Academic literature on the topic 'Section 11 of the Income Tax Act'

Section 11(bA) was recently deleted and replaced by section 11A in the Income Tax Act No. 58 of 1962 (“the Act” – all references to sections and paragraphs hereafter refer to the Act, unless otherwise indicated). Section 11(bA) and section 11A determined the income tax treatment of qualifying pre-production interest incurred. The article focused on whether or not pre-production raising fees incurred by the taxpayer during the expanding of an existing trade will be deductible in terms of section 11(bA) or section 11A. Section 11(bA) and section 24J allow for the deduction, in certain circumstances, of interest or related finance charges. In the recently decided C:SARS v South African Custodial Services (Pty) Ltd 2012 (1) SA 522 (SCA), 74 SATC 61 (“SA Custodial”) it was found by the court that raising fees can be read under the phrase interest or related finance charges in terms of section 11(bA). The question arose whether or not the taxpayers are being disadvantaged by the fiscus through the deletion of section 11(bA) and its replacement by section 11A, especially in regard to pre-production raising fees incurred during the expansion of an existing trade. This article investigates the interaction between sections 11(bA), 11A and 24J of the Act in order to determine the difference in the income tax treatment between these sections for the pre-production raising fees incurred. The result of the investigation into the interaction of these sections will indicate whether or not the taxpayer is being disadvantaged by the fiscus through the deletion of section 11(bA) and its replacement by section 11A.

For income tax purposes, a taxpayer operating a business will account for discount received differently from a taxpayer not operating a business. When a taxpayer operating a business obtains goods or services at a discount, the taxpayer can claim a section 11(a) deduction at the value of the goods or services, net of the discount received. The discount reduces the value of the net reduction of taxable income and the taxpayer is effectively taxed on the discount received. A taxpayer who is not operating a business will not qualify for a section 11(a) deduction (read together with section 23(g)) for goods or services obtained (it does not meet the requirements ‘for the purposes of trade’ and ‘in the production of income’). Discount received in the hands of a non-trading person (often a natural person) is currently not subject to normal South African income tax. The main objective of this article is to investigate whether the existing provisions in the Income Tax Act No. 58 of 1962 and related case law provide a basis for taxing discount received in the hands of the non-trading individual. In order to meet this objective, local literature was analysed to determine the correct income tax treatment and it was found that discount received by a non-trading person meets all the requirements of the ‘gross income’ definition and consequently should be taxable.

This article analyses the meaning attributed to the phrase “in the production of the income” as used in the present section 11(a) of the Income Tax Act, which provides for general expenses to be allowed as deductions against income. Read together with section 23(g), section 11(a) is commonly referred to as the “general deduction formula”. It has been said that the meaning ascribed to the phrase by Watermeyer AJP (as he was then) in his judgment in the Port Elizabeth Electric Tramway Company Ltd v CIR is “too mechanical and contrived”. Consequently, the judiciary, in applying the meaning as attributed to it by Watermeyer AJP in subsequent cases, has sometimes led to inconsistent and conflicting judgments. In fact, the application of the meaning so ascribed takes no account of the economic and other non-economic realities of doing business in the 21st century. The main objective of this article has been to re-ignite the debate surrounding Watermeyer AJP’s interpretation of the phrase, “in the production of the income”, in the Port Electric Tramway case and in so doing establish whether the narrow meaning ascribed by him to that phrase has subtly been changed and widened by the judiciary in subsequent cases. It can be concluded from an analysis of the case law discussed in this article that Watermeyer AJP’s interpretation, if strictly adhered to, can and does lead to absurd results. However, it is submitted that sanity has fi nally prevailed. The Supreme Court of Appeal in the comparatively recently decided cases of C:SARS v Mobile Telephone Networks Holdings (Pty) Ltd and Warner Lambert SA (Pty) Ltd v C:SARS, have considerably widened the ambit of expenses that may now be claimed in terms of section 11(a) of the Income Tax Act. The deduction of expenditure as was allowed in those two cases by the Supreme Court of Appeal, would appear not to have been permissible in terms of Watermayer AJP’s interpretation of the meaning of the phrase “in the production of income”. It is submitted that the economic realities =of doing business in South Africa in the 21st century are now taken into account in determining whether a business expense falls within the ambit of the phrase “incurred in the production of the income”.

