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Issue 53 July/August 2015South Africa’s Leading Tax Journal

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48 68 78A Review

of Section 6quin

Simple Strategies for Better

E-Mails

Guide to Living:

Into the Deep

REGULARS

Mervyn King - the Doyen of Corporate Governance

Mervyn King consults and advises on corporate legal issues. He is recognised internationally as an expert on corporate governance and sustainability. He sits as an arbitrator and as a mediator. He is a founding member of the Arbitration Foundation of Southern Africa and for some eight years was the South African judge at the ICC International Court of Arbitration in Paris. He has acted as an Inspector of Companies and a Commissioner of Inquiries into the affairs of companies. He shares his views on Corpate Governance and his career.

BUSINESS78 Guide to Living82 Location86 Finer Things87 Icon88 Opinion

FEATURES

CONTENTSJULY / AUGUST* ISSUE 53

LIFESTYLE

32

10 Review12 Q&A14 Global Tax News17 Case Law Wrap Up May & June 201520 SARS Update: Stay up-to-date with SARS Operational Matters22 eFiling: The “Joys” of eFiling and e@syFile24 Institute News28 CPD Calendar August/ September 2015

32 Mervyn King - the Doyen of Corporate Governance36 An Overview of Resolution Process38 Reform Challenges for Revenue Administrations in Developing Countries: Lessons for Africa42 SARS Gazettes New List of Deemed Reportable Arrangemements46 Tax Administration: Some Challenges Facing South African Taxpayers48 A Review of Section 6quin52 Does SARS’ Information Gathering Powers Trump Prescription?54 Considering The Vat Effect Of Dividends56 The R&D Income Tax Incentive – Deepening Concerns and Widening Cracks58 Cash is King and VAT is Cash60 Opportunity Missed in Landmark Research and Development Tax Incentive Court Case

68 Simple Strategies for Better E-Mails70 The Principles of Public Relations72 TECH74 Alta Via’s Embedded Accelerators for IT14SD Submissions

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EDITOR’S LetterTax Indaba 2015 – A Coming Together of Tax “Tribes”

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In Tribes, Seth Godin defines a tribe as a group of people, who are connected to one another; a leader and an idea. Without a leader, a tribe is just a crowd. Once a leader steps up to lead a tribe, it is his first duty to tighten the tribe: “It’s tempting to make the tribe bigger, to get

more members, to spread the word. This pales, however, when juxtaposed with th effects of a tighter tribe. A tribe that communicates more quickly, with alacrity and emotion, is a tribe that thrives.”

The tax professional community in South Africa represents such a tribe – a tight-knit collective working with a high level of connectivity around a central, specialised cause. In this edition we celebrate the lead-up to the 2015 Tax Indaba which will once again unite tax professionals and bridge the gap between various industry sectors to contribute to the growth and sustainability of the profession.

Recently, commentators have been speculating that an apex in South African history may have arrived where taxpayers have been pushed too far. There is growing concern at the apparent waste of taxpayers’ contributions through highly controversial government spending and South Africans are becoming more belligerent about tax. Last year, a trillion Rand was collected by treasury in the form of taxes but the ever increasing government expense burden means that additional funding is required. Many taxpayers question where this will come from and whether they will be squeezed even more. We are in the unfortunate position that South Africa is one of the only countries in the world with a double deficit – this means that we import more than we export and there is an overrunning of expenditure. Despite these rather depressing realities, Judge Dennis Davis has recently commentated, based on a study conducted by the World Bank, that we have one of the best VAT collection and tax and transfer systems in the world.

Yolandé BothaEditor

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Opinions expressed in this publication are those of the authors and do not necessarily reflect those of this journal, its editor or its publishers. The mention of specific products in articles or advertisements does not imply that they are endorsed or recommended by this journal or its publishers in preference to others of a similar nature, which are not mentioned or advertised. While every effort is made to ensure the accuracy of editorial content, the publishers do not accept responsibility for omissions, errors or any consequences that may arise therefrom. Reliance on any information contained in this publication is at your own risk. The publishers make no representations or warranties, express or implied, as to the correctness or suitability of the information contained and/or the products advertised in this publication. The publishers shall not be liable for any damages or loss, howsoever arising, incurred by readers of this publication or any other person/s. The publishers disclaim all responsibility and liability for any damages, including pure economic loss and any consequential damages, resulting from the use of any service or product advertised in this publication. Readers of this publication indemnify and hold harmless the publishers of this magazine, its officers, employees and servants for any demand, action, application or other proceedings made by any third party and arising out of or in connection with the use of any services and/or products or the reliance of any information contained in this publication.

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CONTRIBUTORS

Folkert Gaarland, EY • Folkert has worked with EY since 1999 and was a partner in the Amsterdam office prior to joining EY Africa in 2013. Folkert’s focus has always been on cross border trade and international services and most of his clients are global players in Consumer Products, Retail, Telecom, Technology and the Chemical industry. In Africa, Folkert leads EY’s Operating Model Effectiveness group focussing on companies growing into the continent. In addition Folkert specialises in data analytics and the use of technology to support the indirect tax function of multinationals.

Roula Hadjipaschalis • Roula is an admitted attorney of the Supreme Court and has over 20 years’ corporate tax experience. She has advised many listed and high profile clients on a number of ground-breaking transactions and has experience in several industries including Consumer Markets, Food, Private Equity, Manufacturing, Healthcare, Banking, Pension Funds, Information, Communications and Entertainment. Roula has also advised various clients on due diligences, structuring and implementation, restructuring of funding arrangements, in-bound and out-bound investments, corporate re-organisations, tax objections and settlements with Revenue authorities, derivative transactions, share schemes, bond buy backs, group tax policy, etcetera. Roula has also presented and published at various business forums over the years.

Pieter van der Zwan • Pieter is a qualified Charted Accountant (SA) and holds a Masters degree in taxation from the University of Pretoria. He is an associate professor at the North-West University where he is responsible for the Masters program in taxation. He regularly consults and assists companies and audit firms with tax queries and structuring. As a dedicated academic, he publishes articles in tax industry magazines.

Faith Mazani • Faith Mazani is currently the regional revenue administration advisor for the International Monetary Funds’ (IMF) Regional Technical Assistance Center (RTAC) for non-Francophone West Africa, based in Ghana. Faith has over 32 years experience in revenue administration covering Customs and both direct and indirect taxes, having served at senior management levels of the Zimbabwe Revenue Authority’ (ZIMRA) South African Revenue Service (SARS) and the Swaziland Revenue Authority (SRA). She contributed as a Commissioner, to the setting up of the revenue authorities, the implementation of VAT and led the reform program teams in Zimbabwe and Swaziland. Before joining the IMF, Faith had gained extensive experience working with regional and international organizations including the SADC and COMESA in the setting up of the Chirundu one-stop border post between Zimbabwe and Zambia. She also lead a CATA Management development program for three years, representing ZIMRA at technical and council meetings of the World Customs Organization, and has been involved in training workshops and seminars for ATAF, VADA and DfID. In her current job, Faith delivers and coordinates technical assistance and capacity building to six non-Francophone countries in West Africa including Cabo Verde, Ghana, Liberia, Nigeria, Sierra Leone and The Gambia. Faith holds a Bachelor’s degree in Business Studies from the University of Zimbabwe and a Masters’ in Economics - Public Policy and Taxation from the Yokohama National University in Japan. Faith is also a passionate trainer at heart.

Alan Lewis • Alan Lewis commenced his tax career in 1990 when he joined the Directorate for Legal Services, of the Department of Inland Revenue, as a tax advocate. In that capacity, he was responsible for representing the Commissioner in the various tax courts. In August 1996, he joined the Pretoria Society of Advocates, where he practised for 5 years, until joining PricewaterhouseCoopers, in January 2002. In May 2005, he left to commence his own consultancy where he specialises in the tax litigation process, and advising taxpayers on a wide range of tax matters. He holds BProc and LLB from the University of the Free State as well as a LLM in Tax from the University of Pretoria.

Christo Engelbrecht • Christo has more than 13 years’ experience in specialised government grants and incentives consulting work. His comprehensive experience includes providing advisory opinions to local and foreign investors, managing international incentive related research projects, major national and local government incentive lobby assignments and assisting many of South Africa’s largest corporates in accessing the grants and tax incentives on offer from the Government and other authorities. Christo has also been actively involved in assisting private and public sector authorities to access grant funding for various strategic infrastructure projects.Before founding Catalyst Incentive Solutions, Christo was an Associate Director at Deloitte and prior to that he was employed by the Department of Trade and Industry where he worked on various incentive programmes and was responsible for the management of the Critical Infrastructure Programme (CIP).

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REGULARSStay up-to-date with SARS operations, learn about the joys of efiling and e@

syfile, and meet the SAIT VAT committee. We also look at case law, global tax news

and highlight SAIT’s 2015, August and September CPD programme.

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Review.Do you have any interesting tax facts

to share? Send us an email at [email protected] and

you could be featured in our next edition.

REVI

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Oxfam alleges Africa Cheated Out of Tax A new report by Oxfam has revealed that international companies cheated Africa out of $11 billion in 2010.

The report titled “Africa: Rising for the Few” revealed that the loss is equivalent to more than six times the amount needed to deliver universal primary healthcare in the Ebola-affected countries of Sierra Leone, Liberia, Guinea and Guinea Bissau.

“Africa is haemorrhaging billions of dollars because multinational companies are cheating African governments out of vital revenues by not paying their fair share in taxes. If this tax revenue were invested in education and healthcare, societies and economies would further flourish across the continent.” - Oxfam international executive director, Winnie Byanyim

R5, 8 billion of wasteful incentives and trade mispricing was recovered by SARS over three years between 2011-2014.55% of this recovery is attributed to the mining industry

%

Sources: allafrica.com, leadership.ng, tax-news.com, ft.com, forbes.com, healthcanal.com, bizcommunity.com, BDO

Smoking in South Africa has decreased substantially over the past two decades, particularly among the young and the poor. Research shows that this is largely thanks to sharp hikes in excise taxes, which have pushed up the price of the average pack of cigarettes.

R12.45 is the current amount of excise tax per pack of cigarettes. An average pack of 20 retails for around R30.

The price of cigarettes has a definite impact on males starting to smoke. A R10 increase in the price of cigarettes reduces the probability of men starting to smoke by 10.7% to 15.4%.

SARS Boasts High Conviction Rate For Tax Crimes

92% Conviction rate achieved by SARS in cases involving tax and customs fraud that had been handed over to the National Prosecuting Authority last year

256 individuals and entities were convicted in these cases involving R196 million

Tax Conviction in the UK More people than ever are going to prison for tax evasion in the UK, according to official statistics, but the average length of these jail terms has fallen sharply over the past four years.

Excise Tax Curbs Smoking

Digital Tax “We are living in an era of unprecedented digital change. South Africa’s tax laws are outdated and have not kept pace with the growth of the digital economy,” says Charles de Wet, Head of Indirect Tax, PwC Africa.

While foreign content providers relish the ‘tax-free’ nature of their services supplied to South African consumers, local suppliers are feeling the economic pinch, as domestic content providers are required not only to levy South African value-added tax (VAT) on services supplied to the local marketplace, but pay South African corporate income tax of 28 percent on profits generated.

The OECD is working to address this problem by developing guidelines on location- based taxing rights.

SARS’ seven focus areas for the 2016/2017 financial year:

1. Wealthy South Africans and their associated Trusts2. Large Businesses and Transfer Pricing3. The Construction Industry4. Illicit Cigarettes5. Tax Practitioners and Trade Intermediaries6. Undervaluation of Imports in the Clothing and Textile

Industry7. Small Businesses

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More FAQs as well as the latest tax news and updates can be found at your new tax portal:www.taxtalk.co.za

1. Can you get VDP relief for one tax period if you are being audited for another tax period?

Q: I refer to the fact that in terms of the Voluntary Disclosure Programme (VDP), any taxpayer who is already under audit is excluded from VDP relief.

Is a taxpayer precluded from relief only for the year under investigation, or for all tax years? My personal experience to date has been that only the year specifically under audit is precluded, and all other years still qualify. Is this application correct?

The SARS VDP guide states that SARS may permit a person who would otherwise be excluded as a result of the audit or pending audit rule, to apply for VDP relief where SARS believes that:

• the default would not otherwise have been detected during the audit or investigation; and

• the application would be in the interest of good management if the tax system and the best use of SARS resources.

This requires judgement and the application of a person’s discretion. How is this judgment exercised in practice?

I have a client already selected for audit, and would like to offer them the option of voluntary disclosure of any defaults they are aware of, if this is in fact available to them. My experience is you get a different answer from each person you speak to at the VDP unit.

What should I do to cover my client (and myself) is these circumstances?

A: The Voluntary disclosure programme in Part B of Chapter 16 of the Tax Administration Act provides that a person may apply for voluntary disclosure relief, unless that person is aware of:

a. a pending audit or investigation into the affairs of the person seeking relief; orb. an audit or investigation that has commenced, but has not yet been concluded.

From the facts we accept that the audit has already commenced. This means that the only option open to the taxpayer would be to request a senior SARS official to direct that the person can apply for voluntary dis-closure relief despite the fact that the audit has already commenced. The senior SARS official would do so if he or she is of the view, having regard to the circumstances and ambit of the audit or investigation, that -

a. the ‘default’ in respect of which the person wishes to apply for voluntary disclosure relief would not otherwise have been detected during the audit or investigation; and

b. the application would be in the interest of good management of the tax system and the best use of SARS’ resources.

You are correct that SARS provides no further information with respect to both requirements mentioned above. It is the view of the senior SARS official that will be relevant. While it is reasonable to accept that SARS uses guidelines to assist the senior SARS official in considering such an application, this information is not available or is not public knowledge.

The following may be relevant to the “would not otherwise have been detected” requirement:

The letter of authority to conduct the audit must indicate the initial basis and scope of the audit or investigation [see section 48(2)]. It may be clear from this letter if the ‘default’ would have been detected during the course of the audit. It is common for these letters to also indicate the rel-evant years of assessments under audit. We submit that if a default was detected in a year under audit and it is clear that the same default was

Questions dealing with VDP relief and the taxability of a deposit for an employee’s rental accomodation.

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If the senior SARS official is satisfied that SARS would not have un-earthed the default, the person may be allowed to apply provided that this is in the interest of the good management of the tax system and amounts to the best use of SARS’ resources. Again SARS does not provide any information to explain this further. In the paragraph 16.7.1 of the “Short guide to the Tax Administration Act” it is stated that “the main purpose of such a framework is to enhance voluntary compliance in the interest of the good management of the tax system and the best use of SARS’ resources.”

It therefore appears that the first requirement is the important hurdle to cross and that the second one may be easier. But, as we have already indicated, the only avenue is for the taxpayer to apply to the senior SARS official.

As the application is to be attended to by a senior SARS official, we believe the response should be relatively consistent. We agree that “this requires judgment and the application of a person’s discretion”, but we don’t know how this judgment is exercised in practice.

2. Deposit paid by employer for employee’s new residential accommodation: is it taxable?

Q: Will the following expenditure paid by an employer on behalf of an employee being relocated qualify for the section 10(1)(nB) income tax exemption?

1. A deposit payable on the rental contract for new accommodation;2. A penalty fee payable due to the cancellation of the current rental

contract

A: In order for such costs to qualify for the exemption, they would have to fall within the ambit of section 10(1)(nB) of the Income Tax Act (No. 58 of 1962) (hereinafter referred to as ‘the Act’), which states the following:

“any benefit or advantage accruing to any employee (as defined in paragraph 1 of the Seventh Schedule) by reason of the fact that his employer (as defined in the said paragraph), has, in consequence of the transfer of the employee from one place of employment to another place of employment or the appointment of the employee as an employee of the employer or the termination of the employee’s employment, borne the expense—

I. of transporting such employee, members of his household and the personal goods and possessions of himself and the members of his household from his previous place of residence to his new place of residence; or

I. of such costs as the Commissioner may allow which have been incurred by the employee in respect of the sale of his previous residence and in settling in permanent residential accommodation at his new place of residence ...

II. of hiring residential accommodation in an hotel or elsewhere for the employee or members of his household during the period ending 183 days after his transfer took effect or after he took up his appointment, as the case may be, if such residential accom-modation was occupied temporarily pending the obtaining of permanent residential accommodation.”

The penalty fee payable on the old rental contract can only fall within the provisions of section 10(1)(nB)(ii), as it was not incurred for purposes of subparagraph (i) (transportation of the employee, members of his/her household and their possessions) or subparagraph (iii) (hiring of residen-tial accommodation before obtaining “permanent residential accommo-dation”).

Section 10(1)(nB)(ii) specifically referred to “... in respect of the sale of his previous residence ...” If one ascribes an ordinary meaning to the word “sale”, it would imply that the residence should have been owned by the taxpayer and therefore not hired by him or her. This is even more evident when one considers the wording of the “Guide for Employers in respect of Employees Tax” (2015 Tax Year) which states the following:

“The following items are exempt from tax if the employer reimburses the employee for the actual expenditure incurred:

• Bond registration and legal fees paid in respect of a new residence that has been purchased;

• Transfer duty paid in respect of the new residence;• Cancellation fees paid of the cancellation of bond on the previous

residence; and• Agent’s commission on sale of previous residence.”

From the above guide’s wording (as per the four bullet points above) one can see that expenditure incurred by the employee to obtain ownership in respect of the new residence (bullet point 1 and 2 above) or to dispose of his or her ownership in the old residence (bullet point 3 and 4 above), would qualify for the exemption.

The deposit paid on the new rental contract may qualify for the ex-emption if it qualifies as an “expense”. Given the fact that deposits are normally refundable, it is unclear whether the deposit would qualify as an expense. You would therefore have to consider the terms of the lease contract to determine if the deposit would qualify as an expense, in which case the deposit on the new residence may qualify for the section 10(1)(nB)(ii) exemption.

As stated above, it would appear as if the penalty paid on the old rental contract would not fall within the provisions of section 10(1)(nB)(ii). The deposit might qualify for the exemption in terms of sec 10(1)(nB)(ii), pro-vided that it qualifies as an “expense”. However, the taxpayer would still be allowed to claim the other relocation expenses provided for in section 10(1)(nB) of the Act.

Should the employee intend to buy a residence in his new location, then you may make use of the provisions of section 10(1)(nB)(iii), but this would only be available if the property is only temporarily being hired in anticipation of buying a permanent residence and may not be used for the first six months of hiring accommodation (where there is no intention to buy a residence ).

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France and Germany behind plans for ‘common EU corporation tax’

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France and Germany are pushing plans to introduce a minimum corpo-ration tax rate across the continent in a move that could result in higher taxes on British companies.

European officials will debate plans to set a EU-wide floor on corporation tax in order to crack down on tax havens such as Ireland and Luxembourg, it emerged.

The plans are a direct challenge to David Cameron, who is calling for sovereignty to be returned to EU members. Britain is prepared to veto any proposals that see it surrendering power over tax rates to Brussels. “We have a long-standing view on tax harmonisation, which is not to support it,” said a Downing Street spokesman.

However, campaigners said it showed the scale of the challenge David Cameron faces in renegotiating Britain’s membership. “It is a direction of travel issue,” said Robert Oxley, of campaign group Business for Britain. “It shows the EU thinks corporation tax is an area of common concern, suggesting there are those at the heart of the Eurozone who want more power over Britain, not less.”

EU officials are scheduled to discuss how to tackle tax avoidance and create a system of “fair, transparent and growth friendly” corporation taxation at an orientation debate in the College of Commissioners - a forum used to float ideas.

The discussion will include plans to create a basic rate of corporation tax across Europe, reported Handelsblatt, the German business newspaper.“Germany and France and demanding a minimum threshold value; we are reacting to that,” one commission source told the newspaper. At 20 percent, Britain has the lowest corporation tax rate in the G7, and among the lowest in western Europe.

Any measure to harmonise corporation taxes would likely hit Ireland, the base of many international tech companies, with a 12.5 percent rate. The European operations of Apple, Google, and Facebook are all headquartered in the Republic. American Internet companies have become a target in Brussels on an array of issues including privacy and competition, as well as taxation.

Luxembourg, meanwhile has a special 5.7 percent rate on intellectual property income and royalties. The Netherlands and Belgium have brokered special deals to woo overseas investors. The beneficiaries would

likely be France, with a 33 percent basic rate and 36.6 percent higher rate; Germany, with a rate of between 30-33 percent; and Spain, with a rate of 30 percent.

A spokesman for the European Commission said: “The Commission has no plans to propose a minimum rate of tax for businesses in the EU. More broadly, we do however want to ensure that profits in the EU are taxed where the value is generated. The June Action Plan will set out concrete steps that could be taken towards achieving this goal.”

