South Africa resolves disputes with large institutions

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South Africa resolves disputes with large institutions

The South African Revenue Service (SARS) expects to receive R3billion ($435million) after settling disputes with major institutions.

The disputes centre on cross-border transactions that the SARS considered to be unacceptable tax avoidance that eroded the South African tax base. The institutions claim to have acted in good faith.

The issue concerns transactions that aim to use tax treaties or relief measures in domestic law to generate tax benefits.

The benefits usually come from the tax relief claimed in excess of any economic double taxation that has occurred on post-tax dividends or interest income.

The tax benefits are usually shared between the institution and its foreign company through the pricings of transactions. These transactions typically lead to a financial loss for the institution in the absence of tax benefits.

Though for confidentiality reasons, the tax authorities did not reveal the names of the taxpayers, the SARS press release referred to structured finance litigation in New Zealand where four banks - BNZ, Westpac, ASB Bank and ANZ National - agreed a settlement of more than NZ$2.2 billion ($1.65 billion) with the Inland Revenue Department.

This suggests that the taxpayers in the settlements in South Africa were also from the financial sector.

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