AbstractThe refusal of a taxpayer to respond or pay the tax due has always provoked the tax authority to approach the court with an ex-parte application in chambers. The result of this ex parte application arms the tax authority with a restraining order. With a detached team of policemen, the tax authority will storm the premises of the taxpayer, vandalize, forcefully drive out the tax payer and seal up the premises. All these arrangements and decisions are done behind the taxpayer. This paper examined the constitutionality of the entire procedure for the recovery of tax due to the tax payer. The paper utilized doctrinal methodology in analyzing the extant laws and case laws as they relate to the subject matter. The paper submits that decisions under section 104 PITA are too weighty to be taken in the absence of the taxpayer. The paper, therefore, recommends some sort of judicial activism by judicial officers in exercising their discretion and accommodate the interest of the taxpayer.

This research aimed to: (1) To obtain and analyse application of Indonesian Government Act No. 23 of 2018 about increasing level of Micro Small and Medium Enterprises taxpayers who apply in South Makassar and North Makassar Tax Office, (2) to obtain and analyse application of Indonesian Government Act No. 23 of 2018 about contributed Micro Small and Medium Enterprises income taxes related to collection of income taxes Article 4 Section 2 in South Makassar and North Makassar Tax Office. Analysis method used in this research is descriptive analysis to describe increasing number of taxpayers before and after after application of Government Act No.23 of 2018 about collection of income taxes Article 4 Section 2. This research used descriptive analysis method with interactive model. Research shown that: (1) in South Makassar Tax Office, after application of Government Act No.23, shown increasing number of Micro Small and Medium Enterprises taxpayers for 79,61%, in the other hand, in North Makassar Tax Office, after application of Government Act No.23, shown decreasing number of Micro Small and Medium Enterprises taxpayers for -2,44%. (2) in South Makassar Tax Office, average collection of income taxes Article 4 Section 2, after 6 months since applying Government Act No. 23 of 2018, is 10,49% with the low criteria, and in North Makassar Tax Office, average collection of income taxes Article 4 Section 2, after 6 months since applying Government Act No. 23 of 2018, is 17,85% with the low criteria. In the future, government especially South Makassar and North Makassar Tax Office needs to be active and keen for holding personal socialization to the taxpayers.

ABSTRACT After numerous failed previous attempts to enact legislation taxing “carried interest” income attributable to services as compensation income versus capital gains, Congress enacted Section 1061 as part of the Tax Cuts and Jobs Act. Unlike previous proposals, which would tax carried interest income attributable to services as compensation income, Section 1061 simply reclassifies some carried interest income attributable to services as short-term capital gain. By choosing to treat carried interest income attributable to services as short-term capital gain instead of as compensation income, Section 1061 exempts such income from self-employment tax and allows taxpayers to offset such income with an unlimited amount of short-term capital losses. This paper reviews the requirements under Section 1061 and explains several ambiguities created by the new law. In addition, this paper examines whether Section 1061 follows sound tax policy. The authors find that Section 1061 does not follow the tax policy concepts of equity and fairness, economic efficiency, neutrality, simplicity, or certainty. In addition, the authors find that Section 1061 will have minimal impact, as most carried interest is held longer than the required period to qualify as long-term capital gain.

Historically, courts have been unwilling to adopt a purposive approach to the interpretation of tax statutes. This reluctance extends to the application of section 5(j) of the Acts Interpretation Act 1924, which courts say has no general applicability to income tax legislation. In 1996, as part of a process of rewriting the Income Tax Act 1994, Parliament inserted a number of interpretation provisions into the Act. The goal that the drafters had in mind is not entirely clear, but the 1996interpretation provisions appear to be calculated to require the courts to interpret the Act more purposively, meaning, in this context, to interpret the Act more in the light of the overall objective of levying tax. If that was indeed the goal, the 1996 provisions do not achieve it, nor is it possible to determine whether the provisions achieve other worthwhile goals. Indeed, the stipulation in section AA 3(1) that provisions of the Act should be interpreted "in [the] light of the purpose provisions, the core provisions, and the way in which the Act is organised" may in future be turned against the interests of the Crown in order to support otherwise unpersuasive arguments on behalf of taxpayers.

