SOUTH AFRICAN CHAMBER OF BUSINESS
Revenue Laws Amendment Bill - Commentary
1. Introduction SACOB represents some fifty Chambers of Business/Commerce, forty Trade Associations, and one hundred and fifty large corporations. In total, close to 35 000 businesses are represented by and through the Chamber structures belonging to SACOB. In the time allowed for comment only superficial consultation with the membership base has been possible. We are pleased to note from the presentation by the National Treasury to the joint meeting of the Portfolio and Select Committee concerned, the stated intention to introduce a general business tax stimulus, together with a small business tax stimulus. We do, however, have a number of concerns as set out below.
2. Foreign Provisions and STC
2.1 Designated Country provision – removal The removal of the designated country exemption provision could leave the taxpayer in a worse-off position. Consider a situation of a Group Treasury company established in a high tax jurisdiction. In circumstances where such a company might not be taxpaying (e.g. tax loss or Group tax relief provisions), the company’s income would have been exempt due to being in a designated country. The removal of the designated country provision now makes it liable for tax in South Africa under section 9 D.
2.2 Section 9D (2A) – Amendment para (h)
Section 10 (1) (k) (ii) (bb) and (cc) should be included under the phrase: ‘ as if that controlled foreign company had been a taxpayer, and as if that company had been a resident for the purposes of …"
2.3 Section 9D (9) – Amendment (m), (o), (p) and (q)
It will be impractical to implement the requirement that the income affected should carry an effective tax rate at least equal to the South African tax rate. Where the number of transactions amounts to thousands, it will be impossible to extract each item of affected income. It is unclear as to what is meant by ‘effective tax rate’ and ‘tax rate’.
2.4 Section 10(1)(k) exemptions
The effective date is years of assessment commencing on/after 1June 2004. This pushes out the effective date to companies to the 2005 tax year that delays the implementation of this exemption (announced in the 2003 Budget) even further. The exemption should apply from the commencement of years of assessment on/after 1 January 2004.
2.5 Section 10(1)(k)(ii) para (h) amendment
The exclusion from this exemption of shares regarded as affected instruments is considered to be penal, particularly in situations where one holds in excess of 25% of a foreign company.
2.6 Section 10(1)(k)(ii)(cc) Possible error?
"inclusion" to read "exclusion" in the last sentence
2.7 Section 64B Amendments to para (f) and para (o)
This change will serve as a deterrent to companies for repatriating foreign reserves from previously exempted designated companies. Consider that any foreign dividend received in South Africa will be subject to STC on being distributed further within South Africa. In effect it adds 11,1% to bringing the dividend onshore to South Africa. This could be resolved if all foreign dividends exempted under section 10(1)(k)(ii) were permitted an STC credit on being repatriated to South Africa.
The purpose of the provision in para (o) is not clear. The term "shareholder company" needs to be defined.
2.8 Section 64C Amendment to para (m)
The reference in the preamble to "which is resident" does not specify which of the following parties qualifies; the company, the shareholder or connected party.
2.9 Section 72A (3) and (4) These provisions are penal and onerous. They do not recognise the practicalities of doing business in foreign jurisdictions where the requirements in respect of financial statements, and accounting practices differ from those in South Africa.
Section (4) leaves SARS with discretionary powers to impose a penalty. It is unreasonable to permit SARS to levy double taxes on a taxpayer as a result of administrative problems. Should it not rather be an offence with consequential implications?
2.10 Reportable Transactions
These provisions have a broad application which extend to all manner of transactions, some of which their application might not have been the intention (e.g. finance leases, insurance policies).
2.11 Section 76A Definitions
Because of its wide definition, great uncertainty is introduced in the mind of taxpayers as to which transactions fall within the scope of a reportable transaction. The compliance burden imposed upon taxpayers and SARS is severe and iimpractical.
2.12 Business and Reinvestment Provisions Para. 66 of the Eighth Schedule (Reinvestment of Assets) proposes that the replacement asset be brought into use within 18 months of the disposal of the existing asset. . Some very large assets require a substantial amount of time to erect and to bring them into use. Therefore a period of three years should be given to bring the asset into use – as in the case of an Involuntary Disposal under paragraph 65.