How global megatrends could change tax in Africa

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Morgan Bishop
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1 How global megatrends could change tax in Africa

2 Panel Moderator Panel Mark Goulding George Trollope Mark Kingon Michael Lalor EY Tax market segment leader Southern region Vice President Tax Sasol South Africa (Pty) Ltd Group Executive: Operational Service Escalations & Support Modernisation & Technology South African Revenue Services EY Africa Business Centre Leader Nishana Gosai Manager Transfer Pricing South African Revenue Services Page 2

3 Agenda Details of three global megatrends Big data and transparency Global marketplace, emerging markets and talent Technology The tax impact of such megatrends Panel discussion on how revenue services and corporate taxpayers are planning to adjust for such megatrends Page 3

4 Future megatrends Megatrends are: large, transformational global forces that define the future by having a far-reaching impact on business, economies, industries, societies and individuals Page 4

5 Megatrend 1 Big data and transparency Page 5

6 Big data and transparency Trends Relationship between company and customer changes through the digital transformation and spread of data Example: Online sale of books and music Page 6

route-to-market Example: Online supermarket with delivery

7 Big data and transparency Trends Digital transformation is changing business models including revenue models and route-to-market Example: Online supermarket with delivery Creation of transparency for management and stakeholders Page 7

8 Big data and transparency Tax effects Data requirements of the Base Erosion Profit Shifting (BEPS) initiative Does data have a value from a tax perspective? Tax Transparency (increased public awareness) The tax authorities use improved database tools Measures of control for management: What information about the company should be made public? Page 8

9 Megatrend 2 Global marketplace, emerging markets and talent Page 9

10 Global marketplace, emerging markets and talent Trends Global economic power will continue shifting to rapid-growth economies Page 10

11 Global marketplace, emerging markets and talent Trends Trade-flow patterns will undergo continued transformation Page 11

Global marketplace, emerging markets and talent Trends Developing countries will continue to grow their share of capital inflows and outflows 50% of the increase in

12 Global marketplace, emerging markets and talent Trends Developing countries will continue to grow their share of capital inflows and outflows 50% of the increase in world population between now and 2050 will take place in Africa* Africa offers high potential in workforce * UN population division, World Population Prospects (2012) Page 12

The emerging markets in Asia are no longer regarded as lowwage countries Transfer of value chains

13 Global marketplace, emerging markets and talent Trends New world order of knowledge is emerging with Asia as the centre Shortage of skilled labour is threatening the innovation power of Europe The emerging markets in Asia are no longer regarded as lowwage countries Transfer of value chains to emerging markets Research and development (R&D) centres in Asia Africa? East outsource to Africa? Page 13

14 Global marketplace, emerging markets and talent Tax effects Change of value chain: Geographic movement of workforce to companies or of companies to the workforce? Permanent establishment risk (virtual working, establishment of hubs abroad) Matter of substance (allocation of profits) in case of transfer of value chain and knowledge R&D promotion and taxation of intellectual property R&D Headquarter Production Customer Distribution Creativity management data analysis Page 14

15 Global marketplace, emerging markets and talent Tax effects Uncertainty / new regulation changing regulatory environment Less sophisticated tax authorities are increasingly faced with complex regulations and operating models Risk of double taxation through divergence in the tax systems Matter of substance (transfer of value chains) