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

2. 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

3. 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

4. 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”)

5. 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.

6. 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?

7. 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
Proposed S6quin withdrawal = no market share on Africa’s service industry.
NDP raises the importance of SA companies to expand in Africa.

8. 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?

9. 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.