When Must Reportable Arrangements Be Reported To SARS?

In terms of sections 34 to 39 of the Tax Administration Act No. 28 of 2011 (“TAA”), when certain transactions are entered into, the details of such transactions must be disclosed to SARS and are known as “reportable arrangements”.

Reportable arrangements must be reported to SARS within 45 business days after the date on which that arrangement qualifies as a reportable arrangement or after becoming a participant in a reportable arrangement. Every participant in a reportable arrangement must disclose the prescribed details regarding the arrangement, such as:

• completed RA01 form;
• a detailed description of all the steps and key features of the arrangement;
• a detailed description of the tax benefits for all participants;
• names, registration numbers, and registered addresses of all participants;
• a list of all its agreements; and
• any financial model that embodies its projected tax treatment.

A participant is:

• a person who directly or indirectly will derive a tax benefit in relation to the arrangement;
• a promotor of the arrangement, namely any person who is mainly responsible for organizing, designing, selling, financing or managing the arrangement; or
• any other person who is a party to a reportable arrangement.

The TAA, as well as the list published in Government Notice 140 (“the Notice”), contains a list of reportable arrangements. The most notable arrangements are as follows:

1. An arrangement that would have qualified as a “hybrid equity instrument” in terms of section 8E of the Income Tax Act, No. 58 of 1962, if the prescribed period in that section had been ten years but does not include any instrument listed on an exchange regulated in terms of the Financial Markets Act, 2012.
2. An arrangement in terms of which—

a. a company repurchase shares on or after the date of publication of the Notice from one or more shareholders for an aggregate amount exceeding R10 million; and

b. that company issued or is required to issue any shares within 12 months of entering into that arrangement or of the date of any repurchase in terms of that arrangement.

3. An arrangement in terms of which—

a. a person that is a resident makes any contribution or payment on or after 16 March 2015 to a trust that is not a resident and has or acquires a beneficial interest in that trust; and

b. the amount of all contributions or payments, whether made before or after 16 March 2015 or the value of that interest exceeds or is reasonably expected to exceed R10 million, excluding any contributions or payments made to or beneficial interest acquired in any—

(i) portfolio comprised in any investment scheme contemplated in paragraph (e)(ii) of the definition of “company” in section 1(1) of the Income Tax Act; or

(ii)foreign investment entity as defined in section 1(1) of the Income Tax Act.

4. An arrangement in terms of which- one or more persons acquire the controlling interest in a company on or after the date of publication of the Notice, including by means of acquiring shares, voting rights or a combination of both, that—

a. has carried forward or reasonably expects to bring forward a balance of assessed loss exceeding R50 million from the year of assessment immediately preceding the year of assessment in which the controlling interest is acquired; or

b. has or reasonably expects to have an assessed loss exceeding R50 million in respect of the year of assessment during which the controlling interest is acquired; or

c. directly or indirectly holds a controlling interest in a company in paragraph (a).

5. An arrangement for the rendering to a person—

a. that is a resident; or

b. that is not a resident that has a permanent establishment in the Republic to which that arrangement relates, of consultancy, construction, engineering, installation, logistical, managerial, supervisory, technical or training services, in terms of which—

a. a person that is not a resident or an employee, agent or representative of that person—

• • • was or is physically present in the Republic; or
    • is anticipated to be physically present in the Republic, in connection with or for purposes of rendering those services; and

b. the expenditure in respect of those services under that arrangement—

• • • incurred or to be incurred, on or after the date of publication of this Notice, exceeds or is anticipated to exceed R10 million in aggregate; and
    • does not qualify as remuneration for purposes of the Fourth Schedule to the Income Tax Act.

The following arrangements are specifically excluded as reportable arrangements under section 36(4) of the TAA:

• An arrangement referred to in section 35(1) of the TAA, is an excluded arrangement if the aggregate tax benefit which is or may be derived from that arrangement by all participants to that arrangement does not exceed R5 million.
• An arrangement referred to in section 35(1)(c) of the TAA, is an excluded arrangement if the tax benefit which is or will be derived or is assumed to be derived from that arrangement is not the main or one of the main benefits of that arrangement.

Failure to disclose the reportable arrangements will result in severe penalties. Participants other than the promoter are subject to a penalty of R 50 000 per month, whilst the promoter is subject to R 100 000 per month (up to a maximum of 12 months).

In light of the severe penalties that can be incurred, it is advised that the requirements of a reportable arrangement must be considered before entering into transactions.