Portfolio Committee on FinancePortfolio Committee on Finance

Submissions on theSubmissions on the

(Draft) Taxation Laws Amendment Bill, (Draft) Taxation Laws Amendment Bill, 20082008

5 March 20085 March 2008

*connectedthinking

PwC Tax Services*, South AfricaPwC Tax Services*, South Africa

PricewaterhouseCoopers

PricewaterhouseCoopers

Submissions on the (Draft) Taxation Laws Amendment Bill, 2008 – 5 March 2008

Slide 2

Main concerns

I. Timing & process

II. Anti-avoidance rules cast too widely

Specific concerns

I. Participation exemption

II. Intra-group transactions

III. Expatriate accommodation

IV. Connected person share transfers

V. VAT threshold

Con

tent

s

PricewaterhouseCoopers

Submissions on the (Draft) Taxation Laws Amendment Bill, 2008 – 5 March 2008

Slide 3

Main concerns (1)Timing and Process

• Very short consultation period

• Unexpected complexity and controversy• TLAB traditionally limited to ‘routine’ adjustments

• Proposed amendments require substantial consultation

• No chance of further debate after today!!!• A real flaw in the Parliamentary process

PricewaterhouseCoopers

Submissions on the (Draft) Taxation Laws Amendment Bill, 2008 – 5 March 2008

Slide 4

Main concerns (2)General Vs Specific anti-avoidance

• We already have a world-class GAAR – Let’s use it!

• Draw-back of specific anti-avoidance : Difficult to get the scope “just right”• Too narrow? Ineffective• Too broad? Innocent casualties

• Therefore : Avoid it … OR Ensure proper consultation

• Proliferation of specific rules – Are we starting off down the wrong path (that may be difficult to come back from)?

PricewaterhouseCoopers

Submissions on the (Draft) Taxation Laws Amendment Bill, 2008 – 5 March 2008

Slide 5

Specific concerns (1)Participation Exemption

• Objective: To encourage ‘active’ business investments & simplify foreign group transactions

• Proposal: Exclusion of CFCs migrating back to SA

• Concerns: ‘Blunt’ specific anti-avoidance measure that:• Charges an “entry fee” in addition to the exit charge• Uniquely draconian ito Global benchmarks &

International competitiveness

• Possible total withdrawal of PE – Shift in tax policy?

TLAB : Clauses 42 & 45PwC submissions : Notes 7 & 8

PricewaterhouseCoopers

Submissions on the (Draft) Taxation Laws Amendment Bill, 2008 – 5 March 2008

Slide 6

Specific concerns (2)S45 Intra-group transactions

• Objective: To facilitate intra-group asset-transfers bydeferring the tax cost

• Proposal1: Limit scope to only debt-instrument consideration

• Effect: Disqualifies cash transactions & asset-swaps

• Proposal2: Impose tax on debt-instrument

• Effect: Double tax – Same tax collected on asset andagain on debt-instrument

TLAB : Clause 26PwC submissions : Notes 5 & 6

PricewaterhouseCoopers

Submissions on the (Draft) Taxation Laws Amendment Bill, 2008 – 5 March 2008

Slide 7

Intra-group transactions (Cont)

S45(3A) – A blunt specific anti-avoidance measure

Taxable gain

No s45 s45 New s45(3A)

CoA CoB CoA CoB CoA CoB

Asset Proceeds 150 180 100 80 100 80

Less: Base Cost -100 -150 -100 -100 -100 -100

Taxable Gain 50 30 0 80 0 80

Taxable amount 80 80Objective of s45 is to defer the tax charge, without increasing or decreasing the ultimate total tax charge

Effect of s45(3A) is to increase the ultimate total tax charge

Debt instrument 0 0 50

130

PricewaterhouseCoopers

Submissions on the (Draft) Taxation Laws Amendment Bill, 2008 – 5 March 2008

Slide 8

Specific concerns (3)Employer-provided accommodation (expatriates)

• Consider 4-year exemption in line with Home Affairs (transfer permits) and definition of tax residence

• Increase 30-day exclusion to 60 days (pre-visits may exceed 30)

• Increase 90-day exemption to 183 days in line with DTAs

• Increase monthly cap to R50,000 to take into account the cost of accommodation/dependents

• Consider 1 Mar 08 effective date to prevent confusion in 2008/09 tax year

• The 30-day exclusion should not apply to the 90-day exemption

TLAB : Clause 40PwC submissions : Note 10

PricewaterhouseCoopers

Submissions on the (Draft) Taxation Laws Amendment Bill, 2008 – 5 March 2008

Slide 9

Specific concerns (4)Restriction on share expenditure

New s23K

• Objective:• To target avoidance schemes involving non-resident

holding companies

• Concerns:• Requires inclusion in ‘income’, not ‘taxable income’• Therefore, also catches (and penalises) most share-

transfers between SA-resident taxpayers

TLAB : Clause 20PwC submissions : Note 3

PricewaterhouseCoopers

Submissions on the (Draft) Taxation Laws Amendment Bill, 2008 – 5 March 2008

Slide 10

Specific concerns (5)Effective date for new VAT threshold

Increase in VAT registration threshold from R300,000 to R1m

• Effective 1 January 2009

• Postpones the need to immediately deregister sub-R1m vendors

BUT

• Compels new sub-R1m businesses to register now … only to then deregister again in 2009

TLAB : Clause 1PwC submissions : Note 9

Portfolio Committee on FinancePortfolio Committee on Finance

Submissions on theSubmissions on the

(Draft) Taxation Laws Amendment Bill, (Draft) Taxation Laws Amendment Bill, 20082008

5 March 20085 March 2008

*connectedthinking

PwC Tax Services*, South AfricaPwC Tax Services*, South Africa

PricewaterhouseCoopersc