When does section 23M of the Income Tax Act limit the interest a company can deduct on debt owed to a creditor in a controlling relationship, and why is it not just a cross-border rule? This episode of Tax Break highlights three pointers for identifying whether s 23M applies.

Pieter starts with the origin of the provision in the 2013 Amendment Act alongside the OECD BEPS Action 4 work on interest deductibility, and the early commentary linking it to thin capitalisation, transfer pricing and the withholding tax on interest.

The first pointer is the controlling relationship requirement: the 50% equity share or voting rights test, and the wider list in s 23M(2) that reaches indirect controlling relationships and funding from other entities in the same group. He explains why the group structure and the route the funding takes both matter.

The second pointer is the requirement that the interest not be subject to tax in the lender's hands, the deeming ratio where withholding tax on interest is reduced below 15% under a tax treaty, and two domestic examples. 

The third pointer concerns the impact of s 23M: specifically, what is considered interest for this provision goes beyond contractual interest to items such as foreign exchange losses and IFRS 16 lease interest embedded in section 11(a) lease payments.

This is the last episode before a short break. Tax Break returns in October.

00:10 Introduction
04:06 Origins of s 23M 
05:47 Pointer one: controlling relationships 
07:20 Pointer two: interest not subject to tax
09:00 Pointer three: the expanded definition of interest
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 [email protected] for feedback or tax advice. More resources at https://tax.pvdz.co.za.

Keywords: section 23M, interest deduction limitation, controlling relationship, subject to tax, withholding tax on interest, section 9D controlled foreign company, tax EBITDA, IFRS 16 lease interest, foreign exchange losses, OECD BEPS Action 4, Income Tax Act, South African tax

Understatement penalties (USP) and bona fide inadvertent errors after the amendment to section 222 of the Tax Administration Act (TAA): if you correct an error on a return that has already been assessed, has the amendment created a new risk?

The request for correction function on SARS eFiling, and the objection route where an assessment has already been audited or verified, have been the standard ways to fix a return. Pieter van der Zwan revisits how section 222 protected a taxpayer who came forward with a bona fide inadvertent error, and how the Thistle and Coronation judgments widened the concept of bona fide inadvertent errors to positions taken on tax advice.

Section 222 was amended at the end of last year and the bona fide inadvertent error ground now sits in section 223(3)(a), tied to the definition of a substantial understatement (the greater of 5% of tax properly chargeable or R1 million). Pieter shares his concern regarding the effect that the amendment may have on correcting true errors.

The episode considers why the correcting an error may carry more exposure, where the voluntary disclosure programme (VDP) enters the picture, and the question that Pieter thinks the amendment leaves open.

Timestamps
00:10 Introduction 
02:50 Request for correction and objection under the previous section 222
05:10 Thistle and Coronation: tax advice as a bona fide inadvertent error
06:30 Amended section 222 and section 223(3A)
09:47 Substantial understatement threshold: 5% or R1 million example
15:10 Reasonable care and USP exposure below the threshold
15:40 Key takeaways

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 [email protected] for feedback or tax advice. More resources at https://tax.pvdz.co.za.

Keywords: understatement penalty, USP, bona fide inadvertent error, section 222 Tax Administration Act, section 223(3)(a), substantial understatement, request for correction, reasonable care, objection, voluntary disclosure programme, Thistle case, South African tax

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 "reportable arrangement" 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.

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.

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.

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).

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.

Timestamps

• 00:10 Introduction: why reportable arrangements are missed
• 01:03 About Tax Break and the tax question tool on the website
• 02:54 What reportable arrangements are and what reporting means
• 04:31 Section 35(1) arrangements: tax vs accounting differences, avoidance features
• 06:48 Section 35(2) and the 2016 public notice
• 07:57 Section 8E hybrid equity instruments
• 09:16 Share buybacks over R10 million
• 10:00 Controlling interest in companies with assessed losses over R50 million
• 10:55 Payments to non-residents over R10 million
• 12:00 Exclusions
• 12:45 Who reports, 45 business day deadline, RA01
• 13:36 Penalties for non-reporting
• 14:00 Summary

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 [email protected] for feedback or tax advice. More resources at https://tax.pvdz.co.za.

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

Are self-insurance premiums deductible? In this episode of Tax Break, I discuss the deductibility aspect of the Western Cape High Court judgment in CSARS v Meiring Citrus (Pty) Ltd. 

I cover:

• The two grounds that SARS abandoned
• The court’s conclusion as to whether the taxpayer actually incurred expenditure
• Why I disagree with the court's position on expenditure
• The court’s position on the capital nature of the premiums paid.

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 [email protected] for feedback or tax advice. More resources at https://tax.pvdz.co.za.

