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Income Tax Act, 1962 (Act 58 of 1962)

Chapter III: General Provisions

Part II: Assessments

Part IIA

80E. Accommodating of tax-indifferent parties

 

 

(1)        A party to an avoidance arrangement is an accommodating or tax-indifferent party if—

(a)        any amount derived by the party in connection with the avoidance arrangement is either—

(i) not subject to normal tax; or
(ii) significantly offset either by any expenditure or loss incurred by the party in connection with that avoidance arrangement or any assessed loss of that party; and

(b)        either—

(i) as a direct or indirect result of the participation of that party an amount that would have—
(aa) been included in the gross income (including the recoupment of any amount) or receipts or accruals of a capital nature of another party would be included in the gross income or receipts or accruals of a capital nature of that party; or
(bb) constituted a non-deductible expenditure or loss in the hands of another party would be treated as a deductible expenditure by that other party; or
(cc) constituted revenue in the hands of another party would be treated as capital by that other party; or
(dd) given rise to taxable income to another party would either not be included in gross income or be exempt from normal tax; or
(ii) the participation of that party directly or indirectly involves a prepayment by any other party.

 

(2) A person may be an accommodating or tax-indifferent party whether or not that person is a connected person in relation to any party.

 

(3) The provisions of this section do not apply if either—
(a) the amounts derived by the party in question are cumulatively subject to income tax by one or more spheres of government of countries other than the Republic which is equal to at least two-thirds of the amount of normal tax which would have been payable in connection with those amounts had they been subject to tax under this Act; or
(b) the party in question continues to engage directly in substantive active trading activities in connection with the avoidance arrangement for a period of at least 18 months: Provided these activities must be attributable to a place of business, place, site, agricultural land, vessel, vehicle, rolling stock or aircraft that would constitute a foreign business establishment as defined in section 9D(1) if it were located outside the Republic and the party in question were a controlled foreign company.

 

(4) For the purposes of subsection (3)(a), the amount of tax imposed by another country must be determined after taking into account any applicable agreements for the prevention of double taxation and any assessed loss, credit or rebate to which the party in question may be entitled or any other right of recovery to which that party or any connected person in relation to that party may be entitled.