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South African Business Gets A Tax Surprise

by Robert Lee, Tax-News.com, London

04 October 2001


A number of businesses in South Africa have been astounded by a SA Revenue Service (SARS) decision to tax the interest on the monies that they loan to their offshore affiliates. The move follows a SARS questionnaire to 100 of South Africa's top firms, 50 of which were randomly selected, requesting details of financial transactions between the companies and foreign associates.

SARS will assess the companies on the interest they should have accrued and it will be taxed accordingly. The Revenue Services questionnaire has asked for information going back as far as 1995 and it could result in some companies paying up millions of rands in tax.

Deloitte & Touche tax manager, Jenny Alence, told the Business Day online news service that the companies are shocked at the news: She said: 'It has not yet sunk into the SA corporate consciousness that international trade within a group should mirror dealings between independent parties in an open market.'

Ms Alence added: 'A number of companies are now trying to argue that the interest-free loans they granted are not really loans but should be treated as equity in an attempt to get themselves off the hook.'


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