1. Portfolio Committee on Finance Submissions on the (Draft) Taxation Laws Amendment Bill, 2008 5 March 2008 *connectedthinking PwC Tax Services*, South Africa PricewaterhouseCoopers

2. Submissions on the (Draft) Taxation Laws Amendment Bill, 2008 – 5 March 2008 Slide 1 Main concerns I.Timing & process II.Anti-avoidance rules cast too widely Specific concerns I.Participation exemption II.Intra-group transactions III.Expatriate accommodation IV.Connected person share transfers V.VAT threshold Contents

3. PricewaterhouseCoopers Submissions on the (Draft) Taxation Laws Amendment Bill, 2008 – 5 March 2008 Slide 2 Main concerns (1) Timing and Process Very short consultation period Unexpected complexity and controversy TLAB traditionally limited to ‘routine’ adjustments Proposed amendments require substantial consultation No chance of further debate after today!!! A real flaw in the Parliamentary process

4. PricewaterhouseCoopers Submissions on the (Draft) Taxation Laws Amendment Bill, 2008 – 5 March 2008 Slide 3 Main concerns (2) General Vs Specific anti-avoidance We already have a world-class GAAR – Let’s use it! Draw-back of specific anti-avoidance : Difficult to get the scope “just right” Too narrow? Ineffective Too broad? Innocent casualties Therefore : Avoid it … OR Ensure proper consultation Proliferation of specific rules – Are we starting off down the wrong path (that may be difficult to come back from)?

5. PricewaterhouseCoopers Submissions on the (Draft) Taxation Laws Amendment Bill, 2008 – 5 March 2008 Slide 4 Specific concerns (1) Participation Exemption Objective: To encourage ‘active’ business investments & simplify foreign group transactions Proposal:Exclusion of CFCs migrating back to SA Concerns:‘Blunt’ specific anti-avoidance measure that: Charges an “entry fee” in addition to the exit charge Uniquely draconian ito Global benchmarks & International competitiveness Possible total withdrawal of PE – Shift in tax policy? TLAB : Clauses 42 & 45 PwC submissions : Notes 7 & 8

6. PricewaterhouseCoopers Submissions on the (Draft) Taxation Laws Amendment Bill, 2008 – 5 March 2008 Slide 5 Specific concerns (2) S45 Intra-group transactions Objective:To facilitate intra-group asset-transfers by deferring the tax cost Proposal1:Limit scope to only debt-instrument consideration Effect:Disqualifies cash transactions & asset-swaps Proposal2:Impose tax on debt-instrument Effect:Double tax – Same tax collected on asset and again on debt-instrument TLAB : Clause 26 PwC submissions : Notes 5 & 6

7. PricewaterhouseCoopers Submissions on the (Draft) Taxation Laws Amendment Bill, 2008 – 5 March 2008 Slide 6 Intra-group transactions (Cont) S45(3A) – A blunt specific anti-avoidance measure Taxable gain No s45s45New s45(3A) CoACoBCoACoBCoACoB Asset Proceeds1501801008010080 Less: Base Cost-100-150-100 Taxable Gain50300800 Taxable amount80 Objective of s45 is to defer the tax charge, without increasing or decreasing the ultimate total tax charge Effect of s45(3A) is to increase the ultimate total tax charge Debt instrument0050 130

8. PricewaterhouseCoopers Submissions on the (Draft) Taxation Laws Amendment Bill, 2008 – 5 March 2008 Slide 7 Specific concerns (3) Employer-provided accommodation (expatriates) Consider 4-year exemption in linewith Home Affairs (transfer permits) and definition of tax residence Increase 30-day exclusion to 60 days (pre-visits may exceed 30) Increase 90-day exemption to 183 days in line with DTAs Increase monthly cap to R50,000 to take into account the cost of accommodation/dependents Consider 1 Mar 08 effective date to prevent confusion in 2008/09 tax year The 30-day exclusion should not apply to the 90-day exemption TLAB : Clause 40 PwC submissions : Note 10

9. PricewaterhouseCoopers Submissions on the (Draft) Taxation Laws Amendment Bill, 2008 – 5 March 2008 Slide 8 Specific concerns (4) Restriction on share expenditure New s23K Objective: To target avoidance schemes involving non-resident holding companies Concerns: Requires inclusion in ‘income’, not ‘taxable income’ Therefore, also catches (and penalises) most share- transfers between SA-resident taxpayers TLAB : Clause 20 PwC submissions : Note 3

10. PricewaterhouseCoopers Submissions on the (Draft) Taxation Laws Amendment Bill, 2008 – 5 March 2008 Slide 9 Specific concerns (5) Effective date for new VAT threshold Increase in VAT registration threshold from R300,000 to R1m Effective 1 January 2009 Postpones the need to immediately deregister sub-R1m vendors BUT Compels new sub-R1m businesses to register now … only to then deregister again in 2009 TLAB : Clause 1 PwC submissions : Note 9

11. Portfolio Committee on Finance Submissions on the (Draft) Taxation Laws Amendment Bill, 2008 5 March 2008 *connectedthinking PwC Tax Services*, South Africa PricewaterhouseCoopersc