 28 February 2015.
Under the old transfer pricing rules, a primary transfer pricing adjustment triggered a secondary adjustment in terms of a deemed loan in the hands of the relevant South African taxpayer; i.e. the amount “over paid” or “under charged” to the relevant non-resident connected person was deemed to be a loan to that foreign-connected person, on which arm’s length interest was deemed to have accrued to the South African resident.
The new section 31 of the Income Tax Act, applicable from 1 January 2015, now provides that the deemed loan plus accrued interest – to the extent that these items were not “re-paid” by the non-resident before 1 January 2015 – must be deemed to be a dividend in specie that was declared and paid by that resident to that non-resident on 1 January 2015.
Accordingly, South African companies that have such a deemed loan will now be liable to pay 15{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} dividends tax on the capital, plus deemed interest, by the end of February 2015.
The time period for the resident taxpayer to calculate and pay dividends tax where an existing “deemed loan” that will arise based on a secondary adjustment for, in particular, years of assessment ending on 31 December 2014, is therefore very short. Taxpayers only have until 28 February 2015 to determine the amount of these adjustments as at 31 December 2014, as well as the dividends tax payable thereon.
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