1. Standing Committee on Finance
Standing Committee on Finance
Public hearings draft Taxation Laws Amendment Bill & Tax Administration Laws Amendment Bill
16 September 2015

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. Thank you
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