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.