*connectedthinking

1. PwC Tax Services*, South Africa Portfolio Committee on FinanceSubmissions on the(Draft) Taxation Laws Amendment Bill, 20085 March 2008 PricewaterhouseCoopers *connectedthinking

2. Main concerns • Timing & process • Anti-avoidance rules cast too widely • Specific concerns • Participation exemption • Intra-group transactions • Expatriate accommodation • Connected person share transfers • VAT threshold Contents

3. Main concerns (1)Timing and Process • Very short consultation period • Unexpected complexity and controversy • TLAB traditionally limited to ‘routine’ adjustments • Proposed amendments require substantial consultation • No chance of further debate after today!!! • A real flaw in the Parliamentary process

4. Main concerns (2)General Vs Specific anti-avoidance • We already have a world-class GAAR – Let’s use it! • Draw-back of specific anti-avoidance : Difficult to get the scope “just right” • Too narrow? Ineffective • Too broad? Innocent casualties • Therefore : Avoid it … OR Ensure proper consultation • Proliferation of specific rules – Are we starting off down the wrong path (that may be difficult to come back from)?

5. Specific concerns (1)Participation Exemption TLAB : Clauses 42 & 45PwC submissions : Notes 7 & 8 • Objective: To encourage ‘active’ business investments & simplify foreign group transactions • Proposal: Exclusion of CFCs migrating back to SA • Concerns: ‘Blunt’ specific anti-avoidance measure that: • Charges an “entry fee” in addition to the exit charge • Uniquely draconian ito Global benchmarks & International competitiveness • Possible total withdrawal of PE – Shift in tax policy?

6. Specific concerns (2)S45 Intra-group transactions TLAB : Clause 26PwC submissions : Notes 5 & 6 • Objective: To facilitate intra-group asset-transfers by deferring the tax cost • Proposal1: Limit scope to only debt-instrument consideration • Effect: Disqualifies cash transactions & asset-swaps • Proposal2: Impose tax on debt-instrument • Effect: Double tax – Same tax collected on asset and again on debt-instrument

7. Intra-group transactions (Cont) • S45(3A) – A blunt specific anti-avoidance measure • Effect of s45(3A) is to increase the ultimate total tax charge • Objective of s45 is to defer the tax charge, without increasing or decreasing the ultimate total tax charge

8. TLAB : Clause 40PwC submissions : Note 10 Specific concerns (3)Employer-provided accommodation (expatriates) • Consider 4-year exemption in line with Home Affairs (transfer permits) and definition of tax residence • Increase 30-day exclusion to 60 days (pre-visits may exceed 30) • Increase 90-day exemption to 183 days in line with DTAs • Increase monthly cap to R50,000 to take into account the cost of accommodation/dependents • Consider 1 Mar 08 effective date to prevent confusion in 2008/09 tax year • The 30-day exclusion should not apply to the 90-day exemption

9. Specific concerns (4)Restriction on share expenditure TLAB : Clause 20PwC submissions : Note 3 • New s23K • Objective: • To target avoidance schemes involving non-resident holding companies • Concerns: • Requires inclusion in ‘income’, not ‘taxable income’ • Therefore, also catches (and penalises) most share-transfers between SA-resident taxpayers

10. Specific concerns (5)Effective date for new VAT threshold TLAB : Clause 1PwC submissions : Note 9 • Increase in VAT registration threshold from R300,000 to R1m • Effective 1 January 2009 • Postpones the need to immediately deregister sub-R1m vendors • BUT • Compels new sub-R1m businesses to register now … only to then deregister again in 2009

11. PwC Tax Services*, South Africa Portfolio Committee on FinanceSubmissions on the(Draft) Taxation Laws Amendment Bill, 20085 March 2008 PricewaterhouseCoopersc *connectedthinking