1.  PwC Tax Services, South Africa Standing Committee on Finance Submissions: Draft 2010 Taxation Laws Amendment Bills David Lermer & (Prof) Osman Mollagee 1 June 2010

2. 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 2010 Slide 2 Submissions on Draft 2010 Taxation Laws Amendment Bills

3. 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

4. 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 2010 Slide 4 Submissions on Draft 2010 Taxation Laws Amendment Bills

5. 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 2010 Slide 5 Submissions on Draft 2010 Taxation Laws Amendment Bills

6. PricewaterhouseCoopers TLAB: cl 19EM: 2.4ITA: 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 2010 Slide 6 Submissions on Draft 2010 Taxation Laws Amendment Bills

7. PricewaterhouseCoopers TLAB: cl 18EM: 5.2ITA: 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 2010 Slide 7 Submissions on Draft 2010 Taxation Laws Amendment Bills

8. PricewaterhouseCoopers TLAB: cl 42EM: 4.1ITA: 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 2010 Slide 8 Submissions on Draft 2010 Taxation Laws Amendment Bills

9. PricewaterhouseCoopers TLAB: cl 17(1)(l)EM: 2.9ITA: 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 2010 Slide 9 Submissions on Draft 2010 Taxation Laws Amendment Bills

10. PricewaterhouseCoopers TLAB: cl 6(1)(q)EM: 5.5ITA: s1 Proposals offer certainty only to investment partners, but investment “vehicle” also requires certainty VII.Regional investment funds June 2010 Slide 10 Submissions on Draft 2010 Taxation Laws Amendment Bills Foreign Investment Vehicle SA Fund Manager Foreign Investment Partners Targeted SA Investments SAOffshore Uncertainty over tax treatment of foreign investment partners and foreign investment “vehicle”

11. PricewaterhouseCoopers TLAB: Appendix 1EM: 1ITA: s5 Not doing enough to address fiscal drag VIII.Rates & Thresholds June 2010 Slide 11 Submissions on Draft 2010 Taxation Laws Amendment Bills

12. PricewaterhouseCoopers TLAB: cl 53EM: 5.3ITA: s31 Applaud modernisation of SA’s TP provisions But concern over inflexible penalty on adjustments STC Interest IX.Transfer Pricing June 2010 Slide 12 Submissions on Draft 2010 Taxation Laws Amendment Bills

13. PricewaterhouseCoopers TL 2 nd AB: Part A & cl 17(1) Part BOM: 2.1–2.11ITA: 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 2010 Slide 13 Submissions on Draft 2010 Taxation Laws Amendment Bills

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