Abstract
M.Com.
The South African Revenue Service introduced Withholding Tax on Interest effective 1 March 2015. It is a final tax applied against interest paid to non-residents from a South African source. The overall objective of the study is to highlight certain legislative provisions of Withholding Tax on Interest as set out in section 50A to 50H of the Income Tax Act in order to address areas of concern for ‘withholding agents’. These areas of concern relate to whom the person is, that is responsible for withholding the tax on interest payments and to the timing of when interest is deemed to be paid in order to comply with the withholding obligation.
Using a doctrinal method, the study builds an argument to provide clarity on these provisions by recognising, analysing, organising and interpreting appropriate legislative provisions, court rulings and commentary related to the topic. The study aims to provide clarity of the phrase that the ‘person who makes payment’ of an amount of interest is the person who is responsible for withholding tax on the interest paid to the non-resident. This uncertainty arose out of specific reference to dematerialised instruments and how other local withholding provisions, and countries like the United Kingdom and United States of America, have incorporated this concept and clarified who has the withholding obligation. For withholding tax on interest in South Africa, no such clarity exists.
Furthermore, the study explores the practical difficulty for ‘withholding agents’ to comply with the withholding obligation when interest is deemed to be paid on the concept of ‘due and payable’, yet no cash flow was necessarily available from which to withhold the tax.
The analysis determines that the ‘person who makes payment’ is the person who has the relationship with the non-resident and is in a position to accurately account whether withholding applies. This implies that for instruments that are dematerialised, it would be the last client-facing intermediary and for instruments that are in physical format, it would be the issuer.
Concerning the concept of ‘due and payable’, an amount is ‘due’ when it has been incurred or created resulting in that amount being owed, while ‘payable’ refers to the time where the need to make payment has arrived. This does not necessarily mean that...