Section 50C of the Act states that the foreign person to whom the interest is paid is liable for the tax to the extent that the interest is regarded as having been received by or accrued to that foreign person from a source within South Africa. In terms of s50E of the Act, any person who makes payment of any amount of interest to or for the benefit of the foreign person must withhold the interest withholding tax from that payment.

In the proposals published as part of the Budget, it is stated that the current tax rules are unclear as to who bears the withholding tax obligation pertaining to interest paid to a non-resident beneficiary of a trust. It is further stated that the rules dealing with trust income and beneficiaries do not deem the trust to have paid the interest to beneficiaries if they are non-residents.

For example, a resident trust makes a loan to another resident.  In terms of the loan agreement, the resident is required to pay interest on the loan to the resident trust. The resident trust vests the interest received from the resident in its non-resident beneficiary. The questions that arise are the following:

• does interest withholding tax apply to the aforementioned facts, ie has any interest been paid by any person to or for the benefit of any foreign person; and
• if so, who bears the obligation to withhold tax from the interest paid to the trust and vested in the non-resident beneficiary.

The Government proposes to introduce provisions to address these issues.