Presentation to SCoF- 16 September 2015 Withdrawal of S6quin – By Carel Gericke

PRESENTATION OUTLINE BACKGROUND BENEFITS DERIVED BY SA FISCUS 2015 – PROPOSED WITHDRAWAL OF S6quin IMPACT ON SOUTH AFRICA AS A GATEWAY TO AFRICA IMPACT ON SHARED SERVICE CENTRE’S CONCLUSION

BACKGROUND NATURE OF THE MARKETS MTN started in 1994 21 operations across Africa and Middle East Mainly developing markets. Telecom companies are usually the main tax contributor. Shortage of skills and competency. Inexperienced tax regulators. Non compliance by tax authorities to source or Treaty/DTA rules

BENEFITS DERIVED BY SA FISCUS Management fee income Taxed as arm’s length income earned by SA Taxpayer. Royalty income Re-branded to the brand of SA Parent Co. Arm’s length royalties Dividends income Dividends are generally exempt from tax. 15% DWHT is paid (subject to certain exemptions) Positive impact on balance of trade for SA Indirect benefits Creates employment for the country Marketing tool for “South Africa” in Africa. ( “MTN most valued African brand”)

2015 – PROPOSED WITHDRAWAL OF S6quin BACKGROUND Section 6quin was introduced into the Income Tax Act in 2012. Relief for double tax --- SA sourced income. 2015 DTLAB - NT is proposing to withdraw Section 6quin The reasons provided: Departure from international tax rules and tax treaty principles. Compliance burden for SARS. Recommendation of Davis Tax Committee.

IMPACT ON SA AS A GATEWAY TO AFRICA A: IMPACT ON IHQ REGIME In 2010, Parliament approved IHQ legislation (Section 9I) Commerce and Industry welcomed those changes. Multinational companies(MNC’s) to use South Africa Africa. Provision of technical support services. MNC’s will earn management fees. With the proposed withdrawal of S6quin -double taxation. IHQ regime viable?

IMPACT ON SA AS A GATEWAY TO AFRICA A: IMPACT ON IHQ REGIME (continues) In 2015 September McKinsey report: “Big 5 priorities” Sub Saharan Africa’s service market is worth $38billion South Africa captures only 2% of this industry. High level of skills and expertise needed in Africa South African business can move aggressively to claim market share by 2030. Proposed S6quin withdrawal = no market share on Africa’s service industry. NDP raises the importance of SA companies to expand in Africa.

IMPACT ON SHARED SERVICE CENTRE B: IMPACT ON SHARED SERVICE CENTRE’S (“SSH”) Telcos are faced with declining revenues and increasing costs. MTN Board took a decision to centralise back office functions. MTN’s SSH was created in 2012 and located in SA. Charges offshore Opcos at cost + mark-up. Projected staff compliment at 500 by 2018. Availability of S6quin was key consideration. Proposed withdrawal of S6quin  MTN’s SSH to operate at a loss. Would other MNC’s locate their SSH’s in SA?

CONCLUSION SARS has enough resources/systems On the issue of compliance burden SARS has enough resources/systems Departure from international tax rules National Treasury should look at broader economic gains and benefits. Conclusion We urge Members of Parliament not to approve proposed withdrawal of Section 6quin. Not line with NDP vision. Bad for South Africa as a regional hub to Africa. Bad for shared service centres in South Africa. Bad for employment in South Africa.