The object of this short note is to draw attention to a decision of the Special Commissioners of Inland Revenue (the Commissioners) which deals with the liability for income tax of officials of an unrecognised State.1 Section 321 of the Income and Corporation Taxes Act 1988 (the Taxes Act) provides exemption from liability for income tax for foreign consuls in the United Kingdom and for “an official agent in the United Kingdom for any foreign state, not being … a Commonwealth citizen”. An “official agent” is a person, other than a consul, “who is employed on the staff of any consulate, official department or agency of a foreign state”.

Section 9H and paragraph 40 of the Eighth Schedule of the Income Tax Act No. 58 of 1962 (‘the Act’) determines that a person is deemed to dispose of all of his assets (bar a few exceptions) at market value when that person ceases to be a South African resident or passes away, respectively. This deemed disposal is treated as a disposal event for capital gains tax purposes in terms of the Eighth Schedule of the Act. The question that arises is whether this deemed disposal event gives rise to a recoupment in terms of section 8(4)(a). In practice there currently seems to be uncertainty with regard to this issue, as there are different interpretations and applications of these provisions. This article investigates the interaction between sections 8(4)(a), 9H and paragraph 40 of the Eighth Schedule in order to determine whether a section 8(4)(a) recoupment should be included, or not, in the taxpayer’s gross income according to paragraph (n) of the gross income definition found in section 1 of the Act.

The instalment of Income Tax for Individual Taxpayers of particular enterpreneur is determined at 0.75% of the total circulation of business under section 25 Income Tax Act, 2008. The prepaid’s payment of income tax implies the underpayment or overpayment of tax at the end of the tax year. If there is an overpayment of tax audits, it will be conducted according to the Law Number 28 of 2007 on the General Provisions of Taxation. This paper focuses on the discussion of income tax installments by individual taxpayer particular enterpreneur categorized as micro entrepreneurs. Based on the research conducted by the method of comparative research, descriptive and analytical documents, results show that the maximum limit of circulation to all types of businesses at the lowest rates and the type of agricultural businesses in the highest rates occur overpayment. It means the cost of taxation for individual taxpayers of particular entrepreneurs in micro business. This causes a particular burden for micro individual taxpayers of particular enterpreneur besides less aligned with the goal of the Income Tax Act change.

The Income Tax Act 58 of 1962 (“Act”) entitles taxpayers to deduct certain losses and expenses incurred by them from their taxable income if such losses and expenses comply with the requirements of section 11(a) of the Act. One of the requirements of section 11(a) is that, in order to be eligible for a deduction, the losses and expenses must have been “actually incurred” by the taxpayer. The area of tax deductions in our tax law represents the frontline in the continuous and inevitable war between the taxpayer (almost always desperately trying to maximise her deductions) and the revenue authorities (as often times desperately trying to minimise the deductions to which the taxpayer is entitled). The stage on which the various battles which make up this mighty war between citizen and state are fought is the court and the arsenal with which each party comes armed is the Act and, more specifically, the absolute belief of each party in the correctness of their interpretation of the Act, which, each party hopes, will be ably demonstrated by their able (and often extremely expensive) counsel. Such is the determination of the taxpayer and the tax authorities alike that the body of case law relating to this specific area of our law is, especially when one considers that it essentially involves on only one section of the Act, relatively voluminous. The author’s intention is to consider only one of the requirements with which the taxpayer must comply in order to be eligible for a deduction, namely, the requirement that the relevant loss or expenditure must have been “actually incurred” by the taxpayer. Despite the fact that the meaning of the phrase “actually incurred” has been considered extensively by our courts, significant uncertainty still exists as to its exact meaning. The author will deal with three specific contexts in which the meaning of this phrase remains a subject of uncertainty, namely, share-based payments, contingent liabilities and losses and expenses incurred in relation to illegal receipts. The author will begin first by dealing with the interpretation of tax statutes, the author will then, in general terms, consider the general deduction formula after which the author will delve into the meaning of the phrase “actually incurred” in the contexts of each of the transactions mentioned above.
Dissertation (LLM)--University of Pretoria, 2012.
gm2014
Mercantile Law
unrestricted

The study will be based on a comparative analysis of the general antiavoidance section of the South African Income Tax Act no. 58 of 1962 and the Tanzanian Income Tax Act no. 11 of 2004. The focus is on how the two provisions are interpreted by showing the similarities and differences. The approach will be analytical and comparative, starting by showing the concept of tax avoidance and historical backgrounds of the two provisions.