France and Germany have called for harmonisation of corporation tax for several years. 2011, Angela Merkel and Nicolas Sarkozy aimed to introduce a “competitiveness pact” among the 17 countries of the eurozone, including a more standardised corporation tax rate, drawing opposition from Ireland.

Mr Cameron last night met Jean Claude Juncker, the president of the European Commission, for dinner at Chequers where he outlined his negotiation plans and said that the “British people are not happy with the status quo” in Europe.

He will embark on a tour of Europe meeting his counterparts in Germany, France, Denmark, the Netherlands and Poland later this week. Downing Street insists that Mr Cameron wants treaty change in Europe. However, Mr Cameron’s spokesman left the door open to an in-out referendum being held before any new treaty has been ratified – a process that could require referendums across Europe.

One potential option would be for Britain’s new deal to be enshrined in a protocol that is then written into a new treaty later in the decade.“It will be very clear to the British people what they are voting on,” Mr Cameron’s spokesman said.

Liam Fox, the former defence secretary, said Mr Cameron should go for a long renegotiation and said his counterparts calling for an early vote have “ulterior motives which are not entirely honourable”.

Dr Fox said: “I think they want to see a decision made quickly, to limit the level of debate in the UK. I think that they are afraid that if we have a very full debate then some of the real unacceptable issues in Europe at the present time will become all the more clearly seen by the British public.”

Source: telegraph.co.uk

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China plans to launch the world’s largest emissions trading scheme (ETS) – eclipsing the EU’s seminal practice – next year. South Africa will make lawmakers vote on a carbon tax in 2016, while Chile has its own scheduled for 2017.

While many countries have lagged in slapping costs on the unregulated emitting of carbon dioxide, 15 more are poised to set up schemes.

“2016 and 2017 are the years for carbon prices for major emerging economies,” said the World Bank’s Xueman Wang at an event highlighting the Partnership for Market Readiness, a $127 million fund to help countries prepare.

Many plans are in the early stages, and so far 40 countries mandate a price on carbon, though they signal the direction of travel.

The World Bank’s special climate change envoy, Rachel Kyte, spoke of the “growing inevitability” of carbon pricing at an event in Barcelona this week. While UN top climate official, Christiana Figueres called it a core plank in the “construction site” of the climate challenge.

The global lender now puts the world’s emissions trading systems at $34 billion. Jurisdictions with an ETS now represent two-fifths of global GDP, according to the International Carbon Action Partnership.

China is gearing up to stitch together seven pilot schemes, run in provinces like Hubei and Chongqing. India doubled a coal tax in February. Wang Shu, deputy director for climate change at the National Development and Reform Commission, China’s top economic body, said its plans had entered a “new stage” as it decarbonises, at the Carbon Expo conference today.

“Low carbon development is the future direction, the purpose we needed to give industries a positive signal,” the official said. “If you look at China’s situation now… you can’t keep these kind of development methods forever.”

Carbon pricing winning favour with tiger economies

Chile is to set up a tax worth US$5 a tonne in 2017, targeting boilers, turbines and new cars, and account for a quarter of its greenhouse gas emissions.

The first of its kind in South America, Francisco Pinto at the environment ministry said: “it’s low, but we’re being very careful to see how industry reacts. We’re looking eventually to an ETS,” he told RTCC.

South Africa is mulling a carbon tax of 120 rand per ton of CO2 equivalent, about US$11 said Cecil Morden at the National Treasury.

However, it plans tax-free exemptions from certain companies between 60-90 percent. “The vibes were getting industry are that industry is pretty divided. Some say timing not right given (high) electricity prices,” Morden said.

California was able to inject its experience, having adopted an ETS in 2012 that recently joined with Quebec. Rajinder Sahota, chief of the cap-in-trade programme at California Air Resources board said the state had invested money from auctions in solar roofing and more efficient appliances.

But the threat of domestic firms moving to non-taxing jurisdictions was “critical”. “California is surrounded by states that would love to lure our industry with tax breaks,” Sahota said.

While its policies which taxed imported fuel and cement, known as border tax adjustment, had led to job losses growth in the clean tech sector had “compensated”.

A report released today by the IETA, a business association and the Environment Defense Fund, among others, showed case studies of countries from Kazahkstan to New Zealand developing carbon pricing.

“There is a growing consensus on the fact that carbon pricing is becoming a priority among economic decision makers around the world,” said Benoit Leguet of CDC Climate Research, a report author. “The big question is how to put a price on carbon.”

Source: rtcc.orgItalian tax clampdown dims the sparkle at Bulgari

When Bulgari, the luxury Italian jeweller, set out to celebrate its 130-year anniversary last year at its flagship store on Rome’s Via Condotti – where Richard Burton once bought Elizabeth Taylor a suite of diamond and emerald jewels – it spared no expense. It hired an architect to restore the marble interior and invited guests such as Carla Bruni and Adrien Brody, who attended the party alongside the billionaire Bulgari heirs, Paolo and Nicola.

Months earlier, the grandsons of the Bulgari founder were caught up in a less glamorous occasion: the Italian tax police’s seizure of Bulgari’s office on Via Condotti – the Guardia di Finanza – which confiscated the property in 2013 as part of a €46m asset seizure following allegations of tax evasion. This week, an Italian judge ordered Nicola and Paolo to stand trial on charges that they and 11 others evaded taxes from 2006 to 2010. Both deny the charges, according to a Bulgari spokesman.

The case follows a spate of tax investigations into Italian luxury brands, including Dolce & Gabbana, Giorgio Armani, Prada, and the Marzotto textile firm. The authorities’ track record is mixed. Last year, Italy’s highest court overturned fraud convictions against the fashion duo Domenico Dolce and Stefano Gabbana, who had been facing 18-month jail terms for allegedly evading €1bn in taxes.

Investigators scored a victory with fashion house Giorgio Armani, forcing the designer brand to pay €270m to Italian tax authorities to settle allegations that it used foreign subsidiaries to shield tax payments. Miuccia Prada of the Prada fashion house and her husband are reported to have paid €420m to settle their tax affairs in Italy after the company completed a voluntary disclosure in 2013. In the same year, the Marzotto family made a €56m tax payment in the wake of selling the Hugo Boss and Valentino labels.

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The inquiries reflect an attempt by authorities to crack down on alleged tax cheats as Italy tries to claw back some of the estimated €120bn lost every year through tax fraud. It is one way the country hopes to pare down Italy’s €2tn debt load.

It is no coincidence that many of the targets are among Italy’s most successful companies and entrepreneurs, where the potential gains for the tax authorities are bigger. “If you go fishing in a small lake, you get small fish. If you go fishing in a big lake, you get big fish,” said one person whose company has been targeted.

However, tax experts say that in some cases officials are investigating companies that are legitimately trying to minimise their tax obligations, by setting up offices in low-tax jurisdictions such as Ireland. It is the same strategy used by many other multinational businesses – albeit controversially – such as Apple and Microsoft.

“I think all such cases with important names – like Bulgari or Prada – deal with tax avoidance rather than evasion, because these companies have implemented sophisticated strategies of locating assets offshore,” says Tancredi Marino, a tax lawyer in Milan.

“It is very important for the Italian tax police to have big names in the press that are under investigation because it puts pressure on an average Italian guy to – you know – report his half-a-million euros in Lugano [Switzerland],” he adds.

Some wealthy clients have been left scratching their heads about whether they ought to begin declaring income they have in overseas accounts, Marino says, because they are convinced the government will announce an amnesty programme – as it has done in the past – that might allow them to escape at least some fines. The tax police are also pursuing the financiers who allegedly help rich Italians funnel their money out of the country by disguising their assets in shell companies.

Late last month, Italian police arrested a Swiss baron named Filippo Dollfus von Volckersberg, as he entered Italy to attend his grandchild’s baptism. The Swiss financier is suspected of having “cleaned” at least €850m for Italian and international clients over the past 40 years,using shell companies to move and hide the funds, Italian prosecutors claim.

Von Volckersberg’s attorney did not respond to a request for comment.In the case of Bulgari, investigators have alleged that some of the company’s executives evaded hundreds of millions of euros in taxes on about €3bn in revenue, generated in Rome, by moving its profits into low-tax subsidiaries such as Switzerland, Ireland, and the Netherlands.

Police said in a statement at the time of the property seizure in 2013 that they had uncovered an “escape strategy” at Bulgari , which used an Irish subsidiary to sidestep the Italian tax system.

The authorities allege the tax evasion occurred between 2006 and 2010, before Bulgari was taken over by LVMH, the French luxury group. But a Bulgari spokesman said that Italy’s inland revenue office – which is separate and independent from the Guardia di Finanza – has already determined that most of the allegations against the group were essentially unfounded, because the foreign companies that were used for tax purposes were real businesses, and not merely “shell” companies.Bulgari said it agreed a €42m fine to settle the remaining allegation, which involved a dispute over corporate restructuring, rather than tax matters.The key issue in all the tax cases involving luxury firms, says Dario Stevanato, another tax expert, is whether companies are legitimately using companies they have created abroad, or whether the foreign entities are being used to hide funds from authorities.

LVMH, which acquired Bulgari for €3.7bn, declined to comment on the case. A Bulgari spokesman said the financial structures that have been in place since before the acquisition – which are subject to the tax investigation – have not been changed since the takeover.

theguardian.com

17TAXTALK

Case Law Wrap UpJuly/ August 2015

Summaries of recent tax cases heard in court. Full summaries can be accessed from SAIT’s homepage. www.thesait.org.za

South Atlantic Jazz Festival (Pty) Ltd v CSARS – HC A129/2014 WC (6 February 2015)

This appeal to the Western Cape High Court considers whether a supplier’s failure to issue a tax invoice, despite being demanded by the vendor to do so, precludes that vendor from using other available documentation to claim an input tax deduction per sections 20(7) and 16(2)(f) of the Value Added Tax Act (No. 89 of 1991).

The appellant and its various suppliers had entered into barter transactions in terms of which the latter supplied goods and services to the former, in exchange for the former providing branding and marketing services as quid pro quo. The appellant sought to offset the output tax liability with the input tax attributable to the goods and services supplied to it by the suppliers.

The Court held that the contracts between the suppliers and the appellant serve as proof for the latter’s entitlement to the input tax deductions. Binns-Ward J specifically noted the following in this regard at paragraph [15]:

“…If the documents were good enough for the Commissioner to assess the appellant’s output tax liability, it is impossible to conceive, having regard to the character of the particular transactions, why they should not also have been sufficient for the purpose of computing the input tax which should have been deemed to have been levied by the sponsors…”

The appeal succeeded with costs, with the assessments being set aside and referred back to the Commissioner for reconsideration.

TC-IT 13512 JHB (30 March 2015)

This appeal to the Johannesburg Tax Court considers whether Secondary Tax on Companies (“STC”) should be levied on interest-free loans lent to a taxpayer, who subsequently lent those amounts on (interest-free) to other companies within the same group.

The Commissioner applied section 64C(2)(g) to levy STC on the deemed dividend recognised on the “amount of a loan or advance granted or made available to a shareholder or a connected person in relation to that shareholder”. In terms of section 64C(4)(bA), the aforementioned does not apply to the extent that the recipient of the asset provides some form of consideration in exchange for the asset transferred. The dispute between the parties was concerning whether or not there was a consideration given in exchange of the loans.

Van Oosten J held the following at paragraph [20] (emphasis added):

“The consideration, or quid pro quo, as correctly pointed out by counsel for the appellant, lies in the nature of the loan agreements: in essence the appellant was granted equivalent benefits in the form of the interest-free incoming loans as consideration in exchange for the amounts it loaned by way of interest-free outgoing loans. The outgoing loans matched the benefits the appellant received by way of incoming loans. It accordingly clearly constituted a quid pro quo which the appellant received in return for making the outgoing loans….The incoming and outgoing loans, by their nature, as I have alluded to, clearly qualify for the exemption.”

The appeal was therefore upheld and the disputed STC assessments issued by SARS were set aside.

Medox Limited v The Commissioner for SARS (20059/2014) [2015] ZASCA 74 (27 May 2015)

This appeal to the Supreme Court of Appeals considers whether “incorrect” assessments made by the Commissioner can be declared by the High Court to be null and void, and thus set aside, even though the objections and appeals process was not followed by a taxpayer.

The issue is pertinent, given the fact that assessments not objected to within the prescribed time period would be held to be final and conclusive under the now repealed section 81(5) of the Income Tax Act (No. 62 of 1964).

ERICH BELL AND LESEDI SEFORO , SAIT Technical

CASE LAW

18 TAXTALK

The taxpayer failed to timeously object to the Commissioner not setting off the balance of assessed losses against the taxable income in subsequent years of assessment. Its contention was thus that by not taking the assessed losses into account per section 20(1)(a) of the Income Tax Act, the assessments were invalid, rendering section 81(5) inapplicable.

In response to this contention, the learned judge held the following at paragraphs [15] and [16]:

“On this argument virtually any assessment in which the Commissioner erroneously refuses to allow a deduction, rebate or exemption provided for in the Act, could be regarded as invalid and therefore not subject to the provisions of ss 81 to 83 of the Act. This would render the mechanisms provided in ss 81 to 83 for objections to and appeals against assessments nugatory and grant aggrieved taxpayers carte blanche to approach the high court in virtually every instance where they disagree with an assessment made by the Commissioner.”

“What counsel for Medox is effectively asking this court to do, is to read words into the Act by implication….the submission on behalf of Medox requires the word ‘assessment’ in s 81 of the Act, and in particular in subsecs 81(2)(b) and 81(5), to be read as being a reference to a ‘valid’ assessment. In my view there is no basis

upon which it can be said that the reading in of the word ‘valid’ in s 81 is necessary to give effect to the section as it stands. On the contrary, I believe that this construction would be in conflict with the intention of the legislature as appears from the clear language of the subsections.”

The court held that the High Court was correct to dismiss the appeal for the declaratory order and consequently dismissed the appeal.

CASE

LAW

19TAXTALK

20 TAXTALK

SARS

UPD

ATE Staying up-to-date with operational matters is just as crucial as

keeping your technical knowledge current.

TAs a tax practitioner, one is required to stay up-to-date with the latest industry developments. This is easier said than done. The main reason being that tax advisors are business owners themselves and have to juggle responsibilities such as managing staff, getting new clients, etcetera, as well as

keeping their tax knowledge relevant.

Even when practitioners do manage to somehow keep up-to-date, one typically finds that the focus tends to be more on “technical” issues. So a member of the Institute will, for instance, manage to keep up-to-date with the latest amendments to the various tax Acts, case law, regulations and so forth, but what we at SAIT call operational (“ops”) matters tend to get left behind.

Operational matters

When we refer to ops issues, we are talking about the procedures governing a tax practitioner’s day-to-day interactions with SARS. Larger accounting firms have the luxury of having separate business units for tax consulting and compliance. As a result, those who focus on tax structuring and opinion work need not get their hands dirty by actually implementing their strategies at the ground level. This work is left to the compliance consultants, who have to deal with frustrations such as:

• SARS taking very long to pay out refunds, even when an audit has been completed;

• The denial of input VAT claims without any clear reasons being given;

• The declining of tax clearance certificates for reasons other than those allowed in the legislation.

And that’s just the tip of the iceberg.

The moral of the story? Ops procedures matter and the failure to stay up-to-date in this area could cripple your business.

Stakeholder meetings

To their credit, SARS began having quarterly regional and national stakeholder meetings a few years ago to address the more practical matters which are not covered in the legislation. In these meetings, controlling bodies like SAIT voice their members’ difficulties and work together to come up with solutions. These meetings have helped me personally, and our representatives appreciate the complexity within SARS and the difficulty of making changes to the current system. SARS isn’t perfect but they are trying. The minutes to the SARS stakeholder meetings

A few weeks after the abovementioned stakeholder meetings, SARS will distribute the minutes of the meetings to us and we then send them to our members, usually through our weekly newsletter. This is very important feedback that every SAIT member should take note of. I would therefore like to strongly urge you to regularly look through these minutes, especially for your particular region.

It will help you get a sense of what problems other tax practitioners in your province are having and what is being done by SARS and the con-trolling bodies to resolve these issues.

I would also recommend looking through the minutes of the meetings in the other provinces because a lot of tax consultants have clients all situated over the country. If you are a tax practitioner from Gauteng and have some clients in Port Elizabeth it would help if you knew, for example, the challenges of getting a tax clearance certificate at a SARS branch in the Eastern Cape.

LESEDI SEFORO, SAIT

Stay up-to-date operational matters with SARS

21TAXTALK

SARS UPD

ATE

An overview of the technical expertise and services SAIT members can expect during the upcoming year

Accessing crucial information on the SAIT website

You can access the minutes by going to www.thesait.org.za/news. This webpage is titled “news and press”. Once there, scroll to the drop-down menu next to the phrase ‘Filter news by category’.

The drop-down menu is handy as it allows you to look through categories like ‘Case Law’, ‘Transfer Pricing and International Tax’, ‘Institute Announcements’ and ‘VAT’.

The relevant categories for the purpose of what we are discussing in this article are titled ‘SARS: Eastern Cape’, ‘SARS: Western Cape’, etcetera. There you’ll find the minutes for the last few stakeholder meetings for the particular region. For the Gauteng region, choose ‘SARS: Head Office’.

SAIT resources to help you with your research

There are two other really important categories, which appear at the bottom of the drop-down menu. They are titled ‘SARS operational and eFiling questions’ and ‘technical and tax law questions’ respectively. We have made all of the questions we’ve answered on our technical helpline available here. For confidentiality purposes, we have removed taxpayer names and other information that would easily identify a person. This is a great facility to use when doing some research. Below are some example of the questions we post under these two categories:

• When will transfer duty be levied on the sale of a member’s interest in a close corporation?

• What can you do if SARS didn’t transfer an old assessed loss to a future year?

• Is VAT payable on the full rental amount received by an estate agent?

• How do I apply to SARS for a non-profit company to be allowed to issue s18A tax certificates?

Before submitting a query to the technical department, you may want to first check the questions we’ve answered under these categories. There’s a good chance we may have already answered a question similar to the one you’d like to ask.

We have made a lot of valuable information available to our members. Take advantage of all the above-mentioned resources to extract the full value of being a SAIT member.

22 TAXTALK

eFIL

ING

The Joys of eFilingand e@syFile

I am sure that some will find the title to my column to be sarcastic, yet truthful. In my opinion it is and can be both at the same time.

In my column I will attempt to make eFiling and e@syFile just that: A joy.Firstly, a bit of my background: I am currently the Managing Director of Krycom. I do private consulting on eFiling and e@syFile and other SARS related matters. Krycom was appointed in July 2014 as the eFiling and e@syFile consultant for all SAIT members.

I have been involved with eFiling since April 2002 and e@syFile since its inception in 2009. I have seen them grow from small, great ideas to the powerful tools that they are today. However, can eFiling and e@syFile be frustrating? The answer to that is an emphatic yes!

Now cast your mind back to pre-2002. Suddenly my title starts to make a little more sense and leans more towards the truth than sarcasm. What did we ever do without eFiling? It’s a bit like the cell phone. The introduction of cell phones in 1994 was met with joy by some andsome could not fathom what on earth we would want with such a gimmick. Yet today, we cannot imagine our lives without them.

eFiling was met with the same resistance. Today it is the biggest SARS office in the country.

I cannot conceive a world without eFiling and e@syFile. With all its little ticks and nervous breakdowns from time to time, it is still the best way

to do business with SARS when it comes to the bulk of the yearly and monthly taxes.

In my ramblings I will attempt to address some of the frustrations that are current with both eFiling and e@syFile. The frustration (but also the charm and attraction) of eFiling and e@syFile is that most of the time there isn’t always one clear-cut answer to solve a challenge. This may cause frustration for the end-user, but has actually made the products my joy for the last 13 years. It’s the dynamic challenge of finding the correct solution for my clients that has kept me involved with eFiling.

Challenges of eFiling and e@syFile

How often do you find that one of your taxes is lying under Organisation Tax Types with the status: “Authorised. Awaiting activation”? SDL is often the major culprit and VAT can be a culprit too. The solution for the SDL is as follows:

1. Click on “Organisation” in the Main Directory2. Select your client3. Click on “Organisation Tax Types”4. Un-tick the PAYE and SDL tick boxes5. Scroll down and click on “Register”6. This will change the status to “Deactivated. Awaiting authorisation.”7. Wait 24 hours and follow steps 1 to 58. Wait another 24 hours and follow steps 1 to 4

In his debut column, specialist Anton Krynauw, attempts to make eFiling and e@syFile a joy.

