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SARS Issues Draft Interpretation Note On PBOs

by Lorys Charalambous, Tax-News.com, Cyprus

21 August 2015


The South African Revenue Service (SARS) has issued a draft interpretation note that focuses on "conduit public benefit organizations (PBOs)" providing funds that are used to carry out tax-exempt public benefit activities (PBAs) in the country.

In South Africa, an organization that has a non-profit motive does not automatically qualify for preferential tax treatment. It will only enjoy exemption from normal tax for its PBAs after it has applied for PBO status and been granted approval by SARS.

A PBO can either carry out PBAs itself or provide funds or assets to another PBO; any institution, board, or body that conducts one or more PBA; an association of persons carrying on one or more PBA; or a department in national, provincial, or local government. A PBO that provides funds or assets to others is generally referred to as a "conduit PBO."

In this context, it is provided that an "association of persons" is a voluntary informal association or group of persons that carries out one or more PBAs. Such an association or group of individuals will not itself qualify for approval as a PBO because it does not have a founding document.

It is difficult for SARS to monitor compliance and to ensure that the funds or assets received by an association of persons from a conduit PBO are used for the purpose of carrying out PBAs, because the association of persons is not approved as a PBO and does not have to comply with reporting requirements such as the submission of annual returns.

The Income Tax Act therefore places responsibility on the conduit PBO to satisfy SARS, when requested to do so, that reasonable steps have been taken to ensure that the funds or assets have been used to carry out a PBA in South Africa. The monitoring requirement imposed on the conduit PBO is a prerequisite for its continued approval as a PBO.

Comments on the interpretation note are requested by September 18, 2015.

TAGS: individuals | South Africa | compliance | tax | business | tax compliance | tax authority | tax breaks | charities | Africa | Tax

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