Abstract
M.Com.
The Income Tax Act, No. 58 of 1962, defines a resident as a “person (other than a natural person) which is incorporated, established or formed in the Republic or which has its place of effective management in the Republic”.
It is therefore possible for a company incorporated outside of South Africa to be regarded as tax resident in South Africa if the company’s Place of Effective Management (“POEM”) is in South Africa, thus giving rise to double taxation.
POEM is not defined in the Act and each country has its own interpretation with regards to POEM. The South African Revenue Service (“SARS”) has provided guidance in the form of Interpretation Note 6 as to the meaning of POEM. However, criticisms were identified and SARS therefore issued a new Interpretation Note 6. This was to conform to international guidelines and provide more certainty for taxpayers.
The new Interpretation Note 6, however makes reference to the fact that each case would need to be determined on a fact-by-fact basis and makes mention of UK case law. This study therefore looks at case law in South Africa and the United Kingdom in order to determine if specific guidance can be ascribed to Place of Effective Management, or if any lessons learnt from the United Kingdom case law can be used and incorporated in a South African environment.