SOUTH AFRICAN REVENUE SERVICE
GOVERNMENT NOTICE

17 MAY 2002

ADDENDUM TO PRACTICE NOTE: NO. 2 DATED 14 MAY 1996 INCOME TAX: DETERMINATION OF TAXABLE INCOME WHERE FINANCIAL ASSISTANCE HAS BEEN GRANTED BY A NON-RESIDENT OF THE REPUBLIC TO A RESIDENT OF THE REPUBLIC

1. Paragraph 2.2 of Practice Note No. 2, dated 14 May 1996 has been replaced with the following paragraph: "Where in terms of section 31 (2) a service, specifically the granting of financial assistance, is provided by a non-resident to a resident who is a connected person in relation to the non-resident and the consideration relating to the financial assistance is excessive in the sense that the consideration does of reflect an arm's length price, the Commissioner may, in the determination of the taxable income of the resident, adjust the consideration in the hands of the resident to reflect an arm's length consideration in relation to the financial assistance granted. Consideration, in the context of financial assistance, will be interpreted to include not only interest or related finance charges, but also a discount or premium. Where the loan, advance or debt is denominated in rand, a rate not exceeding the weighted average of the South African prime rate plus 2 percentage points will be an acceptable nominal annual interest rate. Where the loan, advance or debt is denominated in a foreign currency, a rate not exceeding the weighted average of the relevant interbank rate plus 2 percentage points will be an acceptable nominal annual interest rate. Any interest exceeding the above mentioned prescribed rates will be regarded as excessive interest and will consequently not be allowed as a deduction for income tax purposes."
   
   
2. The amendment referred to in paragraph 1 above is effective from the date of publication of this notice and will apply to:
   • Financial assistance granted on or after such date;
   • Financial assistance granted before such date, but which does not have a fixed date of repayment