Controlled foreign companies and outsourcing certain business functions.

Naomi says that since the delivery of the Constitutional Court’s judgment in Coronation Investment Management SA (Pty) Limited v Commissioner for the South African Revenue Service [2024] on 21 June 2024, the judgment has been debated on various platforms by the South African tax advisory and business community.

Naomi adds that while this case focuses on investment management companies, it potentially has an impact on all South African resident multinational companies that currently rely on or may wish to rely on the foreign business establishment (FBE) exemption when setting up operations outside South Africa. Section 9D is an anti-avoidance provision aimed at imposing tax on the income earned by foreign corporate entities owned by South African resident shareholders.

Naomi explains that in terms of section 9D, the net income of a controlled foreign company (CFC) is imputed to its South African resident shareholders and is taxable in South Africa. The imputation of income is subject to certain exceptions, one of which relates to whether that CFC is considered an FBE. Should the requirements of an FBE be met, some or all of the net income of the foreign company will be exempted from South African tax.

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