n Without Prejudice - Related party loans and the arm's length principle : tax
|Article Title||Related party loans and the arm's length principle : tax|
|© Publisher:||JetBlue Publishers (Pty) Ltd|
|Publication Date||Nov 2013|
|Pages||14 - 15|
Thin capitalisation rules are specific anti-avoidance provisions, very closely related to transfer pricing as they are designed to combat the extraction of profits from South Africa. The obvious reason for this is that interest paid to a related non-resident would be deductible in the hands of the South African company (therefore not subject to corporate tax or dividend withholding tax) and would be exempt in the hands of the non-resident recipient. Dividends, however, would not be deductible in the hands of the South African company but would be subject to dividend withholding tax at 15% and, in all likelihood, subject to tax in the foreign jurisdiction.
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