Thesis (MAcc)--Stellenbosch University, 2014.
ENGLISH ABSTRACT: The requirements of section 11(a) and section 24J(2) were considered in this research assignment, from both a money-lender’s and an investment holding company’s perspective, to determine whether interest, losses on irrecoverable loans and raising fees were tax deductible. It was determined, that if the trade requirement is satisfied by the money-lender, then the above-mentioned expenses are fully tax deductible. However, if the trade requirement is satisfied by the investment holding company then only the interest is fully tax deductible. It is further submitted however in this research assignment that it cannot be said that the money-lender alternative is better than the investment holding company alternative – both alternatives are of equal value in the current tax system. What is important though is that taxpayers who will fit the mould of an investment holding company will now be able to use the principles set out in this research assignment to prove that it is in fact carrying on a trade for tax purposes, something that taxpayers are generally reluctant to pursue. If this is pursued, taxpayers may have the added tax benefit of tax deductible interest expenditure (in full) in cases where this was not previously the norm (and an investment holding company will not have to satisfy any of the guidelines of the “money-lender test” when it seeks to deduct its interest expense in full). However, if an investment holding company seeks to deduct losses on irrecoverable loans and raising fees for tax purposes, it will not have to satisfy all the guidelines of the “money-lender test”, but it will have to satisfy one guideline, that being the “system or plan” and “frequent turnover of capital” guideline. It will be very difficult for an investment holding company to prove this on the facts of the case – it will arguably take a special set of facts to accomplish this mean feat.
AFRIKAANSE OPSOMMING: Die vereistes van artikel 11(a) en artikel 24J (2) is in hierdie navorsingsopdrag vanuit ʼn geldskieter en 'n beleggingshouermaatskappy se perspektief oorweeg, om die belastingaftrekbaarheid van rente, verliese op oninvorderbare lenings en diensfooie te bepaal. Daar is vasgestel dat indien die bedryfsvereiste deur ʼn geldskieter nagekom word, bogenoemde uitgawes ten volle vir belastingdoeleindes aftrekbaar is. Indien die bedryfsvereiste egter nagekom word deur ʼn beleggingshouermaatskappy sal slegs die rente ten volle aftrekbaar wees vir belastingdoeleindes. Verder word dit in die navorsingsopdrag aan die hand gedoen dat daar nie gesê kan word dat die geldskieter-alternatief beter is as die beleggingshouermaatskappy-alternatief nie – beide alternatiewe is van gelyke waarde in die huidige belastingbestel. Die onderskeid is egter belangrik, aangesien die belastingbetalers wat aan die vereistes van ʼn beleggingshouermaatskappy voldoen, nou in staat sal wees om die beginsels wat in hierdie navorsingsopdrag uiteengesit word, te gebruik om te bewys dat die beleggingshouermaatskappy in werklikheid ʼn bedryf vir belastingdoeleindes beoefen. Belastingbetalers is oor die algemeen huiwerig om dit te poog. Indien wel, kan belastingbetalers ʼn belastingaftrekking ten opsigte van rente uitgawes kry, wat voorheen nie die norm was nie (ʼn beleggingshouermaatskappy sal nie enige van die “geldskietertoets” riglyne hoef na te kom wanneer dit poog om ʼn belastingafrekking vir die rente uitgawe te kry nie). Indien ʼn beleggingshouermaatskappy verliese op oninvorderbare lenings en diensfooie vir belastingdoeleindes wil aftrek, sal die belastingbetaler nie al die “geldskietertoets” riglyne hoef na te kom nie, maar sal egter moet voldoen aan die “stelsel of plan” en “gereelde omset van kapitaal” riglyne. Dit sal baie moeilik wees vir 'n beleggingshouermaatskappy om dit te bewys op grond van die feite van die saak – dit sal waarskynlik ʼn spesiale stel feite verg om dit te bereik.

