Revenue Laws Amendment Bill, 2004 Representations and comments to the Portfolio Committee on Finance Tuesday, 19 October 2004

PricewaterhouseCoopers representations Overall impressions Positives Very well put together Bill; Themed sections as per last year very helpful; Majority of measures introduced understandable, justified and welcomed; Regarded as a welcome consolidation after last few years of introducing new concepts

PricewaterhouseCoopers representations Overall impressions Areas of remaining concern Some instances where anti-avoidance considered to go too far; Need for early inclusion of suggested effective dates; Timing remains an issue; Draft bill issued late Thursday 30 September (themed sections) Responses required by Tuesday 12 October (8 business days) PCoF presentation Friday 15 October (2 intervening business days) PCoF hearings Tuesday/ Wednesday 19/20 October (1 ½ intervening business days) SARS/ Treasury feedback to PCoF and final bill to printers Friday 22 October Status as a money bill and committee’s role.

PricewaterhouseCoopers representations Key sections to be covered Broad based employee share incentive; Extent of anti-avoidance measures; Advance rulings; STC credits Other issues noted; and Other issues not addressed in legislation.

PricewaterhouseCoopers representations Broad based employee share incentive Perceived issues; Groups utilising a single employment company Reporting requirement on employees Absence of related stamp duty exemptions (especially where involves transfer of existing shares as opposed to issue of new shares)

PricewaterhouseCoopers representations Extent of anti-avoidance measures Taxation of executive equity schemes (s8A) Considered can result in double taxation in some instances Can result in inappropriate taxation in other instances Hybrid instruments True fees may be tainted

PricewaterhouseCoopers representations Extent of anti-avoidance measures Deferred instalment sales (s24M) Wholesale exclusion of connected party transactions not considered justified Elsewhere (e.g. para 39) provides carve outs for connected party transactions done at arms length. Similar concept required here

PricewaterhouseCoopers representations Extent of anti-avoidance measures Share for property transfers (s24B) Not all cross issues are effected for avoidance purposes. Need exclusions for bona fide commercial transactions and/ or time limits such as adopted elsewhere Simple example of capitalising a company then 10 years later effecting a reorganisation Degrouping charges (s45(4)) Previously (correctly) didn’t trigger any gain/ loss in transferee company – now does so

PricewaterhouseCoopers representations Extent of anti-avoidance measures Foreign trusts (s25B(2A)) Converts capital amounts and exempt amounts into normal income

PricewaterhouseCoopers representations Advance rulings Anti-avoidance Key function of system (i.e. SARS acceptance of bona fide business reasons and not SA tax driven) Time frames Certain transactions likely to require at least “in principle” agreement on tight deadlines Retrospective revocation Creates uncertainty and casts doubt in value of system

PricewaterhouseCoopers representations Advance rulings Scope Need to cater for transfer taxes (UST, SD, TD) Excluded circumstances (s76G(1)) Seriously contemplated Vexatious Draft legislation

PricewaterhouseCoopers representations Advance rulings Rejected circumstances (s76G(2) & (3)) Similar rulings Time consuming Circumstances to be determined by the Commissioner Publication Issues with adoption of this approach Absence of either requirement on Commissioner to take cognisance of taxpayer comments or sanction if Commissioner fails to meet own obligations

PricewaterhouseCoopers representations STC credits – s64B(3A) Starting point is stated intent not to levy STC on same profits twice Branches; Instances where 10% equity holding requirement is not met

PricewaterhouseCoopers representations Other issues Administration and encouragement of foreign investment (s66) Requirement for non-residents to register and file returns, even where earning only exempt income (e.g. s10(1)(h) interest) at odds to encouraging portfolio investment Unnecessary burden on investor and SARS with no benefit for either Share for property transfers Dispute as to position under current law leads to uncertainty Previously pressed for clarity now proposed Issue of effective date

PricewaterhouseCoopers representations Other issues Open transaction method for sales Related issue of stamp duty/ UST not addressed Withholding of sales proceeds re non-resident property sales Administrative issues How will payment be allocated to non-residents who aren’t registered? What if foreign estate agents (not subject to FICA) are used How to police a transaction totally outside SA

PricewaterhouseCoopers representations Other issues – not in legislation Foreign provisions Business establishment exemption where employment companies are utilised Imputation of passive income where overall losses arise Active royalty income Extent of exemption on foreign dividends Group matters RSC double taxation