I roundup I
A A full group tax system
s expected, because we operate in
a global economy, South Africa has
followed the footsteps of the rest of the
in South Africa
world into recession. This has brought new
meaning to the term ‘survival of the fittest’
for the businesses operating here.
The consequence of recession is that many
businesses find themselves suddenly in
a tax loss position. This can, in a small
way, bring some relief to their cash flow Furthermore, tax legislation has anti- The group contribution model involves
in that they would no longer have to make avoidance provisions that prohibit a profitable companies making tax
payment of income tax to our Revenue profitable business being moved into a deductible contributions to their sister
authorities three times a year to the extent loss-making company, unless there is a loss-making companies within the group.
that the taxable income they generate is commercial reason for doing so, which is This effectively ensures that only the net
offset by their tax loss. stronger than the tax reason. taxable income of the group is taxed.
Each company, however, submits its own
However, many companies do not operate Thus, although the ownership in the group tax return reflecting the income from
in isolation, but are part of a group of is almost the same as if the group were contributions made by, or expenditure from
companies. This latter term is defined one company, tax laws prohibit the cross- contributions made to, the sister company.
differently for different purposes, but in tax utilisation of tax losses. In a recession
parlance, put very simply, it largely relates economy, the ability to cross-utilise the The group relief model allows group
to corporate structures in which at least losses could be viewed as critical for the companies to transfer losses to profit-
70% of the shares in a company are held survival of the group. making companies in the group. These
directly by another company. All members profitable companies simply use the
of the group that are held in this way will losses, which the transferring company
In other countries, this problem is dealt
constitute a ‘group of companies’ for tax then loses. The transferring company
with in a different way: by what is transfers the losses until it is in a tax
purposes. commonly known as ‘group taxation’. The neutral position. Each company still
8 current group rationalisation provisions submits its own tax return.
Currently, a company that has an assessed in our South African tax legislation,
loss may only use that loss to offset future introduced in 2001, were a response In the Organschaft model, all profits
income that it, alone, generates. Thus, in to recommendations made in the Katz and losses are attributable to the parent
a group of companies, there may be one Commission Report (issued in the early company in the group. In this way the
or more companies in an assessed loss 1990s) that group taxation needed to be group is taxed as a whole, through the
position, and other companies that are considered for South Africa. parent company, and tax is paid only on the
making taxable income and paying tax overall taxable profits of the group.
over to the South African Revenue Service However, the next step to full group
(SARS). Often the loss companies in the