Uppsatsen syftar till att utreda två skatterättsliga frågor som uppkommit i samband med ett avvisat avgörande från Högsta förvaltningsdomstolen avseende terminsavtal i ett incitamentsprogram. Frågorna är om terminer och terminsavtal utgör värdepapper och om eventuella förfoganderättsinskränkningar i dessa avtal har betydelse för förmånsbeskattningen. Utgångspunkten i uppsatsen är beslutet från Högsta förvaltningsdomstolen som avvisades och det därtill hörande förhandsbeskedet från Skatterättsnämnden. Utifrån de diskussioner som förts i uppsatsen kan författaren konstatera att terminer och terminsavtal kan klassificeras som värdepapper. Begreppet värdepapper är inte definierat i lagtext men utifrån praxis och doktrin samt viss EU-lagstiftning kan det utläsas att terminsavtal uppfyller de krav som ställs på en klassificering som värdepapper. När det gäller beskattning av en förmån krävs det att den anställde förvärvar ett värdepapper, annars utgör rättigheten en personaloption. Författaren anser att då ett terminsavtal ingår i ett incitamentsprogram så representerar det ett ekonomiskt värde för den anställde som ska förmånsbeskattas. Inom incitamentsprogrammen kan det finnas villkor och förfoganderättsinskränkningar. Dock har Högsta förvaltningsdomstolen i ett flertal fall kommit fram till att sådana begränsningar i den rättighet som förvärvas inte påverkar värdepappersstatusen hos rättigheten. Enligt ett av förarbetena så syftar värdepappersregeln till att förmånsbeskattning ska ske oavsett hur villkoren är utformade. Det som har framkommit i framställningen medför att författaren anser att det är märkligt att Högsta förvaltningsdomstolen inte tog beslut i frågan om förmånsbeskattning av terminsavtal. En konsekvens är att det kan leda till framtida problem med tillämpningen av värdepappersregeln i samband med terminsavtal.
The aim of this thesis is to examine two taxation questions that arise from the judgement by the Supreme Administrative Court regarding futures contracts in employee incentive plans. The questions concerns whether futures are to be classified as securities and if any restraint in the right of disposition might have an impact on the fringe benefits taxation according to chapter 10 section 11 of the Swedish Income Tax Act. As a result of the discussions in the thesis the author comes to the conclusion that futures might be classified as securities. The terminology regarding securities is not defined in the Swedish Income Tax Act but case-law and literature and also directives from the European Union stipulate demands that futures fulfil. According to the Swedish legislation it is crucial that the employee acquire a security in order for the fringe benefits taxation to apply. The author is of the opinion that when futures are a part of an employee incentive plan then they represent an economic value, which should be taxed as a benefit. The employee incentives plan could be restrained in the right of disposition. However the Supreme Administrative Court has in multiple cases found that it does not affect the classification of a security. The preparatory work shows that the purpose of chapter 10 section 11 in the Swedish Income Tax Act is to tax all benefits regardless of the restraints connected to them.  Based on the findings in the thesis the author is of the opinion that the decision by the Supreme Administrative Court regarding the fringe benefits taxation of futures is strange. This is because the decision might cause problem in the future interpretation of chapter 10 section 11 in the Swedish Income Tax Act.

Section 12N, introduction into the Income Tax Act by way of Taxation Laws Amendment Act and which became effective on 2 November 2010, provides for allowances on the leasehold improvements on government-owned land and land leased from certain tax exempt entities as stipulated in section 10 (1) (cA) and (t). As section 12N deems the lessee to be the owner of the leasehold improvement, the lessee now qualifies for capital allowances which were previously disallowed.

Includes bibliographical references.
The focus of this paper is on South Africa’s implementation and application of the international principles relating to transfer pricing in its domestic legislation as encapsulated in section 31 of the Income Tax Act No. 58 of 1962. Transfer pricing is currently one of the more important short term international tax considerations, specifically in the South African context where recent amendments, particularly with regard to thin capitalisation, have created a degree of commercial uncertainty for multinational enterprises. With regard to the South African context, this paper seeks to illustrate the increased compliance burden placed on South African taxpayers as a result of the 2012 amendment to section 31 of the Income Tax Act. While the revised section is aimed at reducing transfer pricing manipulation, the impact thereof on taxpayers is significant from both an administrative as well as financial perspective. In addition to evaluating the international principles and South Africa’s use thereof, this paper will also look at the extent to which developing countries are disadvantaged by the current transfer pricing framework. It is posited that the lack of access to resources, skills and expertises makes developing countries particularly vulnerable to base erosion and profit shifting by multinational enterprises.

