The tax deductibility of share-based payments where services are procured or debts settled

Abstract

In the current economic climate, companies often use share-based payments to compensate suppliers/employees for services rendered or for the settlement of debt owing to suppliers. The Income Tax Act, No.58 of 1962, does not stipulate whether these share-based payments are allowed as a deduction for Income Tax purposes. As the Income Tax Act, No. 58 of 1962, is silent on this matter, to date, the various cases heard by South African courts resulted in conflicting judgments. The question that motivated this study is whether share-based payments to compensate suppliers/employees for services rendered or to settle a debt owing to suppliers, constitute ‘expenditure actually incurred’, as required by the Income Tax Act, No. 58 of 1962, and whether judgments made by the South African courts are in line with international practices. Tax legislation in the United Kingdom and Australia was evaluated for this purpose. It was noted that the international tax legislation governing the deductibility of share-based payments is not very prescriptive and, thus, similar to the situation in South Africa. The decisions made by the South African courts are mostly in line with the judgments made abroad, except for the decision in Sars v Labat Africa Limited (2011), Zasca 157, made by South Africa’s highest court, which tends to favour the South African Revenue Services. AFRIKAANS : In die huidige ekonomiese klimaat gebruik maatskappye dikwels aandeelgebaseerde betalings om hul verskaffers/werknemers te vergoed vir dienste gelewer, of om skuld te vereffen wat verskuldig is aan verskaffers. Die Inkomstebelastingwet, No.58 van 1962, stipuleer nie die aftrekbaarheid van hierdie tipe aandeelgebaseerde betalings vir inkomstebelastingdoeleindes nie. Aangesien die Inkomstebelastingwet, No.58 van 1962, geen voorsiening maak vir die belastinghantering van hierdie tipe betalings nie, het verskeie sake tot dusver voor die Suid-Afrikaanse howe voorgekom met weersprekende uitsprake. Die navorsingsvraag wat hierdie studie gemotiveer het, was of maatskappye wat aandeelgebaseerde betalings maak om verskaffers/werknemers te vergoed vir dienste gelewer of om skuld te vereffen wat verskuldig was aan verskaffers, kwalifiseer as ‘onkoste werklik aangegaan’, soos verlang deur die Inkomstebelastingwet, No.58 van 1962,, en of die uitsprake wat tot dusver gelewer was deur die Suid-Afrikaanse howe, in lyn is met internasionale praktyke. Die belastingwetgewing in die Verenigde Koninkryk en Australië is geëvalueer vir hierdie doeleindes. Die studie het gevind dat internasionale belastingwetgewing wat die aftrekbaarheid van hierdie tipe aandeelgebaseerde betalings voorskryf, nie duidelik is nie en dus ooreenkom met die situasie in Suid Afrika. Die uitsprake gelewer deur die Suid-Afrikaanse howe is merendeels in lyn met internasionale uitsprake, behalwe vir die uitspraak in Sars v Labat Africa Limited (2011), Zasca 157, gelewer deur Suid-Afrika se hoogste hof ,wat die Suid-Afrikaanse Inkomste Diens bevoordeel