Keywords: self-insurance premiums, section 11(a) deduction, Meiring Citrus, capital in nature, expenditure actually incurred, Labat Africa, section 23L, experience account, South African tax, Income Tax Act, Western Cape High Court, SARS

When does prescription protect taxpayers from SARS issuing additional assessments? Section 99 of the Tax Administration Act generally bars SARS from issuing an additional assessment more than three years after the original assessment issued by SARS. Section 99(2) lifts that bar where the tax was not assessed due to fraud, misrepresentation or non-disclosure of material facts.

In this episode of Tax Break, I discuss the prescription aspect of the Western Cape High Court judgment in CSARS v Meiring Citrus (Pty) Ltd. SARS issued additional assessments roughly three and a half years after the original 2017 assessment, relying on the non-disclosure of notional interest of R1 197.52 on an experience account under a structured self-insurance policy, and a misrepresentation of the nature of the agreement.

I cover:

• The timeline of assessments, verifications and the audit, and why the dates matter under section 99
• The two questions in section 99(2): is a listed conduct present, and did it cause the tax not to be assessed
• The difference between the Tax Court and High Court analysis
• Assessment of the materiality of a non-disclosure
• Open questions: the role of information provided during a verification, and where taxpayer disclosure ends and SARS's duty to ask for more information begins
• Practical lessons on completing the ITR14 accurately, including income statement and balance sheet line items, and why responses to verification requests should not be underestimated

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 [email protected] for feedback or tax advice. More resources at https://tax.pvdz.co.za.

 Keywords: prescription, section 99, Tax Administration Act, additional assessment, SARS audit, Meiring Citrus, non-disclosure, misrepresentation, ITR14, South African tax

The National Treasury published the 2026 draft Tax Administration Laws Amendment Bill (draft TALAB) for public comment on 30 July 2026. In this episode, I discuss three proposed amendments with clear practical impact for South African taxpayers and their advisors, two of which are favourable to taxpayers.

The topics covered:

·       Employees' tax (PAYE): a proposal to narrow the withholding obligations of foreign employers with permanent establishments (PEs) in South Africa

·       Provisional tax: aligning underestimation penalties under paragraph 20 of the Fourth Schedule with actual payments made

·       Voluntary disclosure programme (VDP): broadening the relief available under the Tax Administration Act

Contact me at [email protected] for feedback or tax advice. More resources at https://tax.pvdz.co.za.

South Africa’s National Treasury published the 2026 draft tax law amendments for public comment on 30 July 2026. Although proposals are technical, tax practitioners and CFOs need to assess whether their businesses or clients are affected.

In this episode I analyse four key proposals: the interaction between the controlled foreign company (CFC) rules and the domestic treasury management company (DTMC) regime for translating CFC income, the clarification of the dividend stripping anti-avoidance rules, the withdrawal of the alignment between the interest deduction limitations in sections 23M and 23N of the Income Tax Act, and the proposed VAT changes for leasehold improvements.

Contact me at [email protected] for feedback or tax advice. More South African tax resources: https://tax.pvdz.co.za

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Does the label on a contract determine its South African tax consequences? If you call an agreement a loan, are the payments deductible interest? If you call it a lease, are the outflows deductible rent? In CSARS v Meiring Citrus the Western Cape High Court considered whether premiums on a contract labelled an insurance policy were deductible.

In this episode I examine the key aspects of the judgment on the nature of the underlying transaction — substance over form, simulation and how courts characterise agreements for tax purposes — and conclude with what tax practitioners and advisers should take from the case.

Contact me at [email protected] for feedback or tax advice. More South African tax resources: https://tax.pvdz.co.za

Zero-ratings are complex and often underestimated by taxpayers and their advisors. The exposure may be significant if you get it wrong, especially on recurring transactions. Interpretation Note 31 is an essential part of applying a zero-rating. SARS issued a revised version of this interpretation note (Issue 5), nearly 10 years since the previous version. In this episode, I discuss zero-rating, the documentary requirements and some of the changes to Interpretation Note 31.

 You can contact me at ⁠[email protected]⁠ if you have any feedback on the episode or require tax advice.

My website contains more resources and articles that may interest you  – ⁠https://tax.pvdz.co.za⁠. You are welcome to take a look!

SARS issued a draft guide on the taxation of crypto assets. In this episode, I discuss a few aspects of this draft guide that I believe offer valuable insights into SARS’ position on these assets.

You can contact me at ⁠[email protected]⁠ if you have any feedback on the episode or require tax advice.

My website contains more resources and articles that may interest you  – ⁠https://tax.pvdz.co.za⁠. You are welcome to take a look!