Controlled foreign company ('CFC') legislation was introduced in phases to co-incide with South Africa?s move from a source based system to a residence based system. Initially with the introduction of the legislation it was directed at those foreign entities earning passive income. However, over the years the legislation has been amended to include active income of entities and additional aspects to the section have been inserted to provide clarity for taxpayers. An increase in cross border transactions and offshore investment has necessitated the need to introduce CFC legislation into the revenue codes of many countries, South Africa being one of them. In most revenue codes where CFC or similar legislation has been introduced it is one of the most complex areas in a country's revenue code (Sandler, 1998:23). This mini-dissertation aims to interpret section 9D and also aims to provide guidance on its application in practice with the help of practical examples and reference to relevant international case law. The end result of this research is a proposed interpretation note on section 9D which is attached as Appendix 1.
Thesis (M.Com. (Tax))--North-West University, Potchefstroom Campus, 2011.

Section 20 of the Income Tax Act, No 58 of 1962 allows a taxpayer that incurs an assessed loss to carry forward the balance of assessed loss incurred, to be set off against taxable income earned in or added to losses incurred in future years. The issues regarding the carry forward of assessed losses in terms of section 20 is complex and in terms of the said section, a company is only entitled to set off its assessed loss from the previous year against its taxable income in the current year, if the taxpayer has carried on a trade during the current year and has derived income from that trade. Under the provisions of section 20(2A), a taxpayer other than a company can utilise an assessed loss even if no trading has been conducted. Assessed losses of natural persons, may however be ring-fenced. The aim of this treatise was twofold. Firstly it was to gain clarity on the „trade‟ and „income from trade‟ issues and secondly to compare South African legislation with that of Australia, with a view to recommending a change in our rules regarding the treatment of assessed losses in the context of companies. The critical lessons to be learned from the cases presented, is that liquidators, creditors and others must ensure that the company continues trading in order to x keep the assessed losses valid. Realisation of assets (including stock), and the collection of outstanding debts during liquidation does not constitute the carrying on of a trade in terms of s 20(1). The continuity of trade is an important element in regard to the carry forward of assessed losses to be utilised in the current and future years. Therefore it is important that a company carries on some activity that falls within the definition of trade. In the landmark case of SA Bazaars, it was held that a company did not have to trade continuously throughout the year to qualify for the set-off of the assessed loss or carry forward of the assessed loss, that is, to trade for say part of the year. The court however left open the issue of whether it was necessary to derive income from that trade. In order to clarify the issues regarding assessed losses, SARS issued Interpretation Note 33 granting taxpayers a concession in certain cases where a company has traded, but not derived income from that trade. But in ITC 1830, the court ruled that a company must trade and must derive income from that trade in order to carry forward its assessed loss, which effectively means that SARS cannot apply Interpretation Note 33. SARS does not have the authority to make concession which is contrary to the wording of the Act. xi In Australia, operating losses can be carried forward indefinitely to be set-off against future income, provided a company meets the more than 50% continuity of ownership test. Where the continuity test fails, losses can be deducted if the same business is carried on in the income year (the same business test). From the research conducted and in order to solve the issues surrounding the carry forward of assessed losses it was suggested that one of the following be adopted :- The method used in Australia for the carry forward of assessed losses., or A decision of the Supreme Court of Appeal is needed for a departure from the literal meaning of the words pertaining to the requirements regarding the carry forward of assessed losses. Furthermore, to clarify the definition of „income‟, as used in the context of s20, is it gross income less exempt income or taxable income?. If section 20 relates to taxable income, then an assessed loss will never be increased, which it is submitted, is not what the legislature intended. Section 20 ought to be revisited to eliminate any uncertainty about the income requirement and in the context in which the word „income‟ is used in that section.