ANTON KRYNAUW, KRYCOM

23TAXTALK

eFILING

The SDL should now be active. If the SDL has still not activated, it could mean that the SDL is not activated on the SARS Core system and would require a visit to a SARS branch for this.

VAT is a little more difficult. If the VAT did not activate on eFiling, it could mean that it is in suspense. This occurs after a period of time if Nil returns and/or no returns are submitted. In the case of VAT, I suggest that you ascertain the status at SARS first. If the status is active, you can refer the issue to me so that I can assist with the activation.

The biggest current challenge is the non-startup of e@syFile. In other words, e@syFile opens, but just displays a spinning clock. This is a Java related challenge. In most cases the solution is easy, but in a few isolated casesit is a lot more complicated. The easy solution is depicted below. If the below does not solve the problem, you can contact me for assis-tance.

1. Click on the “Start” button on your PC2. Click on “Control Panel”3. Click on “System”4. Establish if your PC is a 32bit or 64bit PC5. In the case of 64 bit proceed with the below. 6. Log onto Google7. Type in “JRE 8”8. Click on the “JRE Runtime environment Downloads” topic9. Click on “Accept Licence Agreement”

10. Click on the second last Download jre-8uxx-windows-x64.exe11. Click on “Run”12. Click on “Install”13. Click on “Uninstall” all old versions of Java when prompted

With 32bit PC’s you will need to install an older version of Java. The version that I find that works the best is Java 7 update 67.

I trust that the above solutions will be at least a step in the direction of joy for most of you. SAIT members can contact me via Adel Marx on [email protected]. Non-SAIT readers can contact me on [email protected]

I wish you all a successful and hassle-free Employer Filing Season!

“I cannot conceive a world without eFiling and e@syFile. With all its little ticks and nervous breakdowns from time to time, it is still the best way to do business with SARS when it comes to the bulk of the yearly and monthly taxes.”

24 TAXTALK

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SAITThe SAIT VAT Committee is comprised of preeminent industry leaders who all share an interest in facilitating a dynamic regulatory environment.

Meet the

Severus Smuts

Severus Smuts has over 20 years’ of experience in the field of South African VAT and has advised several large clients on awide range of VAT issues across a range of industries, including the automotive, retail, financial and manufacturing industries.

These include;

• The VAT implications of cross border transactions• Preparing and updating VAT user manuals for the short term

insurance and automotive industries• Advising financial institutions on various issues including VAT

apportionment, direct attribution of expenses, imported services, short term insurance transactions, asset-based finance transactions and structured finance transactions

• Performing VAT savings and compliance reviews for companies in the retail, TMT, manufacturing and financial services industries

• Performing in-house and general training on VAT issues on a national basis on issues such as the latest amendments and specific transactions

Severus also advises clients on the VAT implications of merger and acquisition transactions and oversees the due diligence work performed for clients. His experience working at SARS and presenting at ATAF conferences enables him to stay in touch with the regulatory environment.

Cliff Watson

Cliff is a Director at Grant Thornton in Johannesburg and heads up the indirect tax division.

He has more than 20 years’ experience in Value-Added Tax and has been involved with VAT since its inception in 1991. Cliff started his career at SARS where he worked for 11 years. He successfully completed all the relevant indirect tax courses and gained vast experience in SARS’ audit and general processes which subsequently proved invaluable

in liaising with SARS. Cliff then joined Deloitte where he was broadly involved in consulting large corporate and multinational clients on the VAT implications of their South African and cross border operations. During his 10 year employment at Deloitte, Cliff gained vast experience in managing a number of major VAT and system reviews. He has excellent knowledge of the South African VAT implications of import and export transactions. Cliff has also completed several Customs and Excise courses which increases his consulting capabilities to this specialised area as well. Cliff’s experience ranges across a broad spectrum of industries which include the manufacturing, retail, wholesale, import and export as well as services industries.

Cliff joined the SAIT VAT to discuss rmatters on a high level with his peers in the VAT consulting industry as well as certain corporates. This enables him to be on the cutting edge of industry specific matters that affect not only his clients but the VAT arena as a whole. He considers it a privilege to share information and thought leadership with some of the gurus in the VAT consulting space.

Andre Meyburg

Andre Meyburg holds an H-Dip Tax Law from UJ. He joined KPMG in 1990 as a manager, and was tasked with establishing a VAT practice in KPMG. Prior to joining KPMG he worked in various SARS departments, where after he joined Coopers and Lybrand. He is the author of three books on VAT and is the National head of KPMG’s Indirect tax practice. Andre was and continues to be instrumental in ensuring numerous legislative amendments over the years to date. He has vast VAT experience in multiple industries and represents various industry bodies from time to time.

Andre is passionate about VAT and strives to advise and assist all clients to be fully compliant with the law. At the same time he am mindful of inadequacies that exist both in business and in the legislation, which drives him towards constantly seeking amicable solutions that are fair towards both business and the fiscus. He fully supports SAIT as a controlling body and its various initiatives aimed at continually improving our industry and our legislation.

VAT Committee

25TAXTALK

INSTITU

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S

Seelan Moonsamy

Seelan Moonsamy is a Tax Manager at ENSafrica, where he advises on the full gamut of issues related to VAT. Seelan kick-started his career in tax at SARS (in several roles including, legal interpretation, integrated auditor, and audit Team Leader) and left to join a Big Four Consulting firm before embarking on his tax odyssey at National Treasury, where he had a stint of 5 years. At National Treasury, Seelan was a Senior Manager that was, partly responsible, for all legislative aspects and policy issues related to the design of indirect taxes (which included: chairing stakeholder meetings, assisting the legal drafters with drafting instructions and preparing write-ups for inclusion into the Explanatory Memorandum).

Seelan accepted his nomination to join the VAT Sub-committee of SAIT, as Seelan is passionate about ensuring the proper alignment of tax design and business, assisting SARS and National Treasury close any VAT loopholes and eliminate any unintended anomalies; the SAIT is a pre-eminent platform to achieve these ideals.

Victor Terblanche

Victor Terblanche is the Managing Director at VAT IT South Africa and has been specializing and consulting in Value-Added Tax for more than 18 years. He commenced his career with SARS in 1996 where he contributed to various VAT law amendments and performed integrated tax audits which included VAT, Income Tax and PAYE. Victor also provided tax training to the SARS Gauteng Region on the New Income Tax System (NITS). Thereafter Victor joined the Deloitte Indirect Tax team where he provided VAT consulting services to various JSE listed clients. His duties included opinions, ruling applications, objections, appeals, audits, savings reviews and training. He also performed high level integrated tax reviews for various Deloitte audit clients which included VAT, Income Tax, PAYE and Transfer Pricing.

Victor joined VAT IT as a Director in 2004 and currently provides VAT consulting services to various South African and globally listed clients. He also provides concurring VAT reviews on technical matters and consults clients in other indirect tax jurisdictions including Namibia, New Zealand, Australia, Morocco, Bahamas, United Kingdom and various other African countries. He currently serves as the chairperson on the VAT committee of the South African Institute of Tax Practitioners (SAIT) and is a registered Master Tax Practitioner.

He serves on the SAIT VAT Committee as he believe that SAIT has built a platform, through hard work and dedication, to effectively communicate with SARS and National Treasury as the voice of the Tax Industry. He is privileged to be part of a Committee which comprises of industry leaders and expertise in VAT consulting.

26 TAXTALK

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Ferdie Schneider

Ferdie is a Tax Director with BDO and is the National Head of Tax in South Africa. He is a tax expert with deep specialization in VAT, Fiscal Economics, and Tax modelling and is a Master Tax Practitioner at the SA Institute of Tax Practitioners; a Member of the SAICA and SAIA VAT Committees; and Panel member of National Treasury’s Economic Policy Panel of Experts (until 2017).

Ferdie worked at SARS (1990 – 1994) and joined National Treasury as a taxation economist in 1994. Ferdie served as secretary to the Tax Advisory and the Katz Commission (1994 - 1996). Ferdie was a member of the VAT Committee on Financial Services (Katz Commission) which considered VAT on financial services. He is an ex Tax Partner of Deloitte and KPMG and represented both on Global Committees. Ferdie co-chaired a VAT Credit Retail focus group with SARS on attribution and VAT apportionment (2010). Ferdie settled a high value technical VAT dispute for the insurance industry (2011). He co-authored KPMG Managing VAT and writes various technical articles for South African and international publications. Ferdie was past editor of The Practical VAT Handbook.

Dorwin Nyaga

Dorwin Nyaga is an Associate Director specialising in VAT advisory at PwC. Dorwin joined PwC in 2002 and has worked in PwC offices in Kenya and Ghana. He joined PwC South Africa’s Indirect Tax practice in July 2006. He holds a Bachelor of Commerce (Accounting) degree and is a qualified Certified Public Accountant (CPA). He has advised clients on VAT matters in various industries in South Africa and also on international VAT matters. Dorwin lead PwC’s short term insurance VAT advisory services.

He opted to serve in the VAT Committee as he considers it to be a great platform to share views with fellow practitioners on the ever-changing VAT landscape in South Africa

27TAXTALK

THERE ARE MANY THINGS YOU CAN'T TRUST IN LIFE, BUT YOU CAN ALWAYS RELY ON YOUR SAIT TAX PROFESSIONAL.

28 TAXTALK

Featured Event 2015 Accounting & Reconciliation for Tax Practitioners

Financial reporting standards governing the preparation of financial statements cater for a wide audience of users including shareholders, creditors and employees. Although financial statements are the primary source of information when preparing a corporate entity’s income tax return, they are not specifically tailored for tax reporting.

Accountants and tax practitioners need to understand the differences between accounting standards and tax legislation to ensure that the entity’s tax liability is determined correctly and to ensure accurate financial reporting of taxation.

When preparing financial statements, accountants also need to prepare certain reconciliations to enable the entity to discharge its burden of proof in terms of section 102 of the Tax Administration Act, 2011. Such reconciliations are especially useful when the entity is required to submit a supplementary declaration (IT14SD).

Free to all 2015 CPD subscribers

11 August – Roodepoort12 August – Boksburg13 August – Pretoria14 August – Polokwane17 August - Webinar18 August – Johannesburg19 August – Durban20 August – Cape Town21 August – Port Elizabeth

When and Where?

Overview

Presenter

Register

Who should attend?

• Tax practitioners• Accountants• Bookkeepers• Financial managers

Herman van Dyk CA(SA), RA, MCom(SA and international tax)

Visit www.thesait.org.za

4 HRSCPD points

Tax CPD

Event Investment:Members: R885Non-members: R9852015 CPD Subscribers: Free

Visit www.thesait.org.za

07/11 - 11/11Tax Indaba, Sandton Convention Centre , Johannesburg

11/082015 Accounting & Reconciliation for Tax Practitioners, Roodepoort

August/September 2015Gauteng

TAX CPD CALENDAR AUGUST/SEPTEMBER 2015

CPD CALEN

DAR

12/082015 Accounting & Reconciliation for Tax Practitioners, Boksburg

13/082015 Accounting & Reconciliation for Tax Practitioners, Pretoria

18/082015 Accounting & Reconciliation for Tax Practitioners, Johannesburg

21/08

2015 Accounting & Reconciliation for Tax Practitioners

August/September 2015Eastern Cape

August/September 2015Western Cape

20/082015 Accounting & Reconciliation for Tax Practitioners, Cape Town

19/082015 Accounting & Reconciliation for Tax Practitioners, KZN

August/September 2015KwaZulu-Natal

14/082015 Accounting & Reconciliation for Tax Practitioners, Polokwane

August/September 2015Polokwane

Tax CPD

Mervyn King discusses the central role of a sound corporate governance framework. Some of the most prominent speakers at this year’s Tax Indaba share their views

on pressing issues currently facing the tax world.

Features

32 TAXTALK

Mervyn King will be delivering the keynote address at Tax Indaba 2015

Date: 7 September, Day 1 Time: 11h15 Stream: Tax Policy and Administration

33TAXTALK

Mervyn King

Mervyn King consults and advises on corporate legal issues. He is recognised internationally as an expert on corporate governance and sustainability. He sits as an arbitrator and as a mediator. He is a

founding member of the Arbitration Foundation of Southern Africa and for some eight years was the South African judge at the ICC International Court of Arbitration in Paris. He has acted as an Inspector of Companies and a Commissioner of Inquiries into the affairs of companies. He shares his views on

Corpate Governance and his career.

The Doyen of Corporate Governance

34 TAXTALK

PRO

FILE

Q: How would you describe yourself? A: I am an informed corporate adviser with having regard to my corporate legal background and having been the chief executive, non-executive director and chairman of companies listed on three major stock exchanges. Q: Internationally you are known as the Doyen of Corporate Governance. How did your passion for Corporate Governance come into being? A: My passion for Corporate Governance came into being when, having advised on many governance issues as a corporate lawyer, I had to “do”. Doing and advising are two different activities but gives one a better understanding of how corporations function. In that context I learnt that good governance is about quality and not a quantitative mindless tickbox, compliance exercise. Q: Does a good Corporate Governance framework complement a company’s tax risk management framework? A: The two do not follow because a quantitative compliance does not involve an intellectually honest application of the mind as to what is in the best interests of the company. On a compliance basis an avoidance scheme may be perfectly lawful but seen through the tapestry of individuals making up the company’s society, the company may be perceived as not being a good corporate citizen. A company could thus, through perfectly lawful avoidance schemes save a R100 million in income tax, but have a diminution of its market capitalisation by R1 billion.

Q: What is the relationship between sound Corporate Governance and tax risk management? A: The relationship between the two is again about quality. Sound, or good, Corporate Governance means an intellectually honest approach in the best interests of the company, leaving aside one’s personal interests, present needs, past experiences and any “whispers” in one’s ears. In short, directors must come to the board meeting unfettered and act in the best interests of the company having regard to the resources used by the company and the legitimate and reasonable needs, interests and expectations of the company’s stakeholders. A tax policy which might be completely lawful may be perceived by the stakeholders to be against public interest and consequently could cause enormous harm to the 80 per cent of the market capitalisation of the company making up its intangible asset value compared with the additives in its balance sheet prepared according to financial reporting standards. Q: How important, in your view, is a robust tax risk management processes, especially in light of the increasing pressure placed on multinationals by media houses and organisations such as act!onaid? A: Until recently, it was not necessary to have a robust tax risk management process or a tax policy. The calculation of tax was a back room exercise mathematically calculated in compliance with law and regulations. Today a board has to take into account, in the best interests of the company, how its tax policy will be seen and perceived by the company’s stakeholders. The adoption of a tax policy not accepted by society would be a huge risk factor.

35TAXTALK

PROFILE

“The calculation of tax was a back room exercise mathematically calculated in compliance with law and regulations. Today a board has to take into account, in the best interests of the company, how its tax policy will be seen and perceived by the company’s stakeholders.”

Q: Apart from allowing firms to exercise reputation management, what other benefits are associated with tax risk management?

A: Benefits are that stakeholders pertinent to the business of the company will perceive the company as being a decent corporate citizen, acting with integrity and making sure that its business model impacts positively not only on the economy, but also on society and the environ-ment.

Q: On an international scale, some revenue authorities such as the Aus-tralian Taxation Office incorporate tax risk management into their audit selection process. Do you feel that SARS should follow suit? A: It is not necessary for SARS to lay down that it will, in its audit selection process, incorporate a company’s tax risk management but a company has to be sensitive to its tax risk management so that it is seen by revenue to be consistent with what is acceptable as equitable taxation in the society in which the company operates.

Q: How has your career evolved over the years?

A: My career has evolved from a professional to a chief executive, running companies’ businesses and leading boards as chairman. This has led to my chairing the United Nations Committee on Governance and Oversight, the Global Reporting Initiative and now the International Integrated Reporting Council (IIRC), which has published the Framework setting out Guidelines as to how to adopt integrated thinking and do an integrated report.

Q: What would you consider to be the greatest achievement of your prolific career thus far?

A: My greatest achievement was helping in the formation of the IIRC and it adopting the principles of integrated thinking and doing an integrated report which were recommended by the King Committee in 2009. Chair-ing the IIRC is indeed an honour. Further, companies have been steered down the street of last opportunity driven by short term profits while they need to be steered into the avenue of sustainable value creation. The concepts of integrated thinking and doing an integrated report are concepts whose time has come. They changed corporate behaviour, so that how a company makes its money becomes critical. Is it impacting positively or negatively on the economy, socially and on the environment? In adopting this new approach to a company’s business model and reporting, we can have a sustainable planet.

36 TAXTALK

TAA

An overwiew of the objection procedures outlined in the TAA.

ROZELLE VAN SCHAIK, BDO

Although SARS may technically apply for an order without notice to the taxpayer, to do so is considered contrary to the principles of fairness and constitutional values in the absence of circumstances justifying a departure from ordinary procedures.

AN OVERVIEW OF

RESOLUTION PROCESS

THE SARS DISPUTE

The recent increase in the number of verification audits, disallowance of input tax claims (without sufficient disclosure of the legal basis on which the input tax claim was denied) and the subsequent VAT assessments issued by SARS requires a revisit of the rules relating to dispute resolution.

This article provides an overview of the objection procedures in the Tax Administration Act, 2011 (“the TAA”) and the relevant dispute resolution rules promulgated by section 103 of the TAA (“the Rules”), which came into effect on 11 July 2014.

The TAA provides for an aggrieved taxpayer to object to an assessment and certain decisions of the Commissioner. The decisions that may be objected to and appealed against are:

• decisions not to extend the period for lodging an objection; • decisions not to extend the period for lodging an appeal and • any other decision that may be objected to or appealed against

under a tax Act.

A day for purposes of the dispute resolution rules is defined as a business day as defined in section 1 of the TAA. A business day is defined in section 1 of the TAA as a day other than a Saturday, Sunday or public holiday. For purposes of dispute resolution, the definition of a business day excludes the days between 16 December of each year and 15 January of the following year. The 30 day period is calculated exclusive of the first day and inclusive of the last day.

Before concluding by refusing to confirm the provisional preservation order, the court made several observations about the application of the preservation provision.

Firstly, although SARS may technically apply for an order without notice to the taxpayer, to do so is considered contrary to the principles of fairness and constitutional values in the absence of circumstances justifying a departure from ordinary procedures.

Secondly, even where an order is warranted, it doesn’t follow that all SARS’ requested terms should be included. For example, it isn’t always necessary to appoint a curator, even though section 163 provides for an appointment. In the abovementioned matter, there was evidence that the curator had contributed nothing and was a hindrance rather than a source of help.

Third, and perhaps the most telling comment, is that SARS should not frame preservation orders on a one-size-fits-all basis. The court noted that the current order was on the same terms as a similar application it had heard recently and accorded with several in the Gauteng area in recent months. Each order applied for should be tailored to the circumstances of the case.

Fourth, section 163 is a preservation procedure, not an execution mechanism. The section finds its primary application where the amount of tax has not yet been ascertained. Once the tax has been determined, several other sections of TAA assist SARS in collecting the tax. A preservation order should not, as was the case in this matter, include a power on the part of the curator to realise assets in order to settle the taxpayer’s tax liability.

While the TAA is still in its infancy, this judgment is the latest indication of how the courts are going to interpret and apply its sometimes - apparently draconian - provisions.

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REQUEST FOR REASONS FOR AN ASSESSMENT

Rule 6 of ‘the Rules’ deals with the request for reasons for an assessment. A taxpayer may request SARS to provide reasons for an assessment before lodging an objection, in order to enable the taxpayer to formulate a suitable objection.

The request for reasons for an assessment must be made in the prescribed form and manner, specify the address at which the taxpayer will accept delivery of the reasons and must be delivered to SARS within 30 days from the date of assessment. If a SARS official is satisfied that reasonable grounds exist for an extension, the 30 day period may be extended for a period not exceeding 45 days.

If a SARS official is satisfied that the reasons for the objection were provided, they must notify the taxpayer accordingly within 30 days after delivery of the request for reasons. This notice must refer to the document(s) wherein the reasons were provided. Alternatively, SARS must provide the reasons within 45 days after delivery of the request for reasons. This period for providing reasons may be extended by SARS due to exceptional circumstances; the complexity of the matter or the principle or the amount involved. The extension may not exceed 45 days. A notice of the extension must be delivered to the taxpayer before expiry of the initial 45 day period.

If a request for reasons was properly submitted, the taxpayer does not need to lodge an objection until a response is received from SARS.

