27 October 2022

This ruling considered the tax consequences of the transfer of profits for group tax purposes between controlled foreign companies (CFC) in line with section 9D(2A) and section 9D(9) of the Income Tax Act. The ruling is based on specific circumstances of the case where the CFCs established a ‘fiscal unity’ for income tax and trade purposes in Germany.

What is section 9D

Section 9D is an anti-avoidance section aiming to reduce the opportunity for income to be diverted and taxed offshore in the hands of foreign companies where:

  • South African tax residents may exercise, directly or indirectly, a majority of the voting rights in the foreign companies or
  • where South African tax residents may participate, directly or indirectly, in the majority of the benefits attached to shares of the foreign companies.

In terms of Section 9D a hypothetical taxable income, “net income”, is calculated as if the CC is a South African tax resident. This net income may be included in the taxable income of the South African tax resident shareholders.

This binding private ruling is valid for a period of five years from 3 October 2022.

You can read the ruling here.

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