I was reading the “How to complete and submit your country by country information” external guide published by SARS and came across the below.
“For the purposes of calculating the value of a taxpayer’s annual aggregate (potentially affected transactions):
- One should include dividends paid / received, the coupon paid / received on preference shares and finance charges flowing from any transaction, operation, scheme, agreement or understanding, directly or indirectly entered into or effected between or for the benefit of either or both a person that is a resident; and any other person that is not a resident.
- It will exclude any transaction, operation, scheme, agreement or understanding contemplated in section 31(5), (6) or (7) of the Income Tax Act”
I am not sure if you were aware that dividends paid or received should be part of the total aggregate amount? As you know, if the aggregate of a person’s potentially affected transactions for the year of assessment, without offsetting any potentially affected transactions against one another, exceeds or is reasonably expected to exceed R100 million, you will have to submit your master file and local file.
There have been other discussions around whether the capital balance of a loan (or preference shares) should be part of this determination as well? I think the argument that a company’s debt capacity must be arm’s length and therefore could be seen to be a potentially affected transaction carries a lot of weight as well. I wonder how far this argument could go with share capital?
As you can see from the above, and SARS’s external guide the threshold is met rather quickly and now even quicker. Also keep in mind the threshold refers to reasonably expected to exceed, which makes this even more grey.
Let me know your thoughts on this and what your view is. Especially around the loan balances and now potentially share capital balances.