In SARS v Pretoria East Motors (Pty) Ltd it was held as follows:

“The raising of an additional assessment must be based on proper grounds for believing that, in the case of VAT, there has been an under declaration of supplies and hence of output tax, or an unjustified deduction of input tax. In the case of income tax it must be based on proper grounds for believing that there is undeclared income or a claim for a deduction or allowance that is unjustified. It is only in this way that SARS can engage the taxpayer in an administratively fair manner, as it is obliged to do. It is also the only basis upon which it can, as it must, provide grounds for raising the assessment to which the taxpayer must then respond by demonstrating that the assessment is wrong.”

Accordingly, the reasons provided by SARS must enable the taxpayer to formulate an objection. These reasons are SARS’ findings of fact and the law is applicable thereto. This does not include SARS’ reasoning.

A taxpayer may also request reasons for an assessment in terms of section 5 of the Promotion of Administrative Justice Act, 2000 (‘PAJA’). If reasons for an assessment are requested in terms of PAJA, SARS must provide its reasoning process. This will enable the taxpayer to determine if the decision can be reviewed under PAJA on the bases of error in law, fact or irrationality. If a request is lodged in terms of PAJA, the period within which the taxpayer must lodge an objection is not extended, unless a court order to this effect is obtained.

In instances where SARS failed to supply proper reasons for the decision to issue the assessment, the taxpayer should insist that SARS complies with its statutory duty to provide the reasons. It is not possible to prepare a well-formulated objection to an assessment if the basis on which SARS has issued the assessment is not known.

OBJECTING TO AN ASSESSMENT

Rule 7 of ‘the Rules’ deals with the procedure to object to an assessment. A taxpayer who objects to an assessment must deliver a notice of objection within 30 days after the delivery of the reasons

requested under rule 6 or, where no reasons were requested, the date of the assessment. A taxpayer who lodges an objection to an assessment must complete the prescribed form and specify the grounds of the objection. The grounds of objection should include the part - or specific amount - of the disputed assessment; the grounds of assessment which are disputed and the documentation that substantiates the grounds of objection that the taxpayer has not previously delivered to SARS for purposes of the disputed assessment.

Unless the objection is lodged through SARS e-filing, the taxpayer must specify an address at which the taxpayer will accept delivery of SARS’s decision in respect of the objection and/or other documents that may be delivered under these rules. The taxpayer, or a duly authorised representative, must sign the prescribed form. The objection should be delivered to the address specified in the assessment or the address specified by the Commissioner by public notice as the address at which the documents must be delivered to SARS. In practice, objections relating to VAT matters cannot be submitted via SARS e-filing.

On 31 March 2015, the Commissioner issued Government Notice 295 (GG 38666). This Notice lists the addresses at which documents, notices and requests must be delivered for dispute resolution purposes.

A taxpayer may apply to SARS for an extension of the objection period. The SARS official must be satisfied that reasonable grounds exist for the delay in lodging the objection. Interpretation Note 15 (issue 4 dated 20 November 2014) deals with the exercise of SARS’s discretion in case of a late objection or appeal. The TAA stipulates further conditions and the maximum extension periods for an extension of the period within which to object.

An objection that does not comply with the abovementioned requirements may be regarded as invalid by SARS. SARS must notify the taxpayer accordingly and state the grounds for the invalidity within 30 days of delivery of the invalid objection. A taxpayer who has received a notice of invalidity may submit a new objection within 20 days of delivery of the notice without having to apply for an extension to submit an objection. However, if the taxpayer fails to submit a new objection within the 20 day period, or again submits an objection that does not comply with the requirements for a valid objection, the taxpayer may only submit a new and valid objection together with an application for an extension of the period for objection.

The TAA determines that SARS must consider a valid objection in the manner and period prescribed in the TAA and the rules. SARS may disallow an objection or allow an objection in whole or in part and must, if applicable, adjust the assessment or decision accordingly. SARS must provide the taxpayer or the taxpayer’s representative with the basis for the decision regarding the objection and a summary of the procedures for an appeal.

A taxpayer who objects to an assessment should either pay the tax in dispute or apply for a suspension of payment. The requirements for a suspension of payment can be found in section 164 of the TAA.

Should the objection not be fully successful, the TAA provides for further remedies for an aggrieved taxpayer by prescribing the procedures for an appeal against an assessment or decision, the alternative dispute resolution process and an appeal to the tax board or the tax court.

TAA

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TAA

FAITH MAZANI, IMF

Faith Mazani discusses the challenges of the African revenue collection landscape and proposes a possible way forward.

Reform Challenges for Revenue Administrations in Developing Countries:

Lessons for Africa

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Different countries have implemented revenue administration reforms to improve the efficiency in collecting domestic revenue needed for poverty reduction and

state building over the past few decades. Creating an enabling environment for rapid and sustainable growth requires macro-economic stability which can be developed through public sector reform.1

African revenue administrations are expected to be more efficient and to reduce the cost of collection while promoting voluntary compliance and reducing the cost of compliance for taxpayers. The biggest challenge is the dichotomy presented by the fact that developing countries have serious shortages of funds, have the widest fiscal gaps and cannot, in most cases, afford to implement the required reforms that would provide more revenue and create the much needed fiscal space. As a result, different revenue administrations in developing countries depend on reforms that are recommended and funded by international organizations and donor agencies to support improved generation of local revenue resources. These reforms have been implemented through the injection of donor funding and other technical assistance for capacity building.

A number of revenue reform models have been developed by different international organizations and delivered to recipient countries through developed country or multiple donor programs like the Topical Trust Funds (TTF). Some reform programs are delivered through regional blocs to support regional integration and trade facilitation. Where these are implemented under the right conditions, they have translated into improved revenue contribution to GDP, increased voluntary compliance, better trade facilitation, lower costs of collection and motivated staff.

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Revenue reforms are usually delivered through technical assistance and capacity building programs from the funding agencies. They involve the attachment of experts to the recipient administrations, outsourcing of private institutions to develop specific systems or processes, attachment of recipient administration staff to countries that have implemented desired reforms, funding specific academic programs that support the reform initiatives, and workshops to discuss issues relating to specific administrative reforms, among others.

A number of revenue administration reform results have not been as encouraging to the recipient Governments and sometimes frustrating to the funding governments and development partners. The lack of traction of reform initiatives has been a subject of many studies and different programs have been instituted to ensure higher value and tangible outcomes from the different reform initiatives. This paper seeks to identify some of the challenges that inhibit the delivery of positive outcomes and outline ways to improve the methods of reform delivery to ensure better results for the revenue administration and the recipient country.

Key Revenue Administration Reform Initiatives

The following are some of the reform programs that have been implemented as effective instruments to improve revenue generation for development.2 1. Formation of efficient integrated and

autonomous revenue administration agencies operating to maximize stakeholder value with a proper balance between the rights of taxpayers and the administrative powers of the agency;

2. Segmented approaches to service and compliance management;

3. Introduction of Self-Assessment;

“The success of reform programs depends to a greater extent on understanding that the

reform is for mutual benefit and so is a collective responsibility between the development partner

and the recipient country government and implementing agency.”

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1. Use of risk-based compliance management and enforcement strategies;

2. Implementing multiple channel taxpayer service and education programmemes;

3. Improved human resource and support functions, and IT based operational processes and payment systems;

4. Implementation of broad-based tax systems like Value Added Tax;

5. Accession to international conventions and cooperation agreements to promote exchange of information and trade facilitation;

6. Implementing anti-avoidance reforms like transfer pricing and Base Erosion and Profit Shifting (BEPS) action plans.

Reform Challenges for Developing Countries

1. Reforms cost money and take time to implement. A number of reforms are a result of years of research and investment in the country of initial implementation. They are based on impact assessment studies in the implementation environment which indicate the chances of success and risk mitigation required. Such studies are not usually done before implementation in the recipient country. Developing countries rely on limited funding from development partners. Revenue administrations are under pressure to focus on collecting revenue and less on the needed reforms. Where reform funding is secured administrations find it difficult to strike a balance between revenue collection and reform implementation, especially if the results of the reform take time to deliver.

2. The levels of literacy and development in most African countries are very low. Reforms take time and stakeholder and taxpayer education is required before implementation. The business community, with the necessary resources, have moved faster and engage in tax avoidance and planning initiatives that the revenue agency cannot detect or question.

3. Most revenue reforms are IT based and require infrastructure support which may be outside the scope or financial means of the revenue administration. The world has turned into a global village operating on electronic business platforms. Doing business no longer requires physical presence in a particular country. Issues of taxing at source and origin are becoming complex and confusing presenting major challenges to the revenue administration.

4. A number of revenue administrations in Africa battle to implement revenue policies that are in conflict with other economic policies and political aspirations of the Government of the day. Revenue reforms need to be supported by clear policy guidelines and a transparent operating fiscal environment.

1. See IMF West Africa Regional Technical Assistance

Center 2 (AFRITAC West 2) Programme Document July 2014.

Page 21.

2. Some reform recommendations are based on principles of

effective revenue administration outlined in the IMF “Tax Policy

and Administration – Topical Trust Fund” Programme Document

April 2011. Page 22

3. Extracted from a United Nations Environment Programme

(UNEP) discussion paper on “Ways to Increase Effectiveness of

Capacity Building for Sustainable Development” presented at

the Concurrent Sessions 18.1 The Marrakech Action Plan and

Follow-up 2006 IAIA Annual Conference, Stavanger, Norway.

UNEP 2006, page 4.

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5. A number of revenue administration operations are mainly paper-based and do not have reliable data sources required for compliance improvement reforms like risk management and taxpayer segmentation. The level of informal business and other shadow economic activity is high, making compliance management strategies difficult and results in an inequitable tax system.

6. Reform programmemes priorities are usually determined by donor countries with little input from revenue administrations on where financing is channelled. Donor agencies focus on what gives them positive results for home country benefit. Chances of reform methods and priorities between the donor and recipient countries matching are limited, reducing the level of traction.

7. Revenue administration systems and processes in a number of African countries are still underdeveloped because of weak organizations and management. (IMF 2011:p13). Management principles like strategic and operational planning; performance measurement and management; staff accountability and integrity management; project management and change management are taken for granted.

Recommendations

The following are some of the considerations that can help in delivering desired outcomes from revenue reforms:

1. Revenue reforms should be demand driven and based on what works for the recipient country. Reform priorities should be set collectively after a thorough needs and impact assessment that informs the setting of the reform goals and programmeme outcomes. The programmeme design should take the interests of the recipient country. A clear understanding and agreement on reform outcomes and deliverables with all interested parties ensures ownership and so faster implementation.

2. Reforms should aim to strengthen implementation capacity and reform management structures with analytical and decision making skills that support institutional change. Reform programmes should involve hands-on imparting of skills, learning by doing and other experiential learning and not just the short term training and workshops by developed country experts.

3. Revenue reforms should involve

stakeholders like other government institutions, tax practitioners and agents who work with taxpayers to improve voluntary compliance and reduce compliance costs. Reform programmemes should determine and address necessary capacity needs from national institutions and target other supportive stakeholder groups, government agencies, researchers, civil society groups and service providers.

4. Development partners should try to use local expertise where available and peer support from other developing countries that have successfully implemented desired reforms. The reform implementing environments are different in terms of technology and infrastructure development, culture, management capacity, literacy and social development. Experts from developed countries may not be able to adapt the recommended methods to local conditions within the limited implementation time. Experts from the region or developing countries where reforms have been successfully implemented may find it easier to relate to local conditions and provide an environment for peer-to-peer learning. It may also be cheaper to use local tax or customs practitioners or private companies who have invested in the desired reforms. Better results can also be derived from partnering with local institutions like colleges and universities which can be funded to give the needed reform support. Results can be achieved at lower costs by developing a small group of reform champions within the revenue agency as trainers and change agents and giving them the needed knowledge and skills with the requisite structures to deliver reforms.

5. The donor community should be willing to support infrastructure development for the reform implementation. Some donors limit their assistance to giving technical assistance or training and do not have budgets for infrastructure.

6. Development partners should provide support and coordination of reform programmes to avoid duplication. A coordinated approach ensures that all necessary reform areas are supported to deliver the desired outcomes. Those with infrastructure support can put resources to the appropriate areas at the right time.

African countries need to implement the reforms that help them to be more efficient and to generate much needed revenue for government. Most African revenue administrations are keen to implement recommended reforms with the expectation of improved revenue collections, but a number find themselves disappointed with the results. In some countries where donors and other development partners have committed to support revenue reforms, there has been an apparent donor fatigue and frustration as the outcomes have not been delivered as expected. Governments which have enthusiastically gone out to negotiate support get impatient with the administration when the results do not show.

The success of reform programmes depends to a greater extent on understanding that the reform is for mutual benefit and so is a collective responsibility between the development partner and the recipient country government and implementing agency. While the development partner provides the funding and technical expertise, the Government has the responsibility to design policies that support the implementation of the proposed reform. The implementing agency should be able to provide the human resources, be aware of and participate in the defining of the desired outcomes they should implement. Revenue reforms should be worthwhile for all interested parties and the ultimate goal of reform programmes should be to sustain a process of individual and organizational change and to enable organizations, groups and individuals to achieve their goals.3

42 TAXTALK

On 16 March 2015, the Commissioner of SARS listed arrangements which, in terms of section 35(2) of the Tax Administration Act, are deemed

to be reportable. This list comprises an addition to section 35(1) of the Tax Administration Act.

Failure to report arrangements that are deemed to be reportable generally leads to penalties of a minimum of R50 000 per month for up to 12 months. Unfortunately, the new list gazetted in terms of section 35(2) contains numerous areas of uncertainty which may lead to the imposition of the penalties in circumstances where the arrangements are not reported.

Although the list is now ‘live’, no guidance has to date been forthcoming from SARS. This is unacceptable and guidance as to how SARS will interpret the list should be made available as soon as possible. Due to the severity of the penalties for non-compliance, this guidance should preferably take the form of a Binding General Ruling.

In this article I share some observations on the new arrangements that are deemed to be reportable in terms of the recently published list.

Background

Reportable arrangements must be reported by every ‘participant’ (as defined below) within 45 business days from the date on which it qualifies as a reportable arrangement, or within 45 business days of becoming a participant. This is unless the participant obtains a written statement from any other participant that the other party has disclosed the arrangement.

A ‘participant’ is defined as either a promoter, or a person who directly or indirectly will derive, or assumes that it will derive, a ‘tax benefit’ or ‘financial benefit’ by virtue of an arrangement. A ‘promoter’ means a person who is principally responsible for organising, designing, selling, financing or managing that arrangement. The term ‘tax benefit’ is widely defined to mean the avoidance, postponement, reduction or evasion of a liability for tax and the term ‘financial benefit’ is rather narrowly defined to mean a reduction in the cost of finance including interest, finance charges, costs, fees and discounts on a redemption amount.

It would appear that if no person is principally responsible for organising, designing, selling, financing or managing an arrangement and if no ‘tax benefit’ or ‘financial benefit’ (as defined)

SARS Gazettes new list of Deemed Reportable Arrangemements TA

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DAVID WARNEKE, BDO

Observations on the new arrangements that are deemed to be reportable in terms of the recently published list.

is derived by any person from the arrangement, then it does not have to be reported.

The new list

The new list replaces a list that was gazetted on 28 December 2012 and which contained only two categories of arrangements that were deemed to be reportable, namely:• Instruments that would have qualified as

‘hybrid equity instruments’ in terms of section 8E of the Income Tax Act if the prescribed period had been 10 years; and

• Instruments that would have qualified as ‘hybrid debt instruments’ in terms of section 8F of the Income Tax Act if the prescribed period had been 10 years – other than debt instruments listed on the JSE.

The 2012 list essentially replaced section 80M(2)(a) and (b) of the Income Tax Act due to the coming into effect of the Tax Administration Act. The wording of section 80M(2)(a) and (b) was substantially the same as that contained in the list above.

The above categories are included verbatim in the list of 16th March 2015, and in addition various other categories are added which are

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TAA

discussed below. Regarding the second category relating to ‘hybrid debt instruments’, section 8F no longer contains a 3 year prescribed period as it did when the previous list was issued. It may therefore be argued that this category only applies to instruments that were issued under the previous version of section 8F, in other words prior to 1 April 2014. Likewise, with effect from 1 April 2012, section 8E contains a category of ‘hybrid equity instrument’ which does not refer to a time limit. On a similar basis it may be argued that this category of ‘hybrid equity instrument’ need not be reported under the above category of ‘reportable arrangement’. It is also somewhat strange that there is no category specifically covering section 8EA ‘third party backed shares’ which, from a policy perspective, are also viewed as a type of hybrid instrument.

The new categories of ‘reportable arrangement’ in terms of the list of 16th March 2015 are as follows:

“Any arrangement in terms of which a company buys back shares on or after the date of publication of [the] notice from one or more shareholders for an aggregate amount exceeding R10 million; andthat company issued or is required to issue any shares within 12 months of entering into the arrangement or of the date of any buy-back in terms of that arrangement.”

Points to note:• The same company must buy back and issue the shares.• The order in which the buy-back and share issue occurs is

irrelevant. In other words, the share issue may occur prior to the share buy-back, except that the trigger is that the buy-back must occur ‘on or after the date of publication of the Notice’ in other words, 16 March 2015.

• The share buy-back must be connected to the share issue in the sense of constituting ‘an arrangement’. So if a buy-back occurs on or after the date of publication of the notice preceded or followed by the issue of shares within 12 months of the buy-back, there will be no ‘arrangement’ unless the buy-back and the share issue constitute an ‘arrangement’.

• In order to be reportable, the total amount for the buy-back must exceed R10 million in aggregate whereas the number or value of shares issued is irrelevant.

• Presumably the redemption of a redeemable share would not be regarded as a buy-back for purposes of this category.

• This category has retrospective effects in the sense that a share issue may have occurred prior to the date of publication of the Notice with a connected buy-back occurring on or after the date of publication of the Notice.

The second category is:

“An arrangement in terms of which-(a) a person that is a resident makes any contribution or payment on or after the date of publication of [the] Notice to a trust that is not a resident and has or acquires a beneficial interest in that trust; and(b) the amount of all contributions or payments, whether made before or after the date of publication of [the] notice, or the value of that interest exceeds or is reasonably expected to exceed R10 million, excluding any contributions or payments made to or beneficial interest acquired in any –(i) portfolio comprised in any investment scheme contemplated in paragraph (e)(ii) of the definition of ‘company’ in section 1(1) of the Income Tax Act, 1962; or(ii) foreign investment entity as defined in section 1(1) of the Income Tax Act, 1962.”

Points to note:• Presumably the term ‘beneficial interest’ is intended to include a

“The term ‘tax benefit’ is widely defined to mean

the avoidance, postponement,

reduction or evasion of a liability for

tax and the term ‘financial benefit’ is rather narrowly

defined to mean a reduction in the cost of finance, including

interest, finance charges, costs,

fees and discounts on a redemption

amount.”

44 TAXTALK

• discretionary interest which has been held to be a mere ‘spes’ or expectation that may never be realised as well as a vested interest in the assets or income of the non-resident trust.

• From the fact that item (a) can refer to situations where a person already has a beneficial interest in the foreign trust and makes a contribution or payment on or after the date of publication of the notice it can be deduced that the acquisition of the beneficial interest need not be a quid pro quo for the contribution or payment.

• The trigger is the contribution or payment of any amount on or after the date of publication of the notice if combined with the total contributions or payments made (whether prior to or after the date of publication of the notice) the R10 million threshold is exceeded.

• Presumably the value of a purely discretionary interest in a foreign trust could be argued to be Rnil.

• On a strict reading, if the value of the contributions, payments or of the beneficial interest is likely to exceed R10 million at any point in the future then the arrangement is reportable. This is unacceptably broad in principle. Furthermore, the R10 million is a gross figure and not the present value of the contributions, payment or value of the beneficial interest.

• Presumably the contributions or payments all need to be made by the person who has or who acquires the beneficial interest. In other words the arrangement would not be reportable where say A has a beneficial interest in the foreign trust and makes a payment of R2 million on or after the date of publication of the notice with other residents having made contributions exceeding R8 million. However if this is correct then it is possible to circumvent the reporting requirement by having a wife make the payments or contributions with the husband and children as the only discretionary beneficiaries.

• The term ‘payment’ in terms of its ordinary meaning would appear to include the advancing of funds in return for a loan in a discretionary foreign trust.

The third category is:

‘Any arrangement in terms of which one or more persons acquire the controlling interest in a company on or after the date of publication of this notice, including by means of acquiring shares, voting rights or a combination of both, that –(a)(i) has carried forward or reasonably expects to carry forward a balance of assessed loss exceeding R50 million from the year of assessment preceding the year of assessment in which the controlling interest is acquired; or(ii) has or reasonably expects to have an assessed loss exceeding R50 million in respect of the year of assessment during which the controlling interest is acquired; or(b) directly or indirectly holds a controlling interest in a company referred to in paragraph (a).’

