A critical analysis of the foreign services reportable arrangement provision of the tax administration act of South Africa

Abstract

Background: An additional reportable arrangement was added to South African tax legislation by way of a public notice in section 2.6 of the Government Gazette no. 39650 of 3 February 2016 (hereafter referred to as the foreign services reportable arrangement provision). This reportable arrangement relates to service fee payments made by a South African resident (or non-resident with permanent establishment in South Africa) to a non-resident. The services include consultancy, construction, engineering, installation, logistical, managerial, supervisory, technical and training services. Aim: The aim of this study was twofold: to critically analyse the reportable arrangement provision by examining undefined terminology contained in this provision and to develop a decision tree that may assist taxpayers in the application of this provision. Setting: Relevant South African literature and tax partners, directors and tax managers at leading audit and legal firms in South Africa. Methods: The study commences with a review of available South African literature in an attempt to define the terms ‘arrangement’ and ‘anticipated’, as applied in the foreign services reportable arrangement provision and continues with survey research to validate some of the conclusions drawn in the literature review. Results: From the literature review it was determined that although there are South African literature available providing persuasive value to the meaning of some of the undefined terms used in the foreign services reportable arrangement provision, there is no single consolidated source of information which clarifies the exact meaning of the terms in the context of this provision. Hence, survey research was performed to apply the available South African literature in the context of the foreign services reportable arrangement provision. The majority of the respondents in the survey research agreed and validated the assumptions and conclusions drawn from the literature review. Conclusion: It is therefore submitted that the presented findings may contribute to the limited existing South African literature on the foreign services reportable arrangement provision.