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More flexible domestic treasury management requirements

Aug 24 2017 19:36

Cape Town - The 2017 draft Taxation Laws Amendment Bill and draft Tax Administration Laws Amendment Bill were released for comment in July 2017.

A domestic treasury management company must meet certain residence requirements in order to qualify for a relaxation of the normal rules relating to the taxation of foreign currency gains and losses.

The company in question must, in terms of the current definition, be incorporated in South Africa (or be deemed to be incorporated in SA) and have its place of effective management in SA, explains Sean Gilmour, a partner in the tax practice at Webber Wentzel.

The draft Taxation Laws Amendment Bill proposes that the requirement that a domestic treasury management company be incorporated in SA (or be deemed to be incorporated in SA) be removed as a requirement for the company to qualify for the regime.

If this change is enacted, a company will accordingly meet the residence requirement for a domestic treasury management company if its place of effective management is in South Africa (notwithstanding its place of incorporation).

According to Gilmour, this change is to be welcomed as it will provide more flexibility and should facilitate the use of existing foreign entities by SA based multinational groups for group treasury management purposes.

"It should be noted that if a taxpayer wishes to make use of an existing foreign incorporated company for this purpose, such a company will need to become SA tax resident. While a change in place of effective management is likely in practice, to be a far easier transition than a migration of legal residence, it could trigger tax consequences in the country where the company concerned is currently tax resident," he explains.

The change will be effective for years of assessment commencing on or after 1 January 2018.

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