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*connectedthinking

PwC Tax Services*, South Africa. Portfolio Committee on Finance Submissions on the (Draft) Revenue Laws Amendment Bills, 2008 20 August 2008. *connectedthinking. Timing & process Intellectual property STC Credits Passive Holding Companies Provisional Tax. Contents. I. Timing and Process.

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*connectedthinking

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  1. PwC Tax Services*, South Africa Portfolio Committee on FinanceSubmissions on the(Draft) Revenue Laws Amendment Bills, 200820 August 2008 *connectedthinking

  2. Timing & process • Intellectual property • STC Credits • Passive Holding Companies • Provisional Tax Contents

  3. I. Timing and Process • Very short consultation period – AGAIN [1] • Recognition that RLAB requires more time than TLAB, but less time granted • 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 PCoF • Need for rebuttal acknowledged previously – but? • Retroactivity – E.g. funnel transactions, s43 deletion, etc.

  4. II. Intellectual property • Incentive for SA contract-researchers – Granted then immediately withdrawn? [23.3] • Hype about initial incentive • No reasons given for withdrawal • Disincentive for acquisition of existing foreign IP companies [23.1] • CFCs with active royalty income exempt from SA tax – but not if IP is used in SA

  5. III. STC credits system [4] • Applaud preservation of STC credits • But burdensome tracking / record-keeping requirement • For taxpayers & for SARS • Consider allowing the credit against Normal Income Tax • STC credit stays in one company • No reduction in Treasury’s tax collection • Purist income-tracking Vs administrative ease

  6. How STC-credited dividends will be tracked F E D B C A

  7. IV. Passive Holding Companies • Timing of status-determination [11] • Annual determination • Companies cannot know their status at the time of dividend receipts and payments • Compliance problematic in practice • Excluded companies [12] • Treasury & intermediate holding companies – tax deferral is not the purpose • Subsidiaries of excluded companies

  8. Excluded companies Deferral PHC? OpCo OpCo OpCo OpCo OpCo OpCo Cash Deposit HoldCo PHC OpCo OpCo PHC? OpCo Group Cash Management OpCo Cash Deposit

  9. Excluded companies Deferral Charity Excluded Company OpCo Cash Deposit PHC? PHC OpCo Cash Deposit OpCo Cash Deposit

  10. V. Provisional Tax 2nd Payment • Not unexpected (consistent with international norms) • Compliance difficult • Penalty considered to be harsh • Consider alternatives • Penalty on top-up • Higher basic (+10% p.a.) • Treasury bonds / Certificates of Tax Deposit

  11. PwC Tax Services*, South Africa Portfolio Committee on FinanceSubmissions on the(Draft) Revenue Laws Amendment Bills, 200820 August 2008 PwC *connectedthinking

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