New Radio SA (NRSA) is the manufacturer of a digital radio for the South African market. It operates with Bluetooth and can be used with a cellphone or computer. NRSA is a private company registered in South Africa with its head office in Cape Town. It has been in operation for five years and future plans include expanding into Africa. The company is very much involved in social responsibility programs and ascribes to the idea of social justice in South Africa. NRSA Sponsors soccer teams of primary schools and debating teams and science fairs at secondary schools. At tertiary level bursaries are awarded to deserving students and employees. NRSA is very concerned about their environmental footprint and tries to use renewable energy where possible. It supports various technological endeavours to ensure sustainability on the African continent. Various employees from across the globe are employed in its factory plant in Cape Town. Most of them visit their families over the holiday season in 1 December and January of each year. The services of electronic engineers from Germany and Japan are also imported from time to time. NRSA received inter alia the following income for its 2020 financial year that ends on 30 June 2020: 1. A grant from the South African Government to develop new technology valued at R20m; 2. Confirmed sales of R50m and prospective sales of R40m; 3. Interest income of R2m on overseas investments; 4. Donation from Sweden to improve access to radio in South Africa of R5m; and 5. Debt recovered of Rom. NRSA incurred inter alia the following expenditure for its 2020 financial year- end: 1. Purchasing of microchips from a Japanese company for R3m; 2. Payment of royalties to Bluetooth, a company registered in the USA, of Rim; 3. Electricity costs of R500 000; 4. Renewable energy capital expenditure of R12m; 5. Salaries of R30m; 6. Insurance costs of R20 000 per month; 7. Legal costs amounting to R195 000; 8. Advertising costs relating to a permanent billboard structure amounting to R250 000; 9. Advertising costs of R600 000 relating to advertisements of NRSA's digital radio's on local radio stations in South Africa; and 10. Speaker parts sourced locally of 2m. QUESTION 1 Total: 30 QUESTIONS BASED ON THE CASE STUDY 1.1 Indicate whether turnover tax is applicable to NRSA (1) 1.2 NRSA conduded a sales contract with a Chinese company for the purchasing of their digital radio's. The sales contract in the amount of R40m was concluded on 1 March 2020, subject to the condition that all international shipping would be possible on 1 June 2020. This could not be confirmed on 1 June 2020 and remains uncertain. Discuss how you would treat the proceeds of the sales contract for inclusion in or exclusion from the gross income of NRSA for purposes of the requirement that an amount should be received or accrued before inclusion thereof in gross income. (4) 1.3 Indicate whether the following items will be regarded as income or capital for NRSA: 1.3.1 In the event that NRSA closes down as a result of economic conditions, the business name of the company is valued at R10m and can be sold. Indicate how such proceeds will be treated; (2) 1.3.2 The sale of a delivery vehide valued at R80 000; (2) and 1.3.3 Land acquired in 2010 with the purpose of keeping it as a long- term investment was sold on 1 June 2020 for R2m. (2) 1.4 Indicate whether the following items qualify for a general deduction in the hands of NRSA: 1.4.1 The payment of royalties to Bluetooth USA of Rim; (2) 1.4.2 The retirement fund deductions of R2m of the employees of NRSA for the 2020 financial year were paid over to Old Mutual Insurance; (2) and 1.4.3 Advertising costs relating to a permanent billboard structure on the Ni between Sandton and Midrand in Johannesburg amounting to R250 000. (2) 1.5 In considering whether NRSA should expand its business activities into Africa, its auditors suggested that they should create a company in a tax haven in order to prevent them from paying more income tax as what they would pay in South Africa. You are acting as the tax lawyer of NRSA and your advice is sought on the following: 1.5.1 The auditors suggest that the proposed expansion into Nigeria be set up in such a way that NRSA carries no business risk at all. (3) 1.5.2 Should the incorporation of a company in the USA be used for the purpose of a tax haven, advise whether there are any lessons South Africa could learn from the economic substance doctrine against abusive tax shelters. (3) Discuss a similar doctrine that is applied in South Africa. (3) QUESTION NOT BASED ON THE CASE STUDY 1.6 Social justice is a noble concept that any democratic society in this modern era of the fourth industrial revolution should strive towards. Evaluate the most recent Budget Speech of the Minister of Finance and together with recent measures introduced by Government to provide tax relief amidst the Covid-19 pandemic and provide an opinion on whether South Africa is succeeding in attaining social justice. (4) New