Points to note:

• The term ‘controlling interest’ is not defined, but presumably it envisages a threshold of more than 50 percent rather than 70 percent as in the concepts ‘controlled group company’ and ‘controlling group company’. It would appear that, especially because a ‘combination of both’ shares and voting rights is specifically referred to in addition to ‘shares’ and ‘voting rights’ in the description of how a controlling interest may be acquired the term ‘including’ is to be interpreted in an exhaustive manner – in other words that a change of control must, in order to qualify as a reportable arrangement, be brought about by the acquisition of shares, voting rights or a combination of both. This limits the concept of ‘control’ compared with that in, for example, IFRS 10 where control may be established through complex rights, for example as embedded in contractual arrangements.

• Although the parties acquiring the controlling interest do not have to be ‘connected persons’ in relation to each other, they would have to be acting in concert for the acquisition to constitute an ‘arrangement’.

• The ‘reasonable expectation’ requirement with regard to the assessed loss of R50 million means from a practical perspective that tax forecasts should be carried out where the direct or indirect acquisition of a controlling interest in a company is contemplated. If it is concluded that the arrangement is not reportable then this evidence should be retained in case of dispute with SARS.

• It is submitted that the ‘reasonable expectation’ of the assessed loss exceeding R50 million must be determined at the date on which the controlling interests are acquired. So if thereafter circumstances change and the company appears reasonably likely to have an assessed loss exceeding R50 million in the year of acquisition of the controlling interest, the arrangement does not subsequently become reportable within 45 business days from the date on which it appears that the company will have an assessed loss exceeding R50 million.

• In a group context, the indirect acquisition of a controlling interest in subsidiaries with an assessed loss in excess of the R50 million threshold can give rise to the reporting obligation. However, if for example A acquires a 60 percent equity shareholding in B which in turn holds a 60 percent shareholding in C (which has an assessed loss in excess of R50 million), then it is submitted that A does not hold a controlling interest in C.

• It is submitted that a ‘controlling interest’ would not be established where a party acquires in excess of 50 percent of non-participating, non-voting shares.

The fourth and final category is:

“Any arrangement between a person that is a resident and a person that qualifies as an insurer in terms of any law of any country other than the Republic (hereinafter referred to as the foreign insurer) in terms of which –(a) An aggregate amount that exceeds or is reasonably expected to exceed R5 million has been paid or becomes payable by the resident to the foreign insurer; and(b) Any amount payable on or after the date of publication of this notice, in cash or otherwise, to any beneficiary in terms of that arrangement is to be determined mainly by reference to the value of particular assets or categories of assets that are held by or on behalf of the foreign insurer or by another person for purposes of the arrangement”.

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Points to note:

• It would appear that this category is aimed primarily at premiums paid to captive insurance vehicles.

• Although the category is clearly aimed at premiums paid to non-resident insurers, the wording is open to the (presumably) unintendedly broad interpretation that even premiums paid to resident insurers who qualify as an insurer in terms of any foreign law would be subject to the reporting requirement.

• Payments exceeding R5 million may have been paid prior to the date of publication of the Notice: the trigger is however if amounts payable to any beneficiary on or after the date of the Notice are to be determined mainly by reference to the value of particular assets or categories of assets. The category therefore has retrospective effect in this sense.

• It is assumed that the term ‘beneficiary’ refers to a person who is a beneficiary in the context of a pay-out under a policy regardless of whether the beneficiary is also a shareholder in the captive.

• If amounts payable in terms of a policy are not determined with reference to the value of assets or categories of assets, for example if the amounts are determined solely with reference to a formula that does not refer to the value of underlying assets, the arrangement would not be reportable.

• The use of the term ‘mainly’, presumably indicating more than 50 percent, implies that an amount payable may be determined partly by reference to the value of particular assets or categories of assets held by or on behalf of the foreign insurer without resulting in the arrangement becoming reportable. However, uncertainty may arise if amounts payable are determined with reference to a formula that partly refers to the value of underlying assets.

The Notice also excludes certain arrangements under section 36(4) of the Tax Administration Act. The exclusion applies to any arrangement referred to in section 35(1) of the Tax Administration Act if the aggregate tax benefit which is or may be derived from the arrangement by all participants to the arrangement does not exceed R5 million.

Points to note:

• The aggregate tax benefit as derived by all participants must not exceed R5 million for the arrangement not to be reportable.

• The R5 million is a gross figure and not the present value of the aggregate tax benefit.

• The exclusion only covers section 35(1) arrangements, in other words not the categories in the Notice as described above as the Notice is published in terms of section 35(2) of the Tax Administration Act and not section 35(1).

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TAA

Tax Administration:

Some Challenges Facing South African Taxpayers

ALAN LEWIS, ACBS

Alan Lewis identifies some of the challenges that the taxpaying community in general, and small to medium sized enterprises in particular, may face in their interactions with SARS.

There are many challenges that face the business community today. In addition to a difficult trading environment, which has been brought about by the global financial condition, business owners face stiff competition from Internet marketing initiatives, and international competitors who may have established new markets in our country. Our economy also faces unique challenges to its

expansion to become more competitive and to create opportunities for citizens.

Our fiscal legislation, continues to be amended on a regular basis and practitioners, and taxpayers alike, are forced to keep up to pace with legislation that may not always be easy to understand and which poses a very real challenge to taxpayers who do not have immediate access to suitably qualified advisers.

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“Where a taxpayer has failed to complete the

prescribed Notice of Objection, or failed to

specify the grounds of objection in detail, SARS

may notify the taxpayer that the objection is

invalid.”

Claiming payment of a VAT refund and interest on that refund

SARS will not simply pay a VAT refund out to you: you must claim payment in writing. Many taxpayers are unaware of their right to claim interest on a refund, which has been delayed. These refunds, and interest payments, can make a significant difference to the financial wellbeing of their businesses.

A taxpayer’s right to request copies of tax assessments

The Tax Administration Act grants a taxpayer the right to request SARS to produce a certified copy of the recorded particulars of each assessment, which SARS has issued on that taxpayer. Where SARS issues a demand for payment, of outstanding taxes, particularly amounts relating to historic assessments, the taxpayer can demand that SARS produces such a certified copy, to substantiate their claim for payment.

In the absence of that certified copy, it might be very difficult for SARS to prove that it has assessed the taxpayer, and demand payment of allegedly outstanding taxes.

The following aspects of tax administration appear to cause particular problems for taxpayers:

1. Responding to SARS’ requests for the verification of the taxpayer’s VAT returns;

2. Objecting to assessments;3. Claiming payment of interest on tax refunds;4. Claiming payment of a VAT refund;5. A taxpayer’s right to request copies of an assessment.

Responding to SARS’ requests for the verification of the taxpayer’s VAT returns

While SARS is legally entitled to verify the content of your VAT return, their communication in this regard may be very confusing. Many taxpayers have apparently failed to reply appropriately to these communications with rather painful results.

It is vitally important to respond timeously to the notification of verification of a particular VAT return. If you are required to submit documentation, make sure that it has been delivered to SARS, and that you have not simply stored it on e-filing.

Objecting to assessments

This is one area where taxpayers appear to be dropping the ball. They consistently make two mistakes: they fail to set out the grounds of their objection, and they also ignore the prescribed time periods in which they are supposed to take the various steps, such as delivery of the objection. The rules which govern these matters are clear: firstly, an objection must set out the grounds of that objection in detail. Yes, in detail. This means that the Notice of Objection must be completed in full; it must specify the amount or part of the assessment, to which it is directed, and the grounds of objection, which the taxpayer disputes, and it must identify the documents, on which the objection is based, which are not yet in SARS possession.

Secondly, in the absence of an application for an extension, the same rules prescribe a period of 30 business days, in which to deliver your objection to SARS.

Where a taxpayer has failed to complete the prescribed Notice of Objection, or failed to specify the grounds of objection in detail, SARS may notify the taxpayer that the objection is invalid. At this stage, the aggrieved taxpayer has 2 choices: either deliver an amended objection within 20 business days of the date of the notice of invalidity, or approach the court for an order declaring that the objection is indeed valid.

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A Review of

Section 6quin

PIETER VAN DER ZWAN, NWU

Pieter van der Zwan revisits the economic reasons for the introduction of section 6quin.

SSection 6quin was introduced in the 2011 Taxation Laws Amendment Act as a measure to enable entities to provide services into Africa so that they were commercially viable. With the section

having been in effect for more than 3 years now, it was indicated in the recent 2015 Budget Review that the concession contained in section 6quin would be withdrawn due to the significant compliance burden that it places on SARS and taxpayers, as well as the fact that it seems to be being exploited by some taxpayers.

This article provides a review of the reasons for introduction of section 6quin and the effect of the subsequent proposed withdrawal of this section. It also suggests an alternative that may address the void that would be left if the section is withdrawn, due to alleged exploitation thereof.

Reason for introduction of section 6quin

Reason for the introduction of section 6quinSection 6quat allows South African taxpayers to claim a rebate for foreign tax paid against normal tax payable in South Africa. However, in order to be entitled to the rebate, the income in respect of which the foreign tax was imposed must have accrued or been received from a source outside of South Africa. This requirement is premised on the fact that the

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“This double tax effect of the African withholding tax together with the normal South African income tax left South African service providers in a position where the commercial viability of providing such services to African customers was threatened due to the high tax burden, which significantly reduced margins earned from the services.”

source country would have the first right to tax profits arising in its state, while the resident country (in the case of foreign sourced income, South Africa) has a secondary right to tax the profit. In addition, section 6quat only allows a rebate where the foreign tax is proved to be payable to the government of the other country. As the rebate essentially reduces the South African tax base, this requirement ensures that the relief from double tax is only afforded to residents for valid foreign tax obligations. This means that the foreign tax must be payable in terms of the domestic tax law of the other country after application of the double tax treaty (if any), which may limit the right to impose the tax under the country’s domestic law.

In addition to the rebate, section 6quat also allows for a deduction for foreign taxes. Like the rebate, the deduction is only allowed in respect of taxes that are proved to be payable to foreign governments. The deduction applies where the rebate is not available – normally when the source of the income is not outside South Africa. The deduction is however much less favourable and effective in reducing the effect of double tax on income, as it reduces the taxpayer’s taxable income as opposed to tax payable on such taxable income.

In principle, double tax should not arise when income is earned from South African-sourced services, rendered by South African residents to customers abroad. This is because the country of residence of the taxpayer and source of the income is the same. Therefore, section 6quat does not have to address such transactions. Most double tax agreements would not allocate a taxing right to the country where the foreign customer is located if

the source of the income is in South Africa. However, the tax legislations of many African countries contain rules that treat or deem the source of the income to be in that country based on the fact that the payer is a tax resident of the country. The income sourced in that country is then subject to tax there, often to be withheld at the time of payment.

Given the lack of presence in that country, no permanent establishment is likely to exist, which in turn means that the foreign country should, in most cases, not have the right to tax such income if a treaty has been concluded. In practice it is however extremely difficult, if not impossible, to recover this tax withheld at the time of payment. As the income is sourced in South Africa and the foreign tax cannot be proved to be payable, no section 6quat rebate is available. Also, the deduction under section 6quat is also not available in this instance.

This leaves the South African resident service provider in a position where it has to bear the burden of both the South African as well as the customer’s country tax.

Services that would typically become problematic when trying to apply section 6quat are those where the bulk of the work is done from South Africa, while the final product is closely connected to the customers operations abroad. In many instances, the reason for performing the work from South Africa would be that the expertise needs to be centralised at a location to work on the project. This could be for purposes of knowledge sharing or prevention of duplication of functions. South Africa would be that centralised location. In other instances, the reason could just be that it is more cost effective to work from South Africa where the employees normally reside than to pay recurring travel and accomodation costs to perform the same work abroad.

This double tax effect of the African country withholding tax, together with the normal South African income tax, left South African service providers in a position where the commercial viability of providing such services to African customers was threatened due to the high tax burden. This significantly reduced margins earned from the services. The National Treasury indicated in the Explanatory Memorandum that accompanied the 2011 amendments that: “While the South African position is theoretically correct, the practical implication of this position is adverse to South Afric’s objective of becoming a regional financial centre. As long as this theoretically correct position is maintained, the only viable solution for regional operations is to shift their management location to a low-taxed or no taxed location so as to avoid double taxation”. This statement recognises the importance of being able to apply

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infrastructure. It was not indicated in the 2015 Budget Review what the nature of the exploitation of the section is, but it is submitted that the scenario described may be such where the section applies to transactions outside its initially intended scope.

Should section 6quin be withdrawn, it is submitted that South African service providers will again be under similar pressure as before its introduction. The tendency by African tax authorities to require significant taxes to be withheld on payments made to foreign services providers has not necessarily changed since 2012. This may force South African service provider in the long-run to set up their operating bases outside of South Africa, either in the customer country itself (and in this manner ensure it is taxed on profits only), or alternatively in a low-tax country as suggested by the National Treasury in order to be able to continue to do business and share in the growth of African economies. If the base for providing the services is moved, there is no guarantee that the funds generated will necessarily be repatriated into the South African economy. It is submitted that such a shift of activities, together with the funds generated from these activites out of South Africa, is not ideal and should not be allowed to take place at the expense of the opportunity to collect tax on this income in the short-term while the activities are still conducted from South Africa.

An alternative model to consider

It is submitted that as a starting point, the

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South African based expertise to contribute to, but also to share in the growth of, African economies in the form of fees extracted fromthese economies.

Effect of section 6quin and implications of the proposed withdrawal

Section 6quin provides a concession that aleviates some of the tax pressure caused by the withholding tax imposed in the country where the customer is situated. The section allows a rebate for foreign tax, imposed in respect of South African sourced service income earned for services rendered within South Africa. It is important to note that the nature of services to which the section applies is not limited, even though the Explanatory Memorandum specifically referred to a concession in respect of management fees. The availability of the rebate depends on whether South Africa has concluded a double tax agreement with the other country and the manner in which the tax is paid. This rebate is limited on an income-stream by income-stream basis to South African tax on the profits from such services. Even though this concession cannot provide relief from the fact that withholding taxes are imposed on income on a gross basis without any deduction, the adverse impact of such taxes is reduced by the fact that a further tax burden is not added to it.

An example of services that would typically benefit from the concession in section 6quin are consulting services related to a customer’s business or operations abroad that are rendered - at least partially - on a remote basis from South Africa or where the routine or behind the scenes work is performed in South Africa. These services include engineering services; architectural and design services; system and process development as well as in some instances management and advisory services. As the work is physcially being performed in South Africa, the source of the income would be South Africa in terms of case law such as CIR v Epstein. This would be the case notwithstanding the fact that the services are perhaps only performed in South Africa purely as a matter of convenience rather than anything else (as illustrated in the cases of ITC 134 and CIR v Nell).

Arguably, given the wide scope of the section 6quin, it would however also allow rebates for foreign taxes withheld on payments by foreign customers in respect of services that do not necessarily directly relate to operations or business in the country of the customer, such as manufacturing or procurement activities that are outsourced to be performed in South Africa. These type of services may be closely connected to South African operations and

South African Government and the National Treasury need to identify the types of service activities that are of strategic importance and at risk of being shifted out of the country in the long-run if no assistance is provided. This may be activities where the nexus of the service is not so closely related to South Africa that it is critical that the service must be performed from South Africa. Put differently, the services are conveniently performed from South Africa but it is not critical to the outcome that South Africa is the base for performing such service. The services are “mobile” in the sense that it can be performed from South Africa or any other different location, whichever is more economically viable. The utilisation of South Africa as a base to render such mobile services from would be strategically important as these type of services attract skilled persons to the country and ensure that the funds generated by the services flow into the South African economy. For purposes of the remainder of this article, these services are referred to as ‘strategically important mobile services’. Such mobile services can be contrasted to services that make use of the South African infrastructure, for example: transport or manufacturing, and cannot be performed elsewhere. This exercise of identifying which type of service fees should be protected from double tax may already have been done, at least partially, when the decision was taken to introduce section 6quin into the Income Tax Act.

An alternative model to assist persons that provide strategically important mobility, of which the scope and application may be

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easier to control, is based on and derived from the current provisions of the South Africa/Botswana double tax treaty relating to technical fees. Article 20(5) of this treaty deems technical fees to arise in the state where the payer is a resident. The term ‘technical fees’ is defined in the treaty to refer to administrative, technical, managerial or consultancy services. Importantly, this concession of the source of income to the payer’s state of residence is limited only the technical services as defined. It is submitted in many instances, the real connection of these types of services to South Africa, other than the fact that the service provider is currently conveniently located in South Africa, is likely to be limited. This deemed source rule in the treaty results in these types of services being performed in South Africa for clients in Botswana to qualify for the rebate in section 6quat as the income now becomes foreign sourced. This reduces or eliminates the burden of double taxation.

It is submitted that by identifying strategically important mobile services, carefully defining the source of these identified services to be outside of South Africa in a manner that is narrow enough to avoid exploitation and thereby ensuring that it is possible to reduce the effect of double taxation using the section 6quat rebate, it may be possible to provide relief similar to that currently provided in section 6quin for these identified services. The advantages of the suggested approach would be that, firstly, the scope of the concession can be well-defined to limit the concession to strategically important mobile services and, secondly, that there will only be a single

rebate provision to administer as opposed to the burdensome 60-day FTW01 declaration system followed under section 6quin.This approach may however not resolve the matter of foreign tax that must be proved to be payable in order to qualify for the section 6quat rebate as many of South Africa’s treaties do not make provision for specific type of business income, such as technical fees. As a result, foreign tax imposed in respect of business profits or income where the South African entity does not have a permanent establishment in the customer’s country will still be imposed contrary to the treaty provisions. A further exception to define the taxes in respect of such strategically important mobile service fees for which the section 6quat rebate is available is likely to be required.

Concluding thoughts

This article revisited the economic reasons for the introduction of section 6quin into the Income Tax Act. It is submitted that the reasons why section 6quin was introduced in 2012 still exist and may in the long-run force providers of services to relocate certain activities to a different base if the aggregate tax burden between South Africa and the source country becomes, and remains, unbearable. This would be a particular threat where the connection of the service to South Africa as a base from which to render the service from is not critical. A suggestion, as advanced as the reason for the proposed withdrawal by the National Treasury in the 2015 Budget Review, is made. The suggestion to resolve some of the concerns of alleged exploitation of section

6quin also highlights some of the challenges that are likely to arise in drafting such an alternative. In conclusion, the discussion shows the importance of identifying certain strategically important activities for which South Africa needs to be an attractive base to render such services from. As the overall economic benefit, besides collecting tax on the income, of such activities for South Africa should outweigh the tax revenue generated by it in the short-run, a more narrowly defined tax concession could contribute in making it possible for these activities to remain based in South Africa for the benefit of the greater South African economy in the long-run.

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Does SARS’ information gathering powers trump prescription?

Roula Hadjipaschalis looks at the extent to which SARS can issue requests for further information.

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ROULA HADJIPASCHALIS, KPMG

“Taxpayers should be mindful that even though SARS’s powers

are considerable in terms of the TAA, the information gathering

provisions are themselves quite specific and limited in their

application.”

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With high fiscal deficits worldwide, tax authorities worldwide are on the hunt for revenue. It is no different in South Africa, where a number

of taxpayers have recently been surprised by the South African Revenue Services issuing letters indicating their intention to audit years that the taxpayers considered as having been prescribed, as more than three years had passed since the date of the original assessment having expired. Many of these taxpayers have also, within the three year period, been subject to information requests and audits by SARS.

Even though Section 99 of the Tax Administration Act of 2011 (“TAA”) has effectively replaced Section 79 of the Income Tax Act, 1962 (the Income Tax Act) to the extent that taxpayers are being queried for years assessed prior to 1 October 2012 (the date of promulgation of the TAA), it is submitted that SARS can only raise additional assessment in terms of the provisions of Section 79 of the Income Tax Act for those years.There are subtle but important differences between the provisions of Section 79 of the Income Tax Act and Section 99 of the TAA Act that could have a significant impact in the manner in which taxpayers respond to SARS on requests for information and upon being notified of audit for years that the taxpayers considered prescribed.

In terms of Section 79 of the Income Tax Act, an assessment prescribes three years after the date of the original assessment, unless the Commissioner is satisfied that there was fraud, misrepresentation of material facts or non-disclosure of material facts which resulted in SARS not assessing certain amounts (there must be a direct nexus between the non-disclosure, misrepresentation or fraud and the assessment1 ).

