Reportable arrangements: section 35 of the Tax Administration Act

<p>Reportable arrangements (RAs) under section 35 of the Tax Administration Act are often overlooked by advisors, and frequently only surface when an accountant reaches the &quot;reportable arrangement&quot; question on the tax return. This episode of Tax Break sets out what reportable arrangements are, where they are found in the legislation, and what to do when a transaction is reportable.</p><p>Reporting an arrangement to SARS on form RA01 does not change the tax treatment of the transaction. It flags arrangements with features SARS wants to see, which also tells advisors that a risk exists and should be addressed in the advice given.</p><p>Section 35(1) is conceptual and fact-specific. Examples include arrangements with a tax deduction but no accounting expense (or accounting revenue but no gross income), and arrangements with tax avoidance characteristics such as round tripping or offsetting elements. Section 35(2) allows SARS to list arrangements by public notice, which it did in 2016. The thresholds in that notice are not high, so reportable arrangements are not limited to large transactions.</p><p>The episode highlights four items from the 2016 public notice that come up regularly: hybrid equity instruments under section 8E if the prescribed period were 10 years; share buybacks exceeding R10 million where shares are issued within 12 months (dividend stripping risk); acquiring a controlling interest in a company with an assessed loss exceeding R50 million (section 103(2) risk); and payments exceeding R10 million to non-residents rendering services in South Africa (permanent establishment risk).</p><p>Exclusions are covered, including the tax benefit threshold and the exclusion where the tax benefit is not the main or one of the main benefits. A participant must report within 45 business days, and written confirmation that another participant has reported may relieve the obligation. Non-reporting penalties are fixed monthly amounts that can range from roughly R600 000 to R3.6 million over 12 months.</p><p>Timestamps</p><ul><li>00:10 Introduction: why reportable arrangements are missed</li><li>01:03 About Tax Break and the tax question tool on the website</li><li>02:54 What reportable arrangements are and what reporting means</li><li>04:31 Section 35(1) arrangements: tax vs accounting differences, avoidance features</li><li>06:48 Section 35(2) and the 2016 public notice</li><li>07:57 Section 8E hybrid equity instruments</li><li>09:16 Share buybacks over R10 million</li><li>10:00 Controlling interest in companies with assessed losses over R50 million</li><li>10:55 Payments to non-residents over R10 million</li><li>12:00 Exclusions</li><li>12:45 Who reports, 45 business day deadline, RA01</li><li>13:36 Penalties for non-reporting</li><li>14:00 Summary</li></ul><p>If you work with South African tax as an auditor, accountant, lawyer, wealth planner or corporate finance professional, this episode is for you. Contact me at <a href="mailto:pieter@pvdz.co.za">pieter@pvdz.co.za</a> for feedback or tax advice. More resources at <a href="https://tax.pvdz.co.za/">https://tax.pvdz.co.za</a>.</p><p>Keywords: reportable arrangements, RA01, section 35 Tax Administration Act, SARS public notice 2016, section 8E hybrid equity instruments, share buyback dividend stripping, assessed loss section 103(2), permanent establishment non-residents, reportable arrangement penalties, South African tax</p>