1.  Standing Committee on Finance Submissions : (Draft) Taxation Laws Amendment Bills 24 June 2009 PwC Tax Services*, South Africa *connectedthinking

2. PricewaterhouseCoopers June 2009 Slide 2 Submissions on the (draft) Taxation Laws Amendment Bills 2009 Contents I.Consultation Period II.2 nd Provisional Tax Estimate III.Trading Stock – Mining stock-piles IV.CERs V.CFCs VI.Research & Development VII.Dividends Tax & Deemed Dividends VIII.Dividends Tax on Capitalisation Shares IX.Cross-issue of shares X.Employer-provided post retirement medical aid XI.Foreign Portfolio Shares

3. PricewaterhouseCoopers June 2009 Slide 3 Submissions on the (draft) Taxation Laws Amendment Bills 2009 I.Consultation Period Very short consultation period – AGAIN Complexity and volume –Seasoned tax practitioners require more time. What about average taxpayers No chance of further debate after today –Further submissions to NT/SARS – but not to Standing Committee –Need for rebuttal acknowledged previously – but?

4. PricewaterhouseCoopers June 2009 Slide 4 Submissions on the (draft) Taxation Laws Amendment Bills 2009 II.2 nd Provisional Tax Estimate Unfair proposal −No benefit for taxpayers not part of “designated class” −Substantial hardship also for larger “sophisticated” taxpayers Inappropriate for relief to be left to Commissioner’s discretion. −Removes contentious and problematic issue from public debate. International precedent does not support the combination of −High accuracy requirement (80%) together with −Harsh penalty (20%)

5. PricewaterhouseCoopers June 2009 Slide 5 Submissions on the (draft) Taxation Laws Amendment Bills 2009 2 nd Provisional Tax Estimate Irish Preliminary Tax: 90% accuracy requirement −Interest (not penalty) upon under-estimate Safe harbour for individuals −100% of previous year’s tax liability −105% of tax liability from year before last SA taxpayers get the worst of both worlds?

6. PricewaterhouseCoopers June 2009 Slide 6 Submissions on the (draft) Taxation Laws Amendment Bills 2009 III. Trading Stock – Mining Stockpiles Inclusion of stockpiles - undue burden on mining industry (esp in current economic climate) Valuation complexities Sudden increase in Taxable Income Definition extended too wide –Will include property not intended to be trading stock

7. PricewaterhouseCoopers June 2009 Slide 7 Submissions on the (draft) Taxation Laws Amendment Bills 2009 IV. Certified Emission Reductions Proposals welcomed & applauded -Although time frame may be too short to incentivise new CDM projects Confirm full deductibility of expenditure -Especially “mixed purpose” expenditure Ensure exclusion of CERs from “trading stock” CERs distributed in return for capital contribution -Exempt in-specie distribution of CERs from STC & Dividends Tax VAT: Provide specific Zero-rating provision

8. PricewaterhouseCoopers June 2009 Slide 8 Submissions on the (draft) Taxation Laws Amendment Bills 2009 V. Controlled Foreign Companies (CFC’s) Exemptions (s9D(9)) should be elective SA cannot be gatekeeper for foreign tax -SA multinationals disadvantaged -Remove requirement that choice of FBE not motivated by foreign tax

9. PricewaterhouseCoopers June 2009 Slide 9 Submissions on the (draft) Taxation Laws Amendment Bills 2009 Controlled Foreign Companies (CFC’s) Inappropriate emphasis on “incorporation” inappropriate (for both “foreign business establishment & “high tax” exemptions) -Consider tax residence –or ignore residence/incorporation altogether -Focus is on substance (“establishment”) or actual tax paid (“high tax”) High tax exemption : Confirm ability to use loss carry-backs and “group” losses as allowed under foreign tax laws -Do not limit loss-utilisation to SA concept of “assessed losses” Tax paid @20% will not reach 75%-of-SA-Tax threshold -Apply 2/3 or 70% test

10. PricewaterhouseCoopers June 2009 Slide 10 Submissions on the (draft) Taxation Laws Amendment Bills 2009 VI. Research & Development Applaud initiative to incentivise R&D activities in SA -Including foreign-funded R&D But recoupment provisions negate incentive – Unintended? -Re-confirm ability of SA contract-researchers to receive tax benefits from foreign-funded R&D

11. PricewaterhouseCoopers June 2009 Slide 11 Submissions on the (draft) Taxation Laws Amendment Bills 2009 VII. Dividends Tax & Deemed Dividends Deem actual shareholder to be deemed recipient Double Taxation when Deemed Dividend followed by actual dividend -Deemed dividend should increase “contributed tax capital” Exit charge should be reduced by “contributed tax capital” Financial assistance refinements required -Capital amount should not be deemed dividend if transfer pricing adjustment to interest -Interest rate exemption: Dual test should be simplified -Exemption for loans to share incentive trusts (etc.)

12. PricewaterhouseCoopers June 2009 Slide 12 Submissions on the (draft) Taxation Laws Amendment Bills 2009 VIII. Dividends Tax on Capitalisation Shares Departure from “ability to pay” principle Will skew market towards preferring cash over shares Enhancements of preferences or rights – vague and uncertain -Double tax potential where also value shifting arrangement for CGT -Valuation of enhancements difficult

13. PricewaterhouseCoopers June 2009 Slide 13 Submissions on the (draft) Taxation Laws Amendment Bills 2009 IX.Employer-provided Post Retirement Medical Aid Allow deduction also in respect of current employees Difficult to separate contributions between current and former employees Allow deduction even if employer still has some obligations to employee If risk substantially transferred to insurer Economic effect same as case of former employees. Confirm exemption for employees Allow deduction for all post-retirement obligations

14. PricewaterhouseCoopers June 2009 Slide 14 Submissions on the (draft) Taxation Laws Amendment Bills 2009 X. Cross Issue of Shares Anomaly A Target B AB Targeted cross-issue : A issues shares to B, in return for B issuing shares to A s24B(2): A’s cost of B shares = Nil,; & B’s cost of A shares = Nil Unintended Anomaly : A buys B-shares, then B buys Target-shares s24B(2): A’s cost of B shares = NIL; & B’s cost of Target shares = NIL

15. PricewaterhouseCoopers June 2009 Slide 15 Submissions on the (draft) Taxation Laws Amendment Bills 2009 X. Cross Issue of Shares Anomaly Proposed amendment does not rectify anomaly Relief only to “groups” limits protection unfairly – e.g. most BEE transactions are not “group” transactions Only corrects one element of the anomaly -(Covers B’s cost in Target, but what about A’s cost in B) Does not clearly cover cash transactions A Target B

16. PricewaterhouseCoopers June 2009 Slide 16 Submissions on the (draft) Taxation Laws Amendment Bills 2009 X. Foreign Portfolio Shares Foreign (listed) dividends should not be taxed when paid to SA companies or CISs Confirm retention of Normal Tax exemption (s10(1)(k)(ii)(bb))

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