Domestic treasury management requirements to become more flexible

By Sean Gilmour, a Partner in the Tax Practice at Webber Wentzel

The 2017 draft Taxation Laws Amendment Bill and draft Tax Administration Laws Amendment Bill were released for comment on 19 July 2017.

A domestic treasury management company must meet certain residence requirements in order to qualify for a relaxation of the normal rules relating to the taxation of foreign currency gains and losses. The company in question must, in terms of the current definition, be incorporated in South Africa (or be deemed to be incorporated in South Africa) and have its place of effective management in South Africa.

The draft Taxation Laws Amendment Bill proposes that the requirement that a domestic treasury management company be incorporated in South Africa (or be deemed to be incorporated in South Africa) be removed as a requirement for the company to qualify for the regime. If this change is enacted, a company will accordingly meet the residence requirement for a domestic treasury management company if its place of effective management is in South Africa (notwithstanding its place of incorporation).

This change is to be welcomed as it will provide more flexibility and should facilitate the use of existing foreign entities by South African based multinational groups for group treasury management purposes. It should be noted that if a taxpayer wishes to make use of an existing foreign incorporated company for this purpose, such a company will need to become South African tax resident. While a change in place of effective management is likely in practice, to be a far easier transition than a migration of legal residence, it could trigger tax consequences in the country where the company concerned is currently tax resident.

The change will be effective for years of assessment commencing on or after 1 January 2018.