Since April 2012 secondary adjustments were treated as deemed loans, but this caused a lot of uncertainty and practical problems. This may be the reason that the Taxation Laws Amendment Bill, 2014 (Draft), includes that secondary adjustments shall now be treated as deemed dividends or capital contributions, depending on the facts and circumstances of the case. This new legislation will become effective from 1 January 2015.
A secondary adjustment is, simply put, a requalification of the 'value' that is on top of the transactional value to make the transaction at arm’s length for tax purposes. This secondary adjustment creates a (secondary) constructive transaction. This constructive transaction is deemed to be treated as a loan, capital contribution or dividend.
A constructive transaction that is deemed to be a dividend can be subject to withholding tax. If another country does not provide a form of relief for the withholding tax that was imposed on a constructive transaction, this may result in double taxation. In other words, if the country of 'receipt' does not treat the constructive transaction as a deemed receipt, no relief is likely to be provided.