The ‘startling’ new tax rule that could affect your overseas earnings
Treasury is trying to close a loophole involving foreign trusts, but critics say its solution is a blunt instrument with unintended consequences including double taxation
Some of the changes proposed to the anti-avoidance rules relating to a controlled foreign company have been expected. But one of the proposals has been described as surprising, startling and even grossly unfair. National Treasury has been concerned that current anti-avoidance rules relating to these foreign companies are inadequate to capture new structures that have been emerging since 2008. However, a newly proposed section may have unintended and harsh tax consequences for South African individuals who are beneficiaries of foreign trusts. Treasury says in the latest draft Taxation Laws Amendment Bill that the controlled foreign company (CFC) rules do not "capture foreign companies held by interposed foreign trusts or foundations". CFC rules are aimed at preventing South Africans from shifting passive income offshore, such as interest or certain royalties, by investing in a CFC. A company is considered a CFC when one or more South African residents hold more than 50% of the partic...
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