In the Natal Estates2 case the court held as follows in relation to the requirement that the Commissioner must be satisfied:

“Once it is recognised that there should be some evidence of the Secretary’s satisfaction, the taxpayer should be informed of it plainly and of the particular conduct of which he is satisfied, e.g. fraud, or material non-disclosure. The taxpayer should not have to grope inferentially for the Secretarial satisfaction, or the particular form of dereliction of duty to which it relates. In particular, he should not be left to infer from the mere receipt of an

1 SIR v Trow 1981 (4) SA 821 (A)2 1975 (4) SA 177 (A)

additional assessment, after the expiration of three years from the date of the original assessment, that the Secretary, after applying his mind to the matter, is satisfied that the taxpayer’s fraud or misrepresentation or material non-disclosure caused a non-assessment. For one thing, (and it was common cause in the appeal that the material non-disclosure could be innocent), the taxpayer is entitled to know whether fraudulent conduct – a grave and ugly imputation – is being held against him.”

It follows that if an additional assessment is issued by SARS under the provisions of Section 79 of the Income Tax Act, SARS has the onus of explaining to the taxpayer what evidence it is relying on to “be satisfied” that there has been non-disclosure of material facts, misrepresentation or fraud and there must be a nexus between the fraud, misrepresentation or non-disclosure and SARS’s failure to assess the tax.

Section 99 of the TAA does not require the Commissioner to be satisfied, it simply requires that, as a matter of fact, the requirements that would effectively nullify prescription have been met.

The omission, coupled with the information gathering powers of SARS under the TAA have created a very different landscape for taxpayers who claim prescription, even where SARS requests relevant information going back many years.

In terms of Section 46 of the TAA, SARS may require a taxpayer or another person to “submit relevant material, whether orally or in writing that SARS requires”.

The term “relevant material” is widely defined (in Section 1 of TAA) to mean “any information documents or thing that in the opinion of SARS is foreseeably relevant for the administration of a tax Act.

The term “administration of a tax Act” is also widely defined3 and it refers to a number of activities which include:

• To obtain full information in relation to anything that may affect a person’s tax liability (in respect of a previous, current or future tax period), a taxable event or a person’s obligation to comply with a tax Act4;

• To ascertain whether a person has filed or submitted correct returns, information or

3 In Section 1 of the TAA4 Paragraph (a) of section 3(2)

documents in compliance with a tax Act5; • To determine a person’s liability for tax6; • To investigate whether a tax offence

has been committed and, if so, to lay criminal charges and provide assistance reasonably required for the investigation and prosecution7;

Taxpayers should be mindful that even though SARS’s powers are considerable in terms of the TAA, the information gathering provisions are themselves quite specific and limited in their application. However, subject to acting within these limitations, SARS is entitled to request information/documentation in respect of prescribed years of assessment, which may have even been audited previously by SARS.

What about the taxpayer’s right to finality? In the Brummeria8 case the court held:

“…it is obviously in the public interest that the Commissioner should collect tax that is payable by a taxpayer. But it is also in the public interest that disputes should come to an end – interest reipublicae ut sit finis litium; and it would be unfair to an honest taxpayer if the Commissioner were to be allowed to continue to change the basis upon which the taxpayer were assessed until the Commissioner got it right – memories fade; witnesses become unavailable, documents are lost….”

It follows that a taxpayer may well resist SARS attempts to issue an additional assessment (both under Section 79 of the Income Tax Act and Section 99 of the TAA) where he is “honest”. This would be the case where the taxpayer:

1. Has made full disclosure of material facts at the date of the original assessment;

2. Has not misrepresented any material fact;3. Has not been fraudulent.

In the new era of the TAA, it becomes imperative that taxpayers implement a tax management policy which should incorporate a tax documentation governance regime, and rigorous tax compliance processes (which includes the all important completion of the tax return). Full and honest disclosure in the tax return is the only defence taxpayers have in resisting an attempt by SARS to issue additional assessments after the prescription period of three years from the date of the original assessment. Failing to do so can have serious financial and commercial implications for taxpayers.

5 Paragraph (b) of section 3(2)6 Paragraph (d) of section 3(2)7 Paragraph (f) of section 3(2).8 2007 (6) SA 601 SCA

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Considering the VAT effect of dividends

Although seemingly simple, the VAT effect of dividends can be complicated, especially when making distributions of dividends in specie.

Herman Viviers, North-West University

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Considering the VAT consequences for a VAT vendor who declares dividends to its shareholders, may at first appear to be simple. However, the VAT treatment seems to become more complex as soon as one tries to justify it in terms of the provisions contained within the Value-Added

Tax Act (89 of 1991) (“VAT Act”). The purpose of this article is to take a closer look at the VAT consequences where a VAT vendor declares div-idends (either in cash or in specie) to the beneficial owners of its shares and to justify it in terms of the provisions of the VAT Act.

In general, section 7(1)(a) of the VAT Act determines that output VAT should be levied where a vendor makes a supply of goods or services in the course or furtherance of its enterprise. The terms “supply”, “goods” and “services” referred to within section 7(1)(a) are all defined in section 1 of the VAT Act. It is therefore clear that where there is no “supply” of “goods” or “services”, no VAT output needs to be accounted for. How-ever, section 7(1)(a) is not the only provision in the VAT Act that requires output VAT to be levied. With the distribution of a dividend in specie it needs to be considered whether a possible change in use adjustment in terms of section 18(1) of the VAT Act is required. It also needs to be considered how the VAT treatment will be affected, if at all, where the holder of shares receiving the dividend in specie is a connected person in relation to the vendor who declares it.

Dividends in cash

A “supply” is defined in section 1 of the VAT Act and includes “...all forms of supply, whether voluntary, compulsory or by operation of law...”. Thus, a vendor’s decision to declare a cash dividend to its shareholders will qualify as a supply and will in effect constitute the supply of money. Due to the fact that “money” is specifically excluded from both the definitions of “goods” and “services” as defined in section 1 of the VAT Act, no VAT effect will arise on the distribution of a cash dividend as there is neither a supply of goods nor services.

Dividends in specie

A dividend in specie generally constitutes a distribution made to the beneficial owner of a share in any form other than in cash (such as the distribution of trading stock or a capital asset). It therefore seems as if section 7(1)(a) could now take effect as it is no longer “money” which is distributed. It still needs to be determined whether the distribution of a dividend in specie does in fact constitute the supply of “goods” or “ser-vices” for VAT purposes. Neither the definitions of “goods” or “services”, as contained within section 1 of the VAT Act, deals with or make specific reference to “dividends”. This matter was resolved through Decision 329 (taken by the Commissioner of Inland Revenue, 20 September 1991) where it was indicated that dividends in specie should be treated as the “supply of goods” for VAT purposes.

However, section 7(1)(a) of the VAT Act also requires that the supply of the goods should be in the course of or furtherance of the vendor’s “enterprise”. One of the requirements to qualify as an “enterprise”, as stipulated in paragraph (a) of the definition in section 1 of the VAT Act, is that the “...goods or services are supplied...for a consideration...”. In the case of the supply of a dividend in specie, no consideration is received by the declaring vendor from the holder of shares. Therefore, it seems as if section 10(23) of the VAT Act will apply which determines that: “...where any supply is made for no consideration the value of the supply will be deemed to be nil.” As a result, it seems as if no output VAT will be levied on the declaration of a dividend in specie as the value of the supply will be zero.

It is however questionable whether this position is correct as Interpreta-tion Note: No. 70 (dated 14 March 2013) specifically dealing with “Sup-plies made for no consideration” is silent on, and makes no reference to, the VAT treatment of dividend in specie distributions. It is therefore submitted that the distribution of an asset as a dividend in specie could

also fall within the ambit of section 10(4) of the VAT Act where the parties involved are connected persons in relation to one another, or even within the scope of section 18(1) which could be applicable irrespective of whether the parties involved are connected or not. These two provisions are considered below:

Section 10(4)

Section 10(4) of the VAT Act determines that where a taxable supply is made between connected persons for no consideration (as in the case of a the distribution of an asset as a dividend in specie) and the recipient is not entitled to claim the full input VAT on such supply made to him (either because the recipient is not a VAT vendor or is a vendor, but does not amount to at least 95 per cent taxable supplies), the value of the con-sideration will be deemed to be the open market value of such supply. Thus, where a dividend in specie is distributed by a vendor to its holder of shares who is not a vendor for no consideration, no output VAT will be levied, unless the holder of shares is a connected person-in which case the open market value of the dividend in specie will be taxed.

Section 18(1)

Section 18(1) of the VAT Act requires an output adjustment to be made where goods were originally acquired for the purpose of the making of taxable supplies (and on which, as a result, input VAT was allowed at original acquisition) if they are subsequently applied by that vendor for a purpose other than for the said purpose. For example, where a vendor acquires an asset to be utilised in its enterprise for the making of taxable supplies and subsequently decides to distribute that asset as a dividend in specie to its holder of shares, it seems as if this would constitute a “change in use” and would require an output VAT adjustment in order to cancel out the input VAT allowed at the original acquisition. Section 10(7) of the VAT Act determines that where goods are deemed by section 18(1) to be supplied by a vendor, it will be deemed to be made for a consider-ation in money equal to the open market value of such supply. There-fore, output VAT would need to be levied by such a vendor distributing the asset in specie to its holder of shares on the open market value of such asset. This would be in contrast with the nil VAT effect under the supply at no consideration in terms of section 10(23) of the VAT Act as discussed above.

Therefore, irrespective of whether the parties are connected or not, there seems to be a mismatch in the VAT treatment as the distribution of an as-set as a dividend in specie seems to fall within the scope of both section 10(23) and section 18(1) (read with section 10(7)) of the VAT Act. Neither of these sections mutually excludes one another, nor does it specify the order in which it should be applied.

It is clear that the VAT effect of dividends is no simple matter. VAT ven-dors making distributions of dividends in specie should carefully consider the circumstances under which these distributions are made, as the incorrect interpretation could result in unforeseen VAT consequences.

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“A dividend in specie generally constitutes a distribution made to the beneficial owner of a share in any form other than in cash”

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THE R&D INCOME TAX INCENTIVE –Deepening Concerns andWidening CracksDarren Margo writes about the degeneration of the once-promising incentive that he says is now, regrettably, on its last legs.

DARREN MARGO, Margo Attorneys

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The Research and Development (R&D) income tax incentive has degenerated to the point where, for all practical purposes, it has transformed into a grant in which outcomes are randomised, and any reward delayed over several years. The advantage of the incentive, in its original form, was the

efficiency with which it operated – something that is absolutely essential for an incentive that is centred on tax. Presently, the incentive has ground to a halt for a number of reasons. Among these are the backlog of processing applications, which on average can be expected to be in the order of two-and-a-half to three years. The best practice note is more than three years outstanding, official forms remain as incomplete drafts, and no rules or procedural guidelines are in place, most notably regarding appeals and annual submissions. Perhaps most concerning are the (agonizingly few) decisions that have been issued by the authorities, which expose what appears to be a dire lack of expertise on technical, legal and taxation matters alike. This is not intended to insult the authorities, rather it is an objective observation of fact. The powers that be have promised to resolve these matters and to provide public feedback. Most recently, the Department of Science and Technology undertook to host a public feedback session in November 2014. At the time of drafting this article, no such session has yet materialised. Further, the rather caustic view that prevails in the health department towards the pharmaceutical and clinical research industry, seemingly, has spilled over into the Department of Science and Technology and SARS. Presently, all R&D tax incentive applications submitted from within this industry remain frozen in stasis. Under these circumstances, decisions that have been issued either to approve or decline applications are not always on well-supported grounds. No appeals process exists, and the authorities decline to provide guidelines or public feedback. This renders the process arbitrary and, quite possibly, likely to fall short of constitutional muster if tested. The disproportionate treatment of classes of taxpayers, undoubtedly, would fail to pass constitutional muster, too. What can be done

The legendary Prof DT Zeffert always taught that, if one is to complain, then one must also describe what remedy is sought. Space does not permit a detailed analysis here, but the following must be implemented immediately if the incentive is to be saved, assuming it is not lost already. Firstly, appropriately qualified people must be appointed immediately to adjudicate applications. People lacking any technical, legal or taxation background have no business adjudicating on the rights of unrepresented taxpayers. Secondly, the best practice guide, forms and detailed process must be published without any undue delay. A delay of three-and-a-half years is no “delay”. It is, more accurately, an unacceptable aberration. Finally, political will is needed for all aspects of the incentive, not political expediency, nor undue intervention. It may be that the authorities have no intention to remedy the situation, and would prefer to have it scrapped. That is another matter entirely. However, if this is the case then we would expect that the authorities waste no time in saying so, rather than continuing to build expectations over the condition of a patient that has, in fact, virtually expired. Editor’s note:The opinions expressed in this article are those of the author and do not reflect those of this publication.“It may be that the authorities have no

intention to remedy the situation, and would prefer to have it scrapped.”

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CASH IS KING AND VAT IS CASHVA

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If one would take a simple supply chain of say, a procurement entity, a manufacturing company and a sales company within a group, the amount of VAT flowing through that group is close to its consolidated turnover. A simplified calculation, let’s assume 20 percent VAT, prices at 50 (import), 60 (intercompany), 90 (intercompany) and 100 (ultimate sale) – the VAT in the supply chain is 10+10+12+12+18+18+20=100 on a turnover of 100. VAT to the amount of the turnover is flowing

through the books. Is the company managing these amounts, or do you simply trust the ERP system and AP/AR staff to ensure everything is captured as efficiently and effectively as possible?

In South Africa, taxpayers are dealing with one of the most sophisticated and well organised tax offices in the world, yet I have often found the attention to VAT to be reactive, looking at opportunities but not at the risk side. In my view this is a mistake, for most businesses VAT is a wash and thus does not hit any profit and loss account. However, with the important exception being financial services which is an industry that often does focus on VAT. VAT should be an integral part of any tax control framework, not only focussing on non-deductibility of fringe benefits but looking at the entire supply chain, zero rating, warranties, bad debts, pre-payment, vouchers, finance lease and whatever else forms part of the activities.

In most companies one can no longer rely on manual controls to manage these amounts of VAT. Too many invoices flow every day, the accounts receivable are typically automated and after order entry, the system is a black box that produces an invoice and triggers the transactions to be concluded. To complicate matters further, companies may be part of a global organisation and adhering to global standards, occasional transfer price adjustments, recharges and cost sharing amounts are added to the regular types of transactions in the system. Each of these have VAT consequences but are not triggered in the normal processes. Let’s take a transfer price adjustment for example.

FOLKERT GAARLANDT, EY

VAT is a key driver for business performance. Folkert Gaarland discusses VAT in the broader business and international context.

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Transfer price adjustments usually come after the year end and after the books are closed. Closing the books is a requirement to actually know if the envisaged targeted margin is achieved and complex or less complex calculations ensure that a certain amount needs to be shifted from abroad to South Africa or vice versa. Needless to say, these adjustments have the full attention of the authorities, BEPS is high on the agenda and transfer pricing is a key element in that discussion.

So now back to VAT (and a bit of customs). Why would this be relevant? If we only look at the name it actually means that one is changing historic ‘transfer prices’, so prices of previous transactions. Since VAT is levied on transaction prices, when those prices change, there is a VAT consequence. So let’s adjust every single invoice and VAT return filed in the year, possibly also all import declarations, effectively doubling up on all paperwork. The good news is that this is only intercompany.

The bad news is the enormous workload that is added, not only for the taxpayer, but SARS may also find this a cumbersome process.

There are, of course, alternatives, which will be covered in further detail during my discussion at the Indaba. Some of the questions that I also hope to address include: does a transfer price adjustment solely relate to a single product or to all transactions equally? Can it be seen as anything else than an adjustment of historic prices? What are the differences between upward and downward adjustments? Is there an impact on the customs value and possibly also on duties I over or underpaid?

To end with the beginning: “Cash is king and VAT is cash”. Statistics show a tremendous growth of indirect tax revenue globally, the shift from direct tax to indirect tax is coming or is already in place in many countries. VAT rates globally are on the rise and every year new countries implement new VAT systems

(for example India and Egypt this year, Malaysia last year, and China on a step by step basis). If for all these jurisdictions VAT means cash, we challenge you on the above questions, are you managing these amounts efficiently and effectively?

Folkert Gaarland at Tax Indaba 2015 Stream: VAT Date: 10 September, Day 4Time Slot: 16h15

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SHAUN DONOGHUE AND DOV PALUCH, Catalyst Solutions

A look at Section 11D of the Income Tax Act and the treatment of software development under the R&D incentive.

in Landmark Research

and Development Tax

Incentive Court Case

Opportunity Missed

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“One can’t help but wonder whether the software industry missed a crucial opportunity to challenge the exclusion by arguing who “management and internal business processes” applies to, rather than what it applies to – in other words, the functionality of the software.”

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In 2007, the South African Government introduced the Research and Development (“R&D”) Tax Incentive (“the Incentive”) in the Income Tax Act (“the Act”). The Incentive seeks to encourage business to perform R&D, with the hope that basic research, invention and discovery would lead to the development of

commercially viable technologies, which in turn stimulates private sector-led economic development.

The Incentive allows for a 150 percent “super deduction” on qualifying R&D expenditure meeting predefined criteria in Section 11D of the Act. The qualifying criteria were defined quite broadly in subsection 11D(1) and companies would self-assess and claim the deduction in their tax return. This has since changed to a pre-approval system as from October 2012.

The introduction of the Incentive (as well as the move to a pre-approval system) has not been without its growing pains. Formal guidance from SARS was only introduced in August 2009 in its Interpretation Note 50. While lacking the detail provided in other jurisdictions with similar incentives, this interpretation provided much needed clarity on the incentive. However, important subsections of 11D still required a more detailed interpretation. One such area was the definition of exclusions.

In addition to the qualifying criteria, section 11D also includes certain negative criteria that exclude specified activities from the Incentive. One particular exclusion specifically relates to the development of computer programs. SARS has been interpreting this definition extremely broadly resulting in the exclusion of the majority of software developments as R&D.

The need for clarity was evidenced in a recent court case (ABC (Pty) Ltd vs the Commissioner for SARS, 20 April 2015) where the following exclusion in Section 11D(5) was contested: “… no deduction shall be allowed … in respect of expenditure or costs relating to … management or internal business processes.”

The appellant, ABC (Pty) Ltd (“ABC”), reopened its 2010 year of assessment to claim the additional deduction relating to the development of software used in its normal course of business. Although SARS did not contest the fact that the expenditure did relate to qualifying R&D activities, the Incentive was disallowed based on the subsection 11D(5) exclusion above.

ABC argued that “management or internal business processes” as envisaged in the Act relates to expenditure incurred by ABC alone (in other words, the taxpayer) in relation to its “management or internal business processes”, and does not apply where the software was

developed for use by external parties. ABC argued that it is the nature of the expenditure that is excluded in subsection 11D(5) and not the capacity of the software. However, the court ruled that this interpretation was wrong, as:• The words “of the taxpayer”

have been specifically excluded from Section 11D(5) – meaning ABC could not conclude that this section only related to them (the relevant taxpayer).

• ABC’s interpretation of subsection 11D(5) would narrow its meaning to the extent that this section has little value in the act, which would not have been its original intended purpose.

The effect of this ruling is that “management or internal business processes” are not restricted to the taxpayer itself (in other words, ABC’s own management and internal expenses to develop the software), but apply directly to the nature of the computer program (in other words, whether the function of the software is developed to perform managerial tasks, or assist in internal business processes). The software, as a whole, would thus be disallowed based on subsection 11D(5).

The judge felt that the appellant’s interpretation would render the exclusion in subsection 11D(5) too narrow and therefore ineffective. In fact, SARS has been interpreting “management or internal business processes” so broadly as to apply to almost all computer programs, which renders the incentive offered on the development of computer programs ineffective. It remains extremely unclear what type of computer program would not fall within SARS’ definition of management or internal business processes.

One can’t help but wonder whether the software industry missed a crucial opportunity to challenge the exclusion by arguing who “management and internal business processes” applies to, rather than what it applies to – in other words, the functionality of the software. The term “management and internal

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business processes” in itself is not clear, with no precise definition offered in the SARS interpretation note.

As stated in the ruling itself, “The software enables its customers to comply with all the statutory requirements relating to the import and export of goods into the Republic as well as the requirements by the government agencies such as SARS Customs Division, the Ports Authority and the Airports Company of South Africa”. The very nature of the client’s software does not seem to facilitate management or internal business processes, but rather a business’ interaction with external laws and regulations.

As per SARS own interpretation note, “Software packages developed for administration, human resources or accounting purposes are similarly excluded from the tax-incentive scheme

as they constitute management or internal business processes”. Thus, a calculated appeal arguing that the developed software is not used for administration, accounting or internal business processes may have secured ABC the Incentive. At the very least, it would have provided some much needed judicial guidance on the qualifying criteria of section 11D.

The Incentive that is available for companies conducting R&D in developing computer programs has basically been rendered useless by SARS’ current interpretation of “management or internal business processes”. Although the legislation has now changed and the requirements of subsection 11D(5) relating to “management or internal business processes” have been relaxed to exclude software either for sale or granting the right of use to unconnected parties, we feel that a huge opportunity was missed to have the courts define what was actually meant by “management or internal business processes”.

This is the first case to make it to the tax court relating to section 11D, and surely it won’t be the last. Due to the ambiguous guidelines issued by SARS (and subsequently by the Department of Science and Technology in June 2014), it is expected that more such cases will ultimately be settled in court.

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XXX

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Speakers include:

Billy Joubert Deloitte

Christian Wiesener KPMG

Karen Miller Deloitte

JP Borman PwC

Cor Kraamwinkel PwC

Michiel Els Hogan Lovells

Roxanna Nyiri BDO

Lara Witte EY

Okkie Kellerman ENSafrica

Kayobyo Majogoro TP Specialist

Tanzania Revenue Authority

Nellie Jimu Commissioner Malawi

Revenue Authority

Ephraim Tembo Malawi Revenue Authority

Lee Corrick OECD

See through the complexity associated with Transfer Pricing in

Africa and overcome the challenges posed

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outcomes of each round table.(Restricted access)

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BUSINESSStep up your business communications, as we look at the best strategies to write an email well, and PR principals for small

businesses.

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An e-mail is far more complex than the actual written content. A badly worded, phrased or structured e-mail is an embarrassment that can leave an unwanted impression. E-mails are the backbone of today’s correspondence, and it’s important to harness the power of professional email

communication. Read on for basic email guidelines that will keep your future communications from being trashed prematurely.

• Even though written letters are now predominantly a thing of the past, the epistolary format should not be forgotten. While things like including the date and location have been done at your convenience thanks to contemporary e-mail servers, it goes without saying that a ‘Dear …’ and ‘Best Regards’ are always necessary in an e-mail. Keep it as formal and professional as possible. Proper identification is key to making a good impression. Chances are you are sending the e-mail with an outcome in mind, so keep your email as formal and to the point as is appropriate.

• Avoid the use of abbreviated words or internet jargon. If someone sent you a mail asking, “Wud u lyk to collabrte on sme nu bizniz opprtunitis”, chances are you would probably run for the hills. Even though clipped words and simple sentences are becoming acceptable on various social media platforms, there’s no room for them in formal business practice. Steer clear of coming off as juvenile and unprofessional. That being said, emoticons and emojis have been proven to operate as linguistic signs of endearment/ friendship/ confidence and can work well in establishing connection with close colleagues and clients, but be sure to only use them with whom you have developed a professional rapport.

• Keep your mails as short as possible. People check their e-mails in between other work and engagements, so you don’t want to buckle them down with a thesis. People are also less inclined to reply to a message that is too long to comprehensively digest. So stick to the point and say what needs saying.

• Pay attention to your subject line. Keep it relevant to the content and if the email is of an urgent nature, be sure to indicate this urgency. Mails without subjects are confusing to the eye when gazing at the inbox, so remember to choose a punchy subject line that reads like a message rather than a title, for example, “Plans

for Purchase” instead of “Mercury Hills Acquisition: The Detailed Report”.

• Proofread your e-mail. Carefully. This way you can trim any unnecessary information and check up on spelling and grammar.

• Consider convenience when attaching files, and use Dropbox or a similar programme for projects and temporary tasks that require a fair amount of file sharing.

• Be nice. We’ve all probably sent a mail that was worded a bit too strongly or laden with passive aggression, but the result is almost never what you wanted - snarky e-mails only serve to estrange relations even further. The golden rule is never to send an email when angry. Rather, schedule a time where you can consult with the other party and voice queries in a more respectable manner, either in person or over the phone.

• Respond to emails promptly. Many people schedule specific times of day to check mails and therefore it is generally assumed that emails are not read straight away. That being said, once you’ve opened an email that requires further action, it is best to follow up and respond sooner rather than later. Generally speaking, a day or two should be the longest you wait before replying.

• As Dale Carnegie said, “…a person’s name is, to that person, the sweetest and most important sound in any language,” so make a point of using the other party’s name at least once besides the introductory line as this establishes textual rapport and grabs their attention, even if only a little.

• The average office worker receives around 80 mails per day. If you know how that feels, and how difficult it is to keep up, a well-timed reminder of your e-mail could be received as a gesture of good faith. Don’t be belligerent when sending out reminders, but rather approach it from a place of mutual understanding, keeping the reminder light.

Following these simple guidelines will ensure that you are someone who is remembered as being a joy to communicate with and who is also perceived as caring and intelligent – values that are key to professional success.

Simple Strategies for BETTER E-MAILS

DANTE LUDDOLF, Writer

We cover the top tips for email etiquette to follow in your professional life.

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“The golden rule is never to send an email when

angry. Rather, schedule a time where you can consult with the other

party and voice queries in a more respectable

manner - either in person or over the phone.”

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The Principles of

Public Relations


Any small business needs to be adept at practising public relations. Following basic PR principles will help you develop a positive reputation for your company in the wider marketplace.

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“If you find yourself at the helm of a start-up or small business, rather opt for smaller, focussed communications. Use social media to appeal to a larger audience and build up a network of sorts.”

Public Relations (or PR) is essential to any business’ success. How else do you inform the general public (and your target markets) of your business and the services you are providing without a huge advertising budget? The chances of someone randomly stumbling onto your website and buying into what

you’re selling is slim at best. That being said, public relations can be daunting, and without the proper know-how, it can easily lead to embarrassment and misdirected energy.

PR is often one of the aspects of business that most small business owners think they can take on alone. A DIY approach seems to be the go-to for most small businesses.

Writing for technori.com, Rebekah Iliff describes PR as including.

“ a variety of activities, ranging from creating a specific strategy to positioning a brand in the marketplace; leveraging relationships with the media (media relations) to tell a brand’s story; facilitating opportunities for key spokespeople to participate on panels and attend various industry-related events; developing and executing social media plans; and nominating clients for awards. “

It is important to remember that PR operates as a linkage between a business and immediate markets. A PR Engine, as it is known, is meant to engage and open the channels for interaction and communication between companies and clients. Good PR is responsive to industry and public demands, and when PR is needed to resolve an issue, it’s usually best to avoid further damage or uproar. Learning from the mistakes of others is often a good way to go.

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In 2011, the US-based on-demand digital entertainment programme provider, Netflix, made a series of announcements and apologies followed by reversals that damaged its brand and reputation. In July of that year the company emailed its customers announcing that it was unbundling its video streaming and DVD service to create two separate packages. When it was revealed that this would increase prices for DVD customers (despite having been presented as an innovation to increase choice), CEO Reed Hastings said the following:

“I messed up. I owe everyone an explanation. Many members [feel] we lacked respect and humility…that was certainly not our intent.”

He went on to announce a new DVD service set to be called Qwikster, which was cancelled a month later. Commenting on the issue, the Huffington Post said that the event should certainly be a first entrant into the Bad Decision Hall of Fame. As a result of the back-and-forth around the saga, the company’s share price plummeted by 50 percent. With this example of bad PR in mind, good PR principles can be explored in contrast. It all starts with the press release. These media releases are all about what you are saying and how you are saying it. Keep your wording concise and informative.

Think about your audience and whether the information you are sharing is newsworthy. Try to avoid excessive communication. Clogging up someone’s feed or mailbox is only going to result in your emails being sent straight to spam. So allocate appropriately timed releases and concentrate your efforts where they would be most valued.

When writing press releases, create a hook that catches your audience’s attention and that leaves an impression. Study other press releases and formulate your own by applying the same structure and form. Gaining insight into other appropriate examples will also give you a feel for how these releases operate via the written word, and you’ll be drafting your own in no time. When you find yourself with a solid press release, use it as a memorandum of sorts to guide other marketing efforts. Think of it as the introduction to your essay, with the rest of the marketing or promotions agenda elaborating on the claims and statements made within. Others, like famed entrepreneur Ariana Huffington, think the press release to be dead, and that spurts of communication and marketing should be released at shorter intervals. Put both to the test and see what works for you.

However, press releases are only the tip of the PR iceberg: the bulk of the work lies in constant promotion and establishing a market presence.

If you find yourself at the helm of a start-up or small business, rather opt for smaller, focussed communications. Use social media to appeal to a larger audience and build up a network of sorts. Online communications also aid in casting a wider net with regards to fundraisers, product launches or brand awareness efforts.

This also trickles down to PR’s capacity for soft influence, which also ties in with the ‘buzz’ creation component. In the act of engaging and interacting with networks or potential clientele, you have the opportunity to create conversation and interest in your business or service. This is essentially what motivates the very existence of PR, and so all efforts should be centred around the idea of establishing connection and piquing interest. Whether it’s a press release or a string of blog posts, it needs to be effective and functional. Any public relations must be tied to business objectives, otherwise the whole exercise is redundant and irrelevant to your needs.

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TECH.This month we’re zoning in on the minds that fuel and feed the technological industry of today. These individuals stand at the apex of innovation and enterprise, and it’s undeniable that their influence and ingenuity has shaped all of our technological experiences in some way or another.

DANTE LUDOLF, Writer

TECH Elon Musk

Elon Musk is many things: the co-founder of Tesla; the chairman and CEO of Tesla and he’s homegrown. Hailing from Pretoria, Gauteng, Elon has succeeded in rising to the very highest rank that the technological industry can afford. His company, Tesla, has lead the efforts in electrical car manufacturing and development, and has since shifted focus to develop and produce Powerback and Powerwall electric generators. These generators use and store solar energy, and this energy can then be used to power up houses and facilities entirely free of power plant. To South Africa and other countries that experience vicious debilitating load shedding schedules, this invention provides an alternative that would change our situation drastically. However, the Powerback and Powerwall generators are still way beyond the average person’s financial grasp, so further development is being undergone to make the range more fiscally accessible.

Palmer Luckey

Luckey is a unique visionary among the list featured here, for his creation stemmed from something entirely innocent and non-proft orientated; he just wanted a full 20/20 gaming experience. The idea of fully immersing yourself into virtual reality has been a science fiction dream for years, but only now can we start to see it materialise in the real world. The Oculus Rift, Luckey’s creation, is a headset that catapults you right into the game you are playing. It is already being eyed for possible application in medicinal technology and engineering. It’s things like the Oculus Rift that shake both the technological and scientific world to its core. The Rift is still being improved and developed, but prototypes are already being showcased at various events, such as the EGE Gaming Expo that took place in Cape Town in May.

Sheryl Sandberg

Sheryl Sandberg, while not laying claim to the company itself, is the COO (Chief Operations Officer) of the world’s most comprehensive and populour social media networks, Facebook. Up until recently, Mark Zuckerberg has stolen most of the limelight regarding the company’s success and excellence. Thanks to her bestselling book, Lean In, and her gutsy and powerful leadership abilities, Sandberg has now assumed the foreground. Sandberg is a figure within the tech industry that demands to be heard and her achievements speak volumes for women’s roles in the shaping of the industry itself and the positions it affords. Plus, she’s a really cool person, as one can gleam from her TEDtalks, and her success and prestige seems well deserved.

Reed Hastings

Okay, so Hastings is not necessarily a tech pioneer, but his responsive commercial attitudes to the advent of the technological is a tale that illustrates how successful and rewarding a keen eye can prove to be. Hastings is the founder and CEO of Netflix, a film and series subscription that takes place entirely online, and enables viewers to access and watch anything they feel whenever they feel like it. In a time like ours, attention spans are short and schedules are more demanding than ever, and this is exactly what makes Netflix’s convenience and ease of access so remarkable. Hastings had been developing the Netflix concept and elaborating on it’s potential corporate presence for more than twelve years and the results are astounding. America and Great Britain, among others, have enjoyed the service for years and the company is going from strength to strength and cutting away at the appeal of paid services like HBO and Showtime. Apparently, South Africa is in talks to receive the Netflix treatment, so stay tuned and cross your fingers.

Jeff Bezos

Bezos founded Amazon in 1994, and since then has gone to great lengths to turn the company into the global powerhouse it is today. Amazon is one of the world’s leading e-retail outlets, and recently added television and film production to its ever-expanding and impressive list of efforts. Slowly but surely Amazon is emerging as multi-disciplinary corporate force to be reckoned with, that keeps technological advances and innovations close at hand. Bezos is known for his growth-over-profit approach. This enables the company to swing from high to high and constantly adjust their objectives and goals to suit the ever changing needs and demands of the industry. One thing is certain, we can be sure to see their initiatives extending even further in the both the short and long term. No sector is safe from Amazon’s ambitions.

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ADVE

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Romando Duminy explains the technical features and benefits of making use of Alta Via’s Embedded Accelerators for IT14SD

submissions.

Alta Via’s for IT14SD SubmissionsEmbedded Accelerators

Q: As organisations have submitted their periodic returns, surely the data should be easily available and reconcilable?

A: This may sound simple, but believe me it is not the case. There are fundamental differences in the processing and reporting of transactions for taxation and accounting purposes, and for ease of explanation the following table illustrates the core differences.

Q: What is IT14SD? Please explain the intention of SARS with this?

A: In essence, it is means that organisations must reconcile their accounting statements to their periodic tax submissions for VAT, PAYE and Customs as well the IT14 Yearly Tax return.

Q: What are companies doing to perform the reconciliation?

A: First of all, most companies have underestimated the reconciliation effort. Companies spend months performing the reconciliations and mostly with the assistance of external professional tax consultants and accountants or internally by employing a tax accountant, or in most cases overburden their existing staff. At the end of the day, the key success factor is an in-depth understanding of the taxpayers business, processes and existing systems in order to accurately reconcile the required schedules.

Q: Sounds very technical. Is this only for SAP customers and what does embedded accelerator mean?

A: As we have extensive knowledge of SAP, our Accelerators have been developed specifically to assist SAP Clients utilising the SAP General Ledger, however the approach, concepts and business rules can also be applied to other systems. Alta Via Consulting can also assist companies to define their IT14SD business requirements for solution development. Embedded accelerators are comprehensive businesses rule driven SAP solutions that will interrogate the clients SAP systems for configuration settings, master data and transactional data.

Taxation (SARS)

 Cash based (Invoiced based).

 VAT and Non Entities.

 Exempt Supplies.

 Zero Rated Supplies.

 Customs Prepayments.

 Cost of Sales definition

 Vat on Balance Sheet items

Accounting (IFRS)

 Accrual Based (Goods Receipt).

 Expenses processed independent of VAT Entity.

 Imported Goods Processed on Goods Receipt.

 Advances payments.

 Accruals.

 Vat in Balance sheet items is not reflected in Cost of Sales

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Q: Why a two-legged approach?

A: First of all the Diagnostic Accelerator is imperative in our view as the reliance on transactional data is only as good as your internal controls embedded in your solution. For example, a user should not be able to process VAT to a salary general ledger account as VAT is not applicable. The Diagnostic Accelerator interrogates the following settings:

Master Data: General Ledger accounts are the cornerstone to ensure accounting transactions are correctly processed but the dependency on the sub ledger master data such as Customer and Vendor accounts is as important for correct processing.

Configuration: SAP terminology for the settings that are configured in the system for a company’s specific business requirements. Correct configuration settings and alignment to the various master data and processes will ensure correct transaction processing with the necessary internal controls.

Access Control: Reviewing of specific access controls, thus who can process which transactions.

Interesting to note that the Diagnostic accelerator can be executed independently of any IT14SD accelerator and can provide business users and both external and internal auditors with information that can be used to optimised the organisations internal controls and proactively ensure transactions are correctly processed.

Q: So you’re approach is first to determine the reliance that can be placed on the SAP system and then to interrogate the transactional data.

A: You are 100 percent correct, the output of our Diagnostic Accelerator is an input to the Transaction Accelerators. The Transaction accelerators process all general ledger transactions based on specific business rules as defined and uses input criteria such as:

• Journals• Reclassification• Capitalisation• Zero Rated transactions• Document types• Balance Sheet accounts, etc.

As the SAP system is a highly integrated solution the Transaction Accelerators not only interrogate general ledger transactions but also the Sub Ledger transactions such as Purchase orders, Sales orders and Vendor transactions, etc.

The Tax and Financial Accountants will be pleased to hear that the output of the Transactional Accelerator provides comprehensive reporting for for example:

• General Ledger Hierarchy roll up to reflect results in different formats i.e. IT 14, IT14SD, Financial Statements, and Tax Reconciling Buckets etc.

• Reconciliation buckets and control totals to ensure reconciliation with Trial Balance

• Integration to Accounts Payable and Receivables and Material Management

• Audit trail with drill down capability to original Financial Transactions

Q: In summary, what is your approach?

A: In summary, Alta Via’s embedded accelerators first of all identify possible inherent set up constraints that may result in incorrect transaction processing and tax calculations and provides recommendations on how to eliminate human and system errors as well as detecting possible fraudulent transactions.

Simply stated the Accelerators produces the IT14SD reporting schedules which is reconciled to the general ledgers, and provide a detailed audit trail with drill down capability.

The accelerators enable organisations to perform a monthly reconciliation, thus IT14SD reporting can be incorporated into you financial month end process, thus eliminating yearly exhaustive reconciliations, avoiding additional external cost, and significantly, we have also experienced organisations claiming additional VAT back subsequent to implementation.

Q: What is your approach and solution, can you please explain?

A: As a niche consulting firm Alta, Via’s focus globally is on solutions for the CFO, our holistic approach of defining solutions is also embedded in the AVC IT14SD accelerators, thus incorporating master data, processes, system configuration as well as our extensive business knowledge in a number of industries. The lessons that we have learned is that you cannot only interrogate the general ledger transactions data without knowing the internal controls and structures in your SAP solution. Our approach is therefore twofold; we have created and embedded SAP Diagnostic Accelerator as well as a Transactional Data Accelerators.

“At the end of the day the key success factor is an in-depth understanding of the taxpayers business, processes and existing systems in order to accurately reconcile the required schedules.”

Clients are welcome to contact us on:Office: (+27) 11 483 3095 or Cell: (+27) 82 459 7364

Mailto: [email protected]

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Make the most winter’s comforts by enjoying chocolate and wine, classical music, escaping to New Zealand and reading to get back to the

essentials.

LIFESTYLE

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Guide to

LivingDANTE LUDOLF, Writer

Warm up your winter days with classical music in the Klein Karoo and savour chocolate and wine at the historical Lourensford Wine Estate.

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Joan Armatrading(Countrywide) July 2015

Veteran pop sensation Joan Armatrading is resurfacing, and has added various South African gigs to her world tour list. While admitting that she will never retire in the literal sense of the word, Joan has said that this will be the last time she undertakes a world tour of any kind. She will be performing in Cape Town on the 3rd of July; Johannesburg on the 10th & 11th; East London on the 6th and Durban on the 7th. Details on the performances can be found at computicket, and prices range from R450 to R650. This event will undoubtedly be a trip down m lane with its intimacy and easy listening. Concert-goers can expect to hear all her classics such as “Me, Myself,I”, “Drop the Pilot”, “Love and Affection” and some of her newer material. A definite must for any and all who love a bit of the 80s and would like the chance to see this star on stage one last time.

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Taking place at the beautiful Lourensford Estate, this eclectic and stylish festival indulges in the tradition of savouring fine wines and beautiful chocolates in tandem. Here you can expect a vibrant and chic setting that offers only the best mouth-watering chocolates to go with the esteemed vintages you will be trying. The Wine and Chocolate Festival is definitely a must for anyone’s itinerary especially for those who enjoy a good glass of wine while also having somewhat of a sweet tooth. It takes place on the 26th of July, and bookings can be made on Quicket.

Wine and Chocolate Festival(Lourensford Wine Estate, Cape Town) 26 July

With the craft beer boom in full swing, it comes as no surprise that a festival would pop up to cater to the growing demands of the market. This event promises a varied and robust beer tasting experience with a variety of exhibitors and, of course, loads of beer to drink. SA on Tap will also host a number of activities for you to enjoy as well as a great selection of food for you to pair with whatever brew you fancy. If you’re a novice brewer yourself, this is the perfect time to learn the tricks of the trade from the more seasoned beer aficionados. The Craft Beer Festival takes place on the 1st of August at the Durban Ampitheatre. Book now at Quicket and receive bundle deals.

SA on Tap Craft Beer Festival(Durban)1 August

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Mediatech Africa (Johannesburg ) 15 – 17 July

This expo is a great way to introduce yourself to all the technological advancements being made in the world and for techno fundis alike to shop around for the latest gadgets. It is Africa’s largest techno expo, and prides itself on facilitating quality engagement with products of a varied and diverse nature. Anyone who harbours a love for the new and up-and-coming should make their way to this event, but be prepared to leave with a serious dent in the wallet as temptation is sure to rear its ugly head. Mediatech Africa takes place on the 15th-17th of July at the Coca Cola Dome in Johannesburg.

This special event celebrates all things to do with classical music and provides the perfect excuse to break away for a weekend and go meandering about the countryside. The Klein Karoo Klassique consists of various performances and gigs in and around Oudt-shoorn venues, and the stark beauty of the surroundings will provide a perfect backdrop to the music on show. There will also be various food vendors, wine stalls and crafts to supplement the harmonious sounds. Visitors can expect a well-rounded and unique experience that is sure to be one for the books. The Klein Karoo Klassique takes place on the 13th to 16th of August, and more information can be found on their website, www.klassique.co.za.

Klein Karoo KlassiqueOudtshoorn13 – 16 August

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Meandering through

Meadowy


In New Zealand everything feels personal, intimate and connected. From being a mecca for extreme-sports seekers, to those who seek pampering and to those who just want to bask in the country’s awe-astounding scenery, New Zealand has something to offer all of its visitors.

TThe charm and allure of New Zealand is its otherworldly and surreal locations that merge fantasy and reality to instil a sense of wonder and amazement. With a population of only 4 million, it’s an uncrowded haven to escape to. With a population that low, it comes as no surprise that there are more vending machines in Japan than there are people in New Zealand. New Zealand is also rather progressive and politically intact, having been the first country to give women the right to vote in the 1800s; legalizing same-sex marriage in 2013 and tying with Denmark as the least corrupt nation in the world as per the Corruption Perception Index. Good news for potential immigrants. Below are

some of the must-see places to visit in New Zealand, which will give any potential traveller an insight into the unique and curious qualities New Zealand has to offer for visitors and locals alike.

New Zealand

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The Bay of Islands

This location is a premier tourist attraction, and continues to prove very popular to travellers. It is a beautiful scattering of tiny islands relatively close in proximity, and is a must for any and all looking for a photogenic and relaxing time under the sun. There are 114 islands in total, and the area is well known for its abundance of marine life, including dolphins, whales and marlins. Expect to catch a boat here and there and to be whisked away on a picturesque yacht ride, as these are staple activities in and around The Bay of Islands.

Auckland and the Sky Tower

Auckland is a clean and bright metropole, which houses more inhabitants than the entirety of the more southern parts of the island. It is also, coincidentally, one of the most affordable cities to live in. The Sky Tower is one of the city’s highlights and most famous attractions, built for telecommunication and observation purposes. The gigantic construction is the tallest free standing structure in the Southern Hemisphere and clocks in at 328 meters. It is an iconic and eye-catching spectacle and visitors can ride an elevator to the top to survey the surroundings, or opt for a fine dining experience at the Orbit revolving restaurant.

o1 o2

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This ice age remnant is one of the most beguiling and miraculous natural wonders in the world. The glacier is nestled between two other mountains, and it snakes upward to dizzying effect. It is rather accessible, and visitors can hike up to the foot of the beautiful Franz Josef or take a helicopter ride to fully observe the spectacle. This glacier is truly a one of a kind and jaw-dropping marvel, and it is no surprise that it is one of the most popular tourist attractions of New Zealand.

Franz Josef Glaciero3

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Kaikoura

Kaikoura is the ultimate destination for those who find themselves enthralled by the charms of the sea. It is a quiet and peaceful seaside town that boasts world famous seafood. The seafood is fresh and plentiful, and can be enjoyed while staring out at the wide open expanse of the ocean. Kaikoura is also known for vigorous displays from its oceanic community. Dolphins, fur seals, sperm whales and albatrosses decorate the big blue. Plus, the ice capped mountains that flank the town paint a perfect and snap worthy picture.

Rotorua

Rotorua is known as the ‘thermal wonderland’ of New Zealand and here you can find a wealth of hot springs and geysers in and around the town. Most of the more substantial pools are found in parks, and can be enjoyed by visitors at any time. The most famous geyser is the Lady Knox, and seeing it in action is quite an affair. Some of the pools are fascinating and colourful in appearance, once again adding the overall feel of New Zealand’s unique and inviting alterity. Although rare, new eruptions of geothermal steam have a tendency to erupt in unexpected places, so watch where you step!

This stretch of exciting and different sights is New Zealand’s first official park and boasts a wide variety of wild life for visitors to behold. The park is well known for being drastically different from one area to the next, and you can be sure to glimpse a number of surprising and unexpected things along the way. The sprawling park’s diverse ecosystems include active volcanoes, desert-like spreads, wild and lush forests and beautiful and tranquil lakes. In short, there is something for everyone at Tongariro, and the park is a perfect glimpse at the diverse and distinctly unique ecology of New Zealand.

New Zealand is a rich, muti-cultural destination. Its landscapes provide endless opportunities for adventure as well as sophisticated metropolitan areas which cater to the tastes of every traveller.

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FIN

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FINER THINGS

Have you ever found yourself stretched too thin? Do you simultaneously feel overworked and underutilised? Are you often busy but not productive? Do you feel like your time is constantly being hijacked by other people’s agendas? If you answered yes to any of these, the way out is the Way of the Essentialist. The Way of the Essentialist isn’t about getting more done in less time. It’s about getting only the right things done. It is not a time management strategy, or a productivity technique. It is asystematic discipline for discerning what is absolutely essential, then eliminating everything that is not, so we can make the highest possible contribution towards the things that really matter.

By forcing us to apply a more selective criteria for what is Essential, the disciplined pursuit of less empowers us to reclaim control of our own choices about where to spend our precious time and energy – instead of giving others the implicit permission to choose for us.

Essentialism is not one more thing – it’s a whole new way of doing everything. A must-read for any leader, manager, or individual who wants to learn how to do less, but better, in every area of their lives, Essentialism is a movement which time has come.

READ Essentialism: The Disciplined Pursuit of Less - Greg McKeown

The Award-winning Cape Town Restaurant Azure, signature restaurant of The Twelve Apostles Hotel and Spa, boasts a contemporary and relaxed interior that combines with easy-listening background music, mesmerising sunsets across the Atlantic Ocean, a superb wine list and five-star service. The Executive Chef offers International Cuisine with South African influences. Signature dishes include The World Famous 12A Roast Duck or the Biltong and Peppadew Tart served with cucumber ribbon salad. Azure is the first to introduce Fynbos cooking - utilising the natural wild vegetation from the Hotel’s gardens. The menu is rounded off with a delightfully sweet dessert of fynbos honey bavarois or Bea’s baked cheesecake and can be enjoyed on the terrace overlooking the Atlantic Ocean. For

EAT Azure

lovers of the glamour and the excitement of the silver screen, join us for the unique Dinner and Movie delight. Indulge and unwind with your partner or a group of friends, in the elegant Azure Restaurant, enjoy a 5-course dinner from the choice Cine 12 set menu. Escape to the hotel’s private cinema for an intimate and private viewing of a film from our selection of great classics, to comedy, adventure, drama and foreign films. Plush red leather seats, Dolby surround sound, state-of-the-art flat screen and a lavish assortment of goodies, from popcorn, ice cream, hot chocolate, milkshakes and candy, are all served in the comfort of the cinema, to tantalize the taste buds and provide you with the ultimate movie experience.

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ICON

Judge Dennis Davis was educated at Herzlia School, Universities of Cape town (UCT) and Cambridge. He began teaching at UCT in 1977 and was appointed to a personal chair of Commercial Law in 1989. Between 1991 and 1997 he was Director of the Centre for Applied Legal Studies of the University of the Witwatersrand. He held joint appointment at Wits and UCT 1995 - 1997. He was appointed a Judge of the High Court in 1998 and as President of the Competition Appeal Court in 2000. Since his appointment to the Bench, he has continued to teach constitutional law and tax law at UCT where he is an Hon. Professor of law. He has been a visiting lecturer/professor at the Universities of Cambridge, Florida, Toronto and Harvard. He is the chair of the Davis Tax Committee.

JUDGE DENNIS DAVIS – Pioneering Tax Change

“I agree that companies do have legitimate transactions within a group, that’s why you can’t ban transfer pricing completely. What you’re looking for is where prices are manipulated.”

“The South African Constitution guarantees everyone the right to freedom of

conscience, religion, thought, belief and opinion. The clause does not simply protect religious freedom. It goes further to protect

conscience, thought, belief and opinion and, accordingly, it has a secular element.”

“Courts are not meant to run the country, but to police constitutional boundaries. Judges cannot dictate to Parliament on when and how it should arrange its matters.”

“Fifty years later and almost one decade into constitutional democracy, the ANC produced a statement which, save for the significant distinction that its conception of the will of the people embraced all South Africans, was stunningly similar to the National Party’s approach to the judiciary during the 1950s,” Davis writes.

“Judges shouldn’t be in newspapers”

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MATTHEW LESTER

Matthew Lester looks at the international retirement planning landscape and compares it to the situation in South Africa.

I just don’t understand the extraordinary move in the United Kingdom allowing pensioners to cash in their pensions. Grannies reckon this is the best stuff since they invented boiled sweets. Or the

days when we enjoyed tax-free savings through post office accounts. There can only be three reasons for the Tory party allowing this:

• Immediate gratification amongst voters• Boosting tax receipts by taxing withdrawal

benefits from pension funds• Providing Tory party financial advisers with

a range of new private clients

The U.K. government reckons that citizens are responsible enough and sufficiently educated to self preserve their pension savings. Maybe, maybe not. Today the biggest threats to pensioners are not their own comfort but rather the aspirations of their children who are now the decision makers in the family.

The average Pom in the street would do well to recognise that despite all the moaning about the U.K. national health system the life expectancy of a Pom is far longer than most nationalities. A Pom who survives to 60 is predicted to live to 84. A South African who makes it to 60 is expected to survive to 76.

So the U.K. are saying that their responsible citizens are capable of preserving their savings for 20 years or more. I just don’t buy that.

Back to South Africa.

RETIREMENT FUNDS– tax havens of the new South Africa

‘T day’ was supposed to happen on 1 March 2015. This was supposed to implement a range of new fiscal interventions to protect pensions, including a revised tax regime and the forced preservation of pension benefits.

But the unions were unhappy. So one of the first moves of the new minister of finance, Nhlanhla Nene, was to delay T Day implementation to 2016.

Apparently the principle gripe of the unions is the proposed forced preservation requirements to be applied to provident funds.

As things stand, beneficiaries of pension and retirement annuity funds can only cash in one-third of the accumulated fund on retirement. On the other hand beneficiaries of provident funds can cash in the entire accumulated fund.

Part of the T Day package was to apply a forced preservation requirement on provident funds to bring them in line with pension and retirement annuity funds. Various provisions make sure that the T Day provisions will have no retrospective effect.

I predict that when T Day finally becomes a reality, the proposed forced preservation

requirements on provident funds will be diluted, if not abandoned. But my predictions are actually irrelevant.

I have no problem in cashing in on the benefits of the 2nd schedule of the income tax act. R500 000 tax-free is nifty. And maybe taking a further 18 percent on another R200 000 makes sense. But beyond that, the tax rates of up to 36 percent are just punitive.

In South Africa there can be little benefit in cashing in any pension benefit beyond R700 000 before the cash is actually needed.

There has been so much hype around the new tax-free investments. But our retirement fund platforms have been providing these benefits for years. And contributions to retirement funds qualify for a handsome tax deduction to boot. It’s a no-brainer actually; retirement funds are the tax havens of the new South Africa.

This article first appeared on www.biznews.com and criticalthought.co.za

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Anton Krynauw / Day 2 / 13h00 / eFiling Workshop // David Hodnett / Day 1 / 13h45 / Panel Discussion: CEOs/CFOs // Rozelle

van Schaik / Day 4 / VAT Back to Basics Workshop // Maurice Mwaniki / Day 4 - 09h15 / Doing Business in Other Jurisdictions

in Africa // Judge Bernard Ngoepe / Day 1 / 08h30 / Tax Policy and Administration // Judge Dennis Davis / Day 1 / 09h30

/ Davis Commission Overview // Roula Hadjipaschalis / Day 5 / 09h45 / Taxpayers’ Right to Prescription and S46 of

the TAA // David Hartness / Day 1 / 10h30 / Political scandals and corruption: What is the impact on taxpayer morale?

// Dr Thabo Legwaila / Day 1 / 15h15 / Panel Discussion: Use of Advisory Services // Professor Mervyn King / Day 1 / 11h15 /

Keynote Address // Keith Engel / Day 1 / 08h30 / Tax Policy and Administration // Dr Matthew Stern / Day 1 / 13h00 / Fiscal

Options and Constraints // Severus Smuts / Day 4 / 08h30 / Mergers and Acquisitions: VAT Implications // Henry

Nysschens / Day 1 / 15h15 / Panel Discussion: Use of Advisory Services // Hilary Joffe / Day 1 / 16h30 / Panel Discussion:

Relationships beyond the Advisory // Elandre Brandt / Day 2 / 09h00 / Developments Associated with SA Tax Treaties

and Bi-lateral Investment Treaties // Ana-Celia Mendes / Day 1 / 15h15 / Panel Discussion: Use of Advisory Services

// Peter Leon / Day 2 / 09h00 / Developments Associated with SA Tax Treaties and Bi-lateral Investment Treaties // Anne

Bardopoulos / Day 4 / 10h30 / Hot Spots in VAT // Okkie Kellerman - Day 2 / 10h15 / Foreign Investment in SA Branches and

Profit Withdrawals // Kyle Mandy / Day 2 / 13h15 / Panel Discussion: Hot Spots in International Tax // Charles Makola /

Day 2 / 13h15 / Panel Discussion: Hot Spots in International Tax // Stephan Spamer / Day 2 / 10h15 / Foreign Investment

in SA Branches and Profit Withdrawals // Deborah Tickle - Day 2 / 13h15 / Panel Discussion: Hot Spots in International

Tax // David Warneke - Day 2 / 13h15 / Panel Discussion: Hot Spots in International Tax // Wayne Fuller / Day 2 / 14h45 /

Withholding Taxes in Africa, Exchange Control and the African Aversion to Tax Treaties // Andreas Muntingh / Day 2

/ 14h45 / Withholding Taxes in Africa, Exchange Control and the African Aversion to Tax Treaties // Linda Ensor /

Day 1 / 16h30 / Panel Discussion: Relationships beyond the Advisory // Faith Mazani / Day 2 / 15h45 / IMF Regional Revenue

Administration // Alastair Macduff / Day 2 / 08h30 / Practical Issues: BR // Nic Theron / Day 2 / 09h30 / Objections and

Appeals // Professor Pieter van der Zwan / Day 2 / 10h30 / Withholding Tax for the SME //Ernie Lai King / Day 2 / 11h00 /

Dispute Resolution and TAA // Ettiene Retief / Day 2 / 11h30 / VAT // Candice Mullins / Day 2 / 09h00 / Profit Withdrawals //

Alan Lewis / Day 2 / 14h00 / VAT Return Verification // Yaniv Kleitman / Day 2 / 15h00 / Common Company Law Considerations

// Graeme Saggers / Day 2 / 15h30 / CGT Issues // Paul Gering / Day 2 / 16h00 - Small Business Incentives // Brian Dennehy

/ Day 3 / 08h00 / Finance Corporate Acquisitions // Andrew Wellstead / Day 3 / 08h45 / Tax Implications of Acquisition

Finance // Gustav van der Berg / Day 2 / 16h30 / The Right to Tax Non-Resident Entities: An East African Perspective // Craig

Miller / Day 3 / 09h30 / Options for Acquisition: Taxable/ Non-Taxable // Michael Rudnicki / Day 3 / 10h45 / Tax Issues

// Mark Linington / Day 3 / 11h30 / Panel Discussion: Hot Spots in Transaction Tax // Jan Pienaar / Day 3 / 11h30 / Panel

Discussion: Hot Spots in Transaction Tax // Mark Preiss / Day 3 / 11h30 / Panel Discussion: Hot Spots in Transaction

Tax // Christo Engelbrecht / Day 3 / 13h30 / The South African Grants and Incentives Landscape // Gugulethu Cele /

Day 1 / 16h30 / Panel Discussion: Relationships beyond the Advisory // Christine Ramon / Day 1 / 13h45 / Panel Discussion:

CEOs/ CFOs // Karl Muller / Day 1 / 15h15 / Panel Discussion: Use of Advisory Services // Dov Paluch / Day 3 / 13h30 /

The South African Grants and Incentives Landscape // Duane Newman / Day 3 / 15h00 / Grants and Sustainability //

Beatrie Gouws / Day 3 / 08h30 / Payroll Taxes: Back to Basics // Jerry Botha / Day 3 / 09h15 / Administrative and IT Issues

in Payroll // Tarryn Atkinson / Day 3 / 10h30 / Panel Discussion: Hotspots in Payroll // Marelize Loftie-Eaton / Day

3 / 10h30 / Panel Discussion: Hotspots in Payroll // Dan Foster / Day 3 / 10h30 / Panel Discussion: Hotspots in Payroll //

Karabo Thobakgale / Day 3 / 10h30 / Panel Discussion: Hotspots in Payroll // Jaco la Grange / Day 3 / 11h30 / Cross Border

Employees // Errol Gottfried / Day 3 / 13h15 / The Tax Pitfalls of Structuring Company Owned Life Policies for

Purposes of Business Risk Profiling // Eddie Broomberg / Day 5 / 14h15 / GAAR // Darren Margo / Day 3 / 15h45 / Practical

Update on S11D // Mags Naidoo / Day 4 / 10h30 / Hot Spots in VAT // Nina Keyser / Day 5 / 09h00 / New Tax Dispute Resolution

// Ronald King / Day 3 / 15h15 / Portfolio Investment Tax // Victor Terblance / Day 4 / VAT Back to Basics Workshop //

Gerard Soverall / Day 4 / 10h30 / Hot Spots in VAT // Peter Franck / Day 4 / 10h30 / Hot Spots in VAT // Johan van der Walt

/ Day 5 / 11h20 / Panel Discussion: Tax Risk Management // Liezl Crause / Day 4 / 10h30 / Hot Spots in VAT // Ferdie Schneider

/ Day 4 / 13h30 / Managing VAT and Financial Services // Di Seccombe / Day 4 / 14h15 / Cross Trade and Import and

Export // Patrick Mawire / Day 3 / 11h30 / Panel Discussion: Hot Spots in Transaction Tax // Redge De Swart / Day 4 / VAT

Back to Basics Workshop // Charles R van Staden / Day 2 / 11h30 / Update on Recent Amendments to Exchange Control

Policy // Ansie Ramalho / Day 5 / 08h30 / Why Governance is Topical for Boards // Daryl Blakeway / Day 5 / 09h00 / Forms

of Potential Governance Failure // Alan Field / Day 5 / 10h15 / Tax Risk Management // Joubert Botha / Day 5 / 10h35 / A

Conceptual Framework for Tax Risk Management // Madelein van Zyl / Day 5 11h00 / Data Analytics and Technology as

Enablers for Tax Risk Management // Ine-lize Terblanche / Day 5 / 11h20 / Panel Discussion: Tax Risk Management // George

Trollope / Day 5 / 11h20 / Panel Discussion: Tax Risk Management // Dr Len Konar / Day 5 / 11h20 / Panel Discussion: Tax

Risk Management // Lucia Hlongwane / Day 5 / 13h15 / Panel Discussion: Banker’s Role in Tax Enforcement // Gary Eaves

/ Day 5 / 13h15 / Panel Discussion: Banker’s Role in Tax Enforcement // Mardelle Kellbrick / Day 5 / 13h15 / Panel Discussion:

Banker’s Role in Tax Enforcement // Cobus Viljoen / Day 5 / 13h15 / Panel Discussion: Banker’s Role in Tax Enforcement //

Gilbert Marcus / Day 5 / 11h00 / TAA: Keynote Address // Michael Sachs / Day 1 / 09h00 / Fiscal Direction From a Treasury

Perspective // Folkert Gaarland / Day 4 / 15h00 / Indirect Tax Consequences of TP Adjustments // Patrick Mawire / Day 4

/ 16h15 / Overview of IncoTerms and Implications for Cross Border Deal Structuring

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Transcript of TATAL - c.ymcdn.com · 02 TATAL 2 0 1 5 7-11 SEPT 2015, Sandton Convention Centre Johannesburg...