Radio SA (NRSA) is the manufacturer of a digital radio for the South African market. It operates with Bluetooth and can be used with a cellphone or computer. NRSA is a private company registered in South Africa with its head office in Cape Town. It has been in operation for five years and future plans include expanding into Africa. The company is very much involved in social responsibility programs and ascribes to the idea of social justice in South Africa. NRSA Sponsors soccer teams of primary schools and debating teams and science fairs at secondary schools. At tertiary level bursaries are awarded to deserving students and employees. NRSA is very concerned about their environmental footprint and tries to use renewable energy where possible. It supports various technological endeavours to ensure sustainability on the African continent. Various employees from across the globe are employed in its factory plant in Cape Town. Most of them visit their families over the holiday season in 1 December and January of each year. The services of electronic engineers from Germany and Japan are also imported from time to time. NRSA received inter alia the following income for its 2020 financial year that ends on 30 June 2020: 1. A grant from the South African Government to develop new technology valued at R20m; 2. Confirmed sales of R50m and prospective sales of R40m; 3. Interest income of R2m on overseas investments; 4. Donation from Sweden to improve access to radio in South Africa of R5m; and 5. Debt recovered of Rom. NRSA incurred inter alia the following expenditure for its 2020 financial year- end: 1. Purchasing of microchips from a Japanese company for R3m; 2. Payment of royalties to Bluetooth, a company registered in the USA, of Rim; 3. Electricity costs of R500 000; 4. Renewable energy capital expenditure of R12m; 5. Salaries of R30m; 6. Insurance costs of R20 000 per month; 7. Legal costs amounting to R195 000; 8. Advertising costs relating to a permanent billboard structure amounting to R250 000; 9. Advertising costs of R600 000 relating to advertisements of NRSA's digital radio's on local radio stations in South Africa; and 10. Speaker parts sourced locally of 2m. QUESTION 1 Total: 30 QUESTIONS BASED ON THE CASE STUDY 1.1 Indicate whether turnover tax is applicable to NRSA (1) 1.2 NRSA conduded a sales contract with a Chinese company for the purchasing of their digital radio's. The sales contract in the amount of R40m was concluded on 1 March 2020, subject to the condition that all international shipping would be possible on 1 June 2020. This could not be confirmed on 1 June 2020 and remains uncertain. Discuss how you would treat the proceeds of the sales contract for inclusion in or exclusion from the gross income of NRSA for purposes of the requirement that an amount should be received or accrued before inclusion thereof in gross income. (4) 1.3 Indicate whether the following items will be regarded as income or capital for NRSA: 1.3.1 In the event that NRSA closes down as a result of economic conditions, the business name of the company is valued at R10m and can be sold. Indicate how such proceeds will be treated; (2) 1.3.2 The sale of a delivery vehide valued at R80 000; (2) and 1.3.3 Land acquired in 2010 with the purpose of keeping it as a long- term investment was sold on 1 June 2020 for R2m. (2) 1.4 Indicate whether the following items qualify for a general deduction in the hands of NRSA: 1.4.1 The payment of royalties to Bluetooth USA of Rim; (2) 1.4.2 The retirement fund deductions of R2m of the employees of NRSA for the 2020 financial year were paid over to Old Mutual Insurance; (2) and 1.4.3 Advertising costs relating to a permanent billboard structure on the Ni between Sandton and Midrand in Johannesburg amounting to R250 000. (2) 1.5 In considering whether NRSA should expand its business activities into Africa, its auditors suggested that they should create a company in a tax haven in order to prevent them from paying more income tax as what they would pay in South Africa. You are acting as the tax lawyer of NRSA and your advice is sought on the following: 1.5.1 The auditors suggest that the proposed expansion into Nigeria be set up in such a way that NRSA carries no business risk at all. (3) 1.5.2 Should the incorporation of a company in the USA be used for the purpose of a tax haven, advise whether there are any lessons South Africa could learn from the economic substance doctrine against abusive tax shelters. (3) Discuss a similar doctrine that is applied in South Africa. (3) QUESTION NOT BASED ON THE CASE STUDY 1.6 Social justice is a noble concept that any democratic society in this modern era of the fourth industrial revolution should strive towards. Evaluate the most recent Budget Speech of the Minister of Finance and together with recent measures introduced by Government to provide tax relief amidst the Covid-19 pandemic and provide an opinion on whether South Africa is succeeding in attaining social justice. (4)