Thesis (MAcc)--Stellenbosch University, 2015.
ENGLISH ABSTRACT: Section 24C of the Income Tax Act No. 58 of 1962 (‘the Act’) provides for a deduction of future expenditure that will be incurred by the taxpayer in the performance of his obligations under a contract from which the taxpayer derived income. Due to uncertainties regarding the meaning of certain words and phrases used in section 24C, the first aim of this assignment was to determine the meaning of the word ‘expenditure’ and the phrase ‘will be incurred’ as used in section 24C. The second aim was to establish how a taxpayer will prove with certainty that he will incur future expenditure in the performance of his obligations under a contract. This was done by discussing the effect of contractual terms and other circumstances and by taking into account certain additional guidelines regarding the interpretation of section 24C provided for in Interpretation Note: No. 78 (‘IN 78’). It was established that the word ‘expenditure’ means the amount of money spent, including the disbursement of other assets with a monetary value. The word ‘expenditure’ also specifically includes the voluntary payments and disbursements of assets. The word ‘expenditure’ can also include a loss if the word ‘loss’ can be equated to the word ‘expenditure’. The phrase ‘will be incurred’ implies that the taxpayer will, in a subsequent year of assessment, have an unconditional obligation to pay for expenditure, which must arise from the taxpayer’s obligations to perform under the contract. Contractual terms and other circumstances can indicate whether there is certainty that future expenditure will be incurred as aforementioned. Conditions and warranties are contractual terms that indicate that there is uncertainty regarding the taxpayer’s obligations to perform under the contract. A time clause in a contract can indicate that there is certainty regarding the taxpayer’s obligations to perform under the contract. Similar contracts with similar conditional obligations to perform cannot be grouped together in order to determine the probability, and thus the certainty, that future expenditure will be incurred in the performance of the taxpayer’s obligations under a contract. The probability that a taxpayer will perform his unconditional obligation under the contract must, however, be proved in order to demonstrate that there is certainty regarding the incurral of the future expenditure. IN 78 does not specify whether a loss which can, in certain circumstances, be equated to the word ‘expenditure’, is deductible under section 24C. This should be clarified. The new undefined phrases (a high degree of probability, inevitability, certainty and potentially contractually obligatory), as used in IN 78, might cause confusion when interpreting section 24C. These phrases should be defined and it should be explained how the high degree will be measured. Lastly, is was shown that an anomaly occurs regarding trading stock at hand at the end of a year of assessment, which will be utilised in a subsequent year of assessment in the performance of the taxpayer’s obligations under a contract. Such trading stock does not represent ‘future expenditure’ and must be excluded from the section 24C allowance. However, due to the interplay between section 24C and section 22(1), the taxpayer does not receive any tax relief for the expenditure actually incurred to acquire the closing trading stock in the year in which such trading stock is acquired. It is, therefore, questioned whether the established interpretation of section 24C is in agreement with the Legislator’s original intention with section 24C namely, to match income received under a contract with the related deductible expenditure.
AFRIKAANSE OPSOMMING: Artikel 24C van die Inkomstebelastingwet No. 58 van 1962 (‘die Wet’) voorsien ʼn aftrekking vir toekomstige onkoste wat deur die belastingpligtige aangegaan sal word in die nakoming van sy verpligtinge ingevolge ʼn kontrak waaruit hy inkomste verkry het. As gevolg van onsekerhede ten opsigte van die betekenis van sekere woorde en frases wat in artikel 24C gebruik word, was die eerste doelstelling van hierdie navorsingswerkstuk om die betekenis van die woord ‘onkoste’ en die frase ‘aangegaan sal word’, soos wat dit in artikel 24C gebruik word, te bepaal. Die tweede doelstelling was om vas te stel hoe 'n belastingpligtige met sekerheid sal bewys dat hy toekomstige onkoste sal aangaan in die nakoming van sy verpligtinge ingevolge ʼn kontrak. Dit is gedoen deur die effek van kontraksbedinge en ander omstandighede te bespreek en deur sekere bykomende riglyne ten opsigte van die interpretasie van artikel 24C, soos vervat in Interpretasienota No. 78 (‘IN 78’), in ag te neem. Daar is vasgestel dat die woord ‘onkoste’ die bedrag van geld wat bestee word, insluitend die uitbetaling van ander bates met 'n geldwaarde, beteken. Die woord ‘onkoste’ sluit ook spesifiek vrywillige betalings en uitbetalings van bates in. Die woord ‘onkoste’ kan ook 'n verlies insluit, indien die woord ‘verlies’ gelyk gestel kan word aan die woord ‘onkoste’. Die frase ‘aangegaan sal word’ impliseer dat die belastingpligtige, in 'n daaropvolgende jaar van aanslag, 'n onvoorwaardelike verpligting sal hê om vir onkostes te betaal. Hierdie onkostes moet ontstaan weens die belastingpligtige se verpligtinge ingevolge die kontrak. Kontraksbedinge en ander omstandighede kan aandui of daar sekerheid is dat die toekomstige onkoste, soos hierbo genoem, aangegaan sal word. Voorwaardes en waarborge is kontraksbedinge wat daarop dui dat daar onsekerheid is rakende die belastingpligtige se verpligtinge om ingevolge die kontrak op te tree. ʼn Tydsklousule in 'n kontrak kan aandui dat daar sekerheid is rakende die belastingpligtige se nakoming van sy verpligtinge ingevolge die kontrak. Soortgelyke kontrakte, met soortgelyke voorwaardelike verpligtinge kan nie saam gegroepeer word ten einde te bepaal of dit waarskynlik, en gevolglik seker is dat toekomstige onkoste in die nakoming van ʼn belastingpligtige se verpligtinge ingevolge die kontrak aangaan sal word nie. Die waarskynlikheid dat 'n belastingpligtige sy onvoorwaardelike verpligting ingevolge die kontrak sal nakom moet egter bewys word ten einde aan te dui dat daar sekerheid is dat toekomstige onkoste aangegaan sal word. IN 78 spesifiseer nie of 'n verlies wat, in sekere omstandighede, gelyk gestel kan word aan die woord ‘onkoste’, ingevolge artikel 24C aftrekbaar is nie. Duidelikheid hieromtrent moet verskaf word. Die nuwe, ongedefinieerde frases ('n hoë graad van waarskynlikheid, onafwendbaarheid, sekerheid en potensieel kontraktueel verpligtend (vry vertaal)), soos in IN 78 gebruik, kan moontlik verwarring veroorsaak wanneer artikel 24C geïnterpreteer word. Hierdie frases moet gedefinieer word en daar moet verduidelik word hoe ʼn hoë graad gemeet gaan word. Laastens blyk dit dat 'n teenstrydigheid ontstaan ten opsigte van handelsvoorraad op hande aan die einde van 'n jaar van aanslag, wat in 'n daaropvolgende jaar van aanslag deur die belastingpligtige in die nakoming van sy verpligtinge ingevolge 'n kontrak gebruik sal word. Sodanige handelsvoorraad verteenwoordig nie ‘toekomstige onkoste’ nie en moet by die artikel 24C toelaag uitgesluit word. Die belastingpligte ontvang egter, weens die wisselwerking tussen artikel 24C en artikel 22(1), nie ʼn belastingverligting vir die onkoste werklik aangegaan in die jaar waarin sodanige handelsvoorraad verkry is nie. Dit word dus bevraagteken of die bewese interpretasie van artikel 24C in ooreenstemming is met die Wetgewer se oorspronklike bedoeling met artikel 24C, naamlik, om inkomste ontvang ingevolge ʼn kontrak met die verwante aftrekbare uitgawes te paar.

The right to tax is traditionally based on connection to jurisdiction. Taxation is divided into international and domestic systems. An international tax system subjects its residents to tax on their income from all around the world while a domestic tax system subjects its residents to tax only on income arising out of a source within the borders of such a State. Under the international tax system, a State's right to tax firstly depends on whether the taxpayer deriving the said taxable income is a resident of that country or not. With respect to an entity or enterprise, its place of effective management or its headquarters within a State is used to establish residence of such an entity in the State hence making the entity taxable. Where the enterprise does not have a place of effective management or headquarters in a State, hence rendering such enterprise a non-resident, treaty rules have established that the permanent establishment concept be used to tax business profits. The permanent establishment becomes the minimum criteria for establishing that such an enterprise has an economic presence within the borders of the source State. In the presence of an enterprise having cross-border transactions, it is possible for the enterprise to be subject to taxable under both the domestic tax system of the State within which it is a resident as well as under the international tax system of the source State within which it has a permanent establishment, thus arising the question of double taxation. To help solve such a situation, legal instruments, arising in the form of tax treaties were created to combat double taxation of income arising out of cross-border transactions. Integral in solving this situation is the concept of permanent establishment. The permanent establishment is a source rule; thus a basic requirement to be met before business profits of a non-resident that are attributable to its permanent establishment in the source State are taxed in that State. However, technology developments and the rise of electronic commerce are rising problems on the application of the permanent establishment concept in relation to taxing income from international sources of such businesses.3 The broad meaning of the permanent establishment concept, particularly its requirements, make it difficult and ambiguous during its application to enterprises that conduct their businesses electronically or via the internet.