Revenue Laws Amendment Bill 2002

1
Revenue Laws Amendment Bill 2002

• Representations and comments to the Portfolio
  Committee on Finance
• Tuesday, 29 October 2002

2
The process and overview

• Time constraints 6½ working days to comment on
  190 pages of draft legislation (excluding 74
  pages of explanatory memo), including wholly new
  sections.
• Sufficient time for Committee to adequately
  fulfill its role?
• Need for middle ground to allow amendment of
  sections without the all or nothing approach.
• High number of amendments again do not contribute
  to tax certainty.

3
The process and overview

• A number of the proposed changes are highly
  technical in nature therefore we intend to
  address only the following headline areas with
  summaries of main concerns
• International issues
• Expatriates and currency rules
• Corporate reorganisations
• Miscellaneous (both those proposed in draft Bill
  and further amendments suggested by PwC)

4
Basic international changes

• Application of SA transfer pricing to CFCs (see
  Appendix of comparison of SA to other
  territories).
• Exempting provisions can actually work against
  the taxpayer need to be elective to avoid
  double taxation.
• Removal of exemption in S9D(9)(f) on basis
  covered by participation exemption not wholly
  accurate.
• Application of 5 rule to listed companies.

5
Expatriates and currency rules

• SA still has a need to attract expatriate
  workers.
• Current tax law can discourage this and shorten
  international assignments.
• Consideration needed as a matter of urgency, may
  need policy change not possible here, but can a
  short term fix be implemented?

6
Corporate reorganisations

• Availability of rollover to only inherent gain
  assets has undesirable side effects
• Effective elimination of losses
• Transfer tax relief not available
• Double taxation on capital gains exists in
  applying company formations and share for share
  transactions.
• SA acquirer may end up with no base cost on
  assets acquired from overseas group companies.
• Relief from STC needed post a reorganisation
  (i.e. S64B(5)(f) needs to be expanded).

7
Corporate reorganisations

• Provision needs to be made that transfer taxes
  relief still available when rollovers not claimed
  (or partially claimed).
• Relief from donations tax to be clarified.
• Require expansion to facilitate taking foreign
  investments back to direct SA ownership through a
  chain of overseas companies.
• Infinite clawback provision as regards
  intra-group transactions too onerous.
• Certain reliefs still mandatory.

8
Corporate reorganisations

• Need for reliefs to permit issuance of shares in
  other group company, or to drop the 18-month
  restrictions.
• To drop 18-month rule in respect of insurers
  covered by S29A.
• To drop 18-month rule as regards trading stock.
• Current proposals ring fence greater gains than
  are justified.
• De-minimus cash limit required to allow
  transaction costs to be met.
• No provision for other tax attributes to pass.

9
Miscellaneous

• Apparent elimination of capital gains surely
  unintended but indicative of issues arising from
  tight timescale.
• Base cost of assets acquired by issuance of
  shares to be provided for.
• Timing of deemed disposal for capital gains
  purposes on becoming a resident to be clarified.
• Consequential amendments to UST and VAT Acts
  needed as a result of changes to corporate
  reorganisations.

10
Miscellaneous

• Relief from stamp duty needed where transfer duty
  applies.
• Introduction of joint and several liability
  concept is a significant departure from taxpayers
  being liable for their own tax only and
  represents a dangerous precedent.
• Amendment to dividend wording ambiguous and needs
  to be clarified intent of SARS and National
  Treasury as put forward to the Committee by Mr
  Louw and Professor Engel welcomed.
• Right of objection and appeal should be to all
  circumstances where Commissioner has discretion.