Standing Committee on Finance www.pwc.com Standing Committee on Finance Public hearings - 2015 draft Taxation Laws Amendment Bill & Tax Administration Laws Amendment Bill 16 September 2015

Agenda Proposals welcomed Repeal of s6quin Share incentive schemes Third party agents Extension of prescription Reduction and withdrawal of assessments Draft Taxation Bills 2015 September 2015

Proposals welcomed From a policy perspective, reforms in the following areas are welcomed Most amendments relating to individuals Cancellation of contracts Foreign partnerships Amendments to incentives Relaxation of CGT rules on cross-issue of shares Expansion of VDP scope Draft Taxation Bills 2015 September 2015

Repeal of s6quin Background General rule – credit for foreign taxes only for foreign-sourced income S6quin - Credit for foreign taxes on SA-sourced service fee income in 2 circumstances: Foreign tax levied by treaty country contrary to treaty Foreign tax levied by non-treaty country Rationale for s6quin- Eliminate double tax Make SA attractive as regional service hub Avoid shift of services to other locations Draft Taxation Bills 2015 September 2015

Repeal of s6quin Proposal Repeal in entirety Reasons for proposed repeal - Departure from international practice Encourages treaty partners not to comply Administrative burden on SARS Used for income not intended to be covered Rationale for the foreign tax credit remains valid Credit should be retained, at least for non-treaty countries Should be clarified to eliminate use for income not intended to be covered Draft Taxation Bills 2015 September 2015

Interaction between share scheme and trust rules Background Often share schemes facilitated through trust where employee acquires shares in employer from a trust established for this purpose. Example – share trust receives contribution from employer to acquire shares. Trust grants employee units in trust constituting right to delivery of shares subject to certain conditions being met, e.g. service and performance Employee taxable on value of shares at delivery Trust has CGT event when shares delivered and gain attributed to employee Proposals to address trust implications Creates numerous anomalies Significant issues with share schemes remain Issues should be comprehensively addressed Draft Taxation Bills 2015 September 2015

Tax administration Third party agent appointments SARS has power to issue notice to third party holding or owing money to taxpayer to pay money to SARS for tax debt Usually bank, employer, pension fund Proposed to amend law to allow for automation of process of issuing of notice Acknowledged that SARS requires powers to collect tax debts However, significant concerns – Not used as last resort Accuracy of system Increasing volumes Impact on taxpayers and others Proposed system criteria not clear Constitutionality? Draft Taxation Bills 2015 September 2015

Tax administration Third party agent appointments “If you had to sit in that office for one week and see men and women coming in genuinely seeking help – crying – their bank accounts frozen, their businesses’ bank accounts frozen and they are put in a position where they have no cash at all, only to find that perhaps SARS was wrong, you will realise the importance of what I am talking about.” Judge Bernard Ngoepe – Tax Ombud – quoted by Moneyweb Draft Taxation Bills 2015 September 2015

Tax administration Extension of prescription Generally SARS prohibited from raising additional assessment after 3 years or 5 years in case of self-assessment Rationale is to bring finality to tax matters Proposal to extend prescription in certain circumstances by “appropriate period” Failure to provide information timeously or resolution of entitlement dispute Audit of complex matters (outer limit of 3 years) Draft Taxation Bills 2015 September 2015

Tax administration Extension of prescription In principle not opposed to proposal However some concerns: Extension for information delays should be limited to time of delay Meaning of complex matter vague and uncertain Should be limited to published list 3 year extension too long – 18 months sufficient Audit must have commenced within reasonable period prior to prescription and realistic assessment that matter complex Decision to extend prescription should be subject to objection and appeal Draft Taxation Bills 2015 September 2015

Tax administration Reduced assessments and withdrawal of assessments S93 allows for reduced assessments in cases of undisputed error S98 allows for withdrawal of assessment in case of undisputed error by taxpayer in return, all other remedies exhausted and in interest of good management of tax system. Proposed that s93 remedy limited to 6 months from assessment Proposed that s98 remedy not apply to taxpayer errors Draft Taxation Bills 2015 September 2015

Tax administration Reduced assessments and withdrawal of assessments Taxpayers forced into dispute process for undisputed errors Taxpayers have 51 business days to object to assessment unless exceptional circumstances Exceptional circumstances interpreted narrowly by SARS Likely to result in unfair and inequitable tax liabilities for taxpayers Taxpayers effectively given 6 months to correct errors or be liable for the excess tax Increased perception of imbalance between SARS powers and taxpayer rights Negative impact on social contract and tax morality Draft Taxation Bills 2015 September 2015

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