SAIPA COMMENTS DRAFT TAXATION LAWS AMENDMENT BILL AND TAX ADMINISTRATION LAWS AMENDMENT BILL 2017

Section 10(1)(o)(ii) ITA – foreign source remuneration exemption . Section 10(1)(o)(ii) ITA – foreign source remuneration exemption The proposal presented by the Minister of Finance as part of the National Budget was that amendment would be made to address to avoid double non-taxation, by means of extending the qualifying criteria so that the exemption will apply only if the foreign source remuneration is subject to tax in the other State. This is different from the draft TLAB that repeals this section, so that no exemption would apply. SAIPA supports the preservation of the tax base by avoiding circumstances of double non-taxation, and to limit opportunities for tax evasion. We also agree with the intention to align with the world-wide tax treatment. However, we do have some concerns, which has not been addressed by National Treasury. Although the proposed implementation date is 1 March 2019, there are legal, practical, and administrative issues that need to be addressed.

Section 10(1)(o)(ii) ITA – foreign source remuneration exemption . Section 10(1)(o)(ii) ITA – foreign source remuneration exemption While a tax credit could be available to avoid double taxation, the significant difference is that the foreign source remuneration will increase the taxpayer’s taxable income, and could significantly inflate the tax liability in regards to other income and capital gains. The taxpayer’s foreign source remuneration may be greater than would have comparatively been earned in South Africa, but the cost of subsistence is generally also much greater, and the effect of foreign exchange rates could further inflate the tax liability. The taxpayer does not get a deduction or credit for such subsistence costs (often in addition to the subsistence costs and financial burdens back in South Africa, where he still maintains a home and dependents). Where the taxpayer is employed by a South African employer, that taxpayer will be subject to tax in the source State and in South Africa (generally as employees’ tax), which means that the taxpayer would be adversely impacted in regards cash-flow, and would increase the administrative burden and risks for SARS on assessment due to increased instances of refunds.

Section 10(1)(o)(ii) ITA – foreign source remuneration exemption . Section 10(1)(o)(ii) ITA – foreign source remuneration exemption This proposal will increased the compliance and administrative costs. A good tax system should consider the ‘economic efficiency’ and the ‘administrative efficiency’- Economic efficiency: Taxation results in administration costs for Government and compliance costs for the taxpayer, which should be kept to a minimum. Increase in resources allocated adds to the cost of taxation. Administrative efficiency: Tax burden must be clear and reasonably easy to determine, which is undermined by complexities in the formulation or administration of the tax. To minimise administration and compliance costs, and to ensure optimal efficiency, taxes should be ‘simple’ and ‘certain’. The increased instances of Treaty interpretation, supporting documentation required, and the added burden when filing and assessing taxes must be considered. Noting that the supporting documentation generally relates to other jurisdictions (timing differences, language, exchange differences, disclosure and taxing system differences).

Section 10(1)(o)(ii) ITA – foreign source remuneration exemption . Section 10(1)(o)(ii) ITA – foreign source remuneration exemption Each jurisdiction has its own tax system. Other jurisdictions do not have a February tax year end, and do not have the same collection and assessment cycle. Other jurisdictions do not have the efficient electronic systems that SARS provide, and many still have manual systems. The documentation produced by the other jurisdictions typically differs for the type of discloser we would require in South Africa (such as the IRP5 employees’ tax certificate). Some jurisdictions utilises self-assessment and no assessment is issued by the revenue authority. All this adds to the complexity and results in increased compliance costs. The taxpayer will have a greater burden of proof, and we anticipate an increase in instances where the taxpayer will not be able or willing to file tax returns timeously, and even an increased in disputes. Where the taxpayer is required to file provisional tax estimates, the taxpayer cannot merely rely on a exemption, but will no need to include the foreign source remuneration and estimated foreign tax credits. Due to the complexities already referenced, we anticipate an increase in under estimation penalties and interest, and increase in disputes.

Section 10(1)(o)(ii) ITA – foreign source remuneration exemption . Section 10(1)(o)(ii) ITA – foreign source remuneration exemption The foreign tax credits available may not be sufficient to recognise the real taxation incurred by the taxpayer. The foreign tax credits would be limited to direct tax applied against the foreign source remuneration. However, other States have different taxing systems, and different means to collect tax revenues. Where a State utilises indirect taxes and other employee/employer contributions, and less reliance on direct taxes, such will effectively jeopardies the resident taxpayer, and even increase the overall employment costs. Some believe that the repeal of the exemption may result in more incidents of immigration. We are concerned that some taxpayers may attempt to avoid the complexity and tax outcome, and to give effect to such will retain there foreign sourced income and wealth offshore, which will be a pure loss to society.

Tax relief for Bargaining Councils . Tax relief for Bargaining Councils The proposal provides relief for Bargaining Councils in regards to non-compliance. We do not object to this, but question why this is not available to all taxpayers, and why the current VDP (voluntary disclosure) is not used to provide relief and opportunity to remedy compliance. This proposed relief is effectively an amnesty! How does this amnesty address the risk of repeat non-compliance in future?

Loans to Trusts (section 7C) . Loans to Trusts (section 7C) We agree that amendment is required to extend the scope of the section 7C provisions to address avoidance. However, we are concerned that the proposed amendment is overly broad and go beyond anti-avoidance in regards the Estate Duties and Donations Tax. We propose that the bona fide employer share incentive trusts exclusion should be broader in scope to allow for exclusion of all bona fide transactions/structures, such as business trusts.

Time of Supply for leasehold improvements . Time of Supply for leasehold improvements The proposed new section 9(12) of the Value-Added Tax Act in regards the time of supply for leasehold improvements, may allow for time of supply to be manipulated. The time of supply rule relies on a point of completion as the trigger, and as such we propose that a definition for ‘completed’ should be inserted.

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