The objective of the amendment was to disregard CFC income if negligible South African tax was at stake once having taken South African tax rebates into consideration.
In calculating the hypothetical foreign tax of the CFC, foreign losses of the CFC or another foreign group company must be disregarded. In consequence, situations may arise where a CFC may qualify for the high-tax exemption in circumstances where no foreign tax is actually payable.
This anomalous outcome is compounded by the fact that in the absence of the high-tax exemption, resident shareholders of the CFC would not have been entitled to foreign tax rebates against their proportional entitlement to the CFC’s net income.
To redress the above, it is now proposed that the adjustment for foreign group losses be removed from the calculation of the high-tax exemption.
