pwc tax services, south africa standing committee on finance submissions: draft 2010 taxation laws...
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PwC
PwC Tax Services, South Africa
Standing Committee on Finance
Submissions:
Draft 2010 Taxation Laws Amendment Bills
David Lermer & (Prof) Osman Mollagee
1 June 2010
PricewaterhouseCoopers
• Initial focus today on policy matters
• More detailed technical submissions directly to NT & SARS
• Not EM sequence
• Concern/clarity around NT/SARS strategy
• Applaud initiatives to promote growth (e.g. Gateway into Africa)
Opening remarks
June 2010Slide 2
Submissions on Draft 2010 Taxation Laws Amendment Bills
Submissions
I. Consultation Period
II. Specific V General Anti-avoidance provisions
III. Interest exemption: Natural persons
IV. Interest exemption: Non-residents
V. Denial of interest deductions
VI. Employee share schemes: Denial of Dividend exemption
VII. Regional investment funds
VIII. Rates & Thresholds
IX. Transfer pricing
X. Discretion to waive interest
PricewaterhouseCoopers
• Very short consultation period — AGAIN
• Complexity and volume
– Seasoned tax practitioners require more time. What about average taxpayers
• No chance of further debate after today
– Further submissions to NT/SARS —but not to Standing Committee
– Need for rebuttal acknowledged previously
– Money Bill
I. Consultation Period
June 2010Slide 4
Submissions on Draft 2010 Taxation Laws Amendment Bills
PricewaterhouseCoopers
• The GAAR (general anti-avoidance rule)
• Substantial time and effort to develop and legislate
• Why the reluctance to apply it?
• Specific anti-avoidance rules
• Complicate our tax law
• Weaken the GAAR
• Notoriously difficult to attack only the specified targets
II. Anti-avoidance Rules– Specific V General
June 2010Slide 5
Submissions on Draft 2010 Taxation Laws Amendment Bills
PricewaterhouseCoopers
TLAB: cl 19 EM: 2.4 ITA: s10C
• Negative impact on small business access to funds
• Discourages loans from private individuals
• Increases cost of finance
• Perceived “distortion” overstated
• Bigger distortion created by non-deductibility
III. Restriction of Interest Exemption– Natural Persons
June 2010Slide 6
Submissions on Draft 2010 Taxation Laws Amendment Bills
PricewaterhouseCoopers
TLAB: cl 18 EM: 5.2 ITA: s10B
• Discourages foreign direct investment (& undermines HQ regime)
• Perceived abuses adequately addressed elsewhere
• Likely to be ineffective (double tax treaties & local interest deductions)
• Administratively burdensome and potentially impossible to police
• Consider a Withholding Tax?
IV. Restriction of Interest Exemption– Non-residents
June 2010Slide 7
Submissions on Draft 2010 Taxation Laws Amendment Bills
PricewaterhouseCoopers
TLAB: cl 42 EM: 4.1 ITA: s23K
• Too broad & far-reaching
• Focus appears to be on banks, but proposed legislation targets taxpayers
in general
• Ignores fundamental income tax principles: Investment in shares can be to
produce taxable income
• Direct allocation based on exempt income unfair and too simplistic
• Discourages repatriation of foreign dividends
V. Denial of Interest Deduction– Prevention of Financial Instrument Mismatches
June 2010Slide 8
Submissions on Draft 2010 Taxation Laws Amendment Bills
PricewaterhouseCoopers
TLAB: cl 17(1)(l) EM: 2.9 ITA: s10(1)(k)(i)
• Denial of exemption creates a mismatch (double taxation)
• Taxation of employee
• Without any deduction for employer
• Deduction required to preserve equity and fairness
VI. Employee Share Schemes– Denial of dividend exemption
June 2010Slide 9
Submissions on Draft 2010 Taxation Laws Amendment Bills
PricewaterhouseCoopers
TLAB: cl 6(1)(q) EM: 5.5 ITA: s1
• Proposals offer certainty only to investment partners, but investment “vehicle”
also requires certainty
VII. Regional investment funds
June 2010Slide 10
Submissions on Draft 2010 Taxation Laws Amendment Bills
Foreign
Investment
Vehicle
SA Fund
ManagerForeign
Investment
Partners
Targeted SA
Investments
SAOffshore
Uncertainty over tax treatment of
foreign investment partners and foreign investment “vehicle”
PricewaterhouseCoopers
TLAB: Appendix 1 EM: 1 ITA: s5
• Not doing enough to address fiscal drag
VIII.Rates & Thresholds
June 2010Slide 11
Submissions on Draft 2010 Taxation Laws Amendment Bills
PricewaterhouseCoopers
TLAB: cl 53 EM: 5.3 ITA: s31
• Applaud modernisation of SA’s TP provisions
• But concern over inflexible penalty on adjustments
• STC
• Interest
IX. Transfer Pricing
June 2010Slide 12
Submissions on Draft 2010 Taxation Laws Amendment Bills
PricewaterhouseCoopers
TL 2nd AB: Part A & cl 17(1) Part B OM: 2.1–2.11 ITA: s89quat
• Removal of possibility of interest-waiver
• Ostensibly in favour of VDP
• Many other scenarios (besides VDP) merit waiver-of-interest
• Outright withdrawal is inappropriate
IX. Discretion to waive interest
June 2010Slide 13
Submissions on Draft 2010 Taxation Laws Amendment Bills
PwC
Thank you
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