Presentation to the Portfolio Committee on Finance on the Draft Taxation Laws Amendment Bill, 2008 March 5, 2008

Page 2 of 8 March 5, 2008 Page 1.Summary of existing section 45 relief 3 2.Summary of proposed changes to section 45 and impact thereof 4 3.Illustration of impact of proposed exclusion of cash transactions 5 4.Example of cascading effect of CGT 6 5.Illustration of impact of proposed treatment of debt instruments 7 6.Classes of transactions affected 8 Note:Details in brackets, italics and bold after statements in following slides refer to the detailed commentary in Bravura’s full written submission to the Committee dated 27 February 2008 (copy attached after slide presentation for ease of reference). Contents

Page 3 of 8 March 5, 2008  Applies in respect of transfers between common group members (common 70% equity ownership test)  Applies as a deferral mechanism  Whilst assets remain within the group no tax is levied on transfers between group members  Recipient company (‘transferee’) takes on rolled over base cost in assets  Transferor company is not taxed on proceeds (whether sale is at tax base cost, book value, market value or somewhere in between)  When recipient company disposes of asset rolled over gain is triggered  Taxation only occurs at point asset leaves the group – i.e. only when the group actually realises a ‘real’ profit  Taxation only levied once - no double taxation Summary of existing section 45 relief

Page 4 of 8 March 5, 2008  Where intra-group purchase is settled in cash, relief will not apply (para 2.1)  Acceleration of tax event, notwithstanding assets remain in group (i.e. no ‘cash-out’)  Nonsensical to disapply relief across the board for all cash transactions  Where intra-group purchase is funded by loan account, tax base cost in loan equals rolled over base cost of assets (para 2.2)  Results in double taxation  once when assets sold – fair  Once on repayment of the loan – again nonsensical (group makes single economic gain but is taxed on that same gain twice)  No means of mitigating as is the case for other reliefs where cascading effect applies  Effectively kills relief for intra-group transactions (para 2.3)  Media Statement’s comment that alternative relief can be used not valid in all cases and in any event begs the question as to point of retaining s45 if purpose is to push towards other sections Summary of proposed changes to section 45 and impact thereof

Page 5 of 8 March 5, 2008 Illustration of impact of proposed exclusion of cash transactions (App 1) Position under existing legislation Existing structure Action Subco 1 sells assets (base cost R20 and market value R100) to Subco 2 for R100 cash Effect Holdco, Subco 1 and Subco 2 all form part of the same group of companies so section 45 roll-over relief can apply No gain taxed in Subco 1 Subco 2 takes on Subco 1’s previous R20 base cost Tax event deferred until Subco 2 sells assets (i.e. when group realises gain) Position post proposed changes Existing structure and action As aside Effect Sale precluded from relief under section 45 merely by virtue of the price being settled in cash –Transfer for no consideration undesirable either due to existence of minorities (Subco 1 or Subco 2) or solvency considerations –Section 42 relief undesirable as, inter alia, would result in cross holding of shares Group (in Subco 1) taxed on gain although assets remain in group and gain has not truly been realised (either economically or from a consolidated accounts perspective) Holdco Subco 1Subco 2

Page 6 of 8 March 5, 2008 Example of cascading effect of CGT (App II) Illustration of potential issue Existing structure Holdco has base cost in Midco of R20 Midco is worth R100 Midco has base cost in Subco of R20 Subco is worth R100 Action Midco sells Subco for R100 Parent sells Midco for R100 Effect Midco is taxed on gain of R80 Parent is taxed on gain of R80 Means of mitigating cascading effect Existing structure As aside Actions Midco sells Subco for R100 Midco declares dividend of R80 (profit on sale Subco) Parent sells Midco for R20 Effect Midco is taxed on gain of R80 Parent receives a tax free dividend of R80 Parent receives sale proceeds of R20 but has a base cost of R20 so no gain arises on sale Overall the group has made an economic gain of R80 and has been taxed on that Alternative mitigation of cascading effect As an alternative to the above Midco could have first been liquidated under s47 (liquidation) relief Subsequent sale by Parent of Subco gives (single) taxable gain of R80 Holdco Midco Subco

Page 7 of 8 March 5, 2008 Illustration of impact of proposed treatment of debt instruments (App III) Position under existing legislation Existing structure Action Subco 1 sells assets (base cost R20 and market value R100) to Subco 2 on loan account for R100 Effect Holdco, Subco 1 and Subco 2 all form part of the same group of companies so section 45 roll-over relief can apply No gain taxed in Subco 1 Subco 2 takes on Subco 1’s previous R20 base cost Tax event deferred until Subco 2 sells assets (i.e. when group realises gain) No tax event on repayment of loan by Subco 2 Position post proposed changes Existing structure and action As aside Effect No gain taxed in Subco 1 on sale of assets On sale of assets by Subco 2, taxable gain in Subco 2 of R80 Repayment of loan by Subco 2 to Subco 1 gives rise to a further gain in Suibco 1 of R80 Irrespective of any dividend declared by Subco 1 or Subco 2 the group pays tax on gains of R160 notwithstanding real economic gain of only R80 Other notes Whilst a sale at undervalue, say R20 (base cost) would remove this problem not always feasible, e.g. –If minorities exist in Subco 1 a sale at undervalue prejudices them –If minorities exist in Subco 2 a sale at undervalue prejudices the Holdco group (typical BEE transaction) –Where governance or solvency considerations apply Holdco Subco 1Subco 2

Page 8 of 8 March 5, 2008  BEE (especially BBBEE) – internally funded (paras 3.2 to 3.2.8)  BEE (especially BBBEE) – externally funded (paras 3.3 to 3.3.8)  Securitisations (paras 3.4 to 3.4.6)  Other transactions (preclusion of cash) (paras 3.5 to 3.5.4)  Other transactions (debt instruments) (paras 3.6 to 3.6.3)  Leveraged transactions (paras 3.7 to 3.7.4) Classes of transactions affected