Formulation of guidance on the South African income tax consequences of expenditure incurred in a tender process

[摘要] ENGLISH ABSTRACT: The government and private practice utilise tenders in order to acquire goods and servicesat the most competitive price. The goods and services which are acquired throughgovernment spending represent not only a substantial amount of public resources spent, butalso a source of income for the service providers.There is a standard tender process which is followed which includes a number of phasesduring which both the bidder and the party offering the tender have certain duties to fulfil.During this tender process the bid is awarded to one of the bidders, this point in the tenderprocess is referred to as the deciding event. Prior to the deciding event the bidders incurexpenditure, some of these are necessary and others in order to enhance their chances ofsuccessfully being awarded the tender. As the expenditure can be significant it is necessaryto determine the tax consequences thereof for the bidder. It should be determined whetherthe expenditure incurred is deductible in terms of the general deduction formula in section11(a) of the Income Tax Act 58 of 1962. Should it be held that the expenditure is capital innature, therefore not deductible in terms of section 11(a), the possible Capital Gains Tax('CGT') in terms of the Eighth Schedule should be investigated.In determining the tax consequences of expenditure incurred during the tender process, itis necessary to consider the tender process as well as the form of the bidder. The form ofthe bidder affects when a 'person' will exist which could be a taxpayer in determining theapplicability of section 11(a). The tender process and specifically the deciding event affectswhether the bidder could be found to be carrying on a 'trade' for purposes of section 11(a).Furthermore, if any right is conveyed as result of the deciding event such right could alsoresult in CGT being applicable on a subsequent disposal of such right.Based on the extended literature review performed, it is found that the deciding event wouldalso be decisive in determining the nature of expenditure. If the tender is awardedsuccessfully to the bidder expenditure incurred in the tender process is submitted as capitalin nature as a right to earn future income is established for the bidder (therefore notdeductible in terms of section 11(a) but subjected to CGT if the right is disposed of).If the tender is not awarded to the bidder expenditure incurred in the tender process issubmitted as not capital in nature therefore deductible in terms of section 11(a).

[发布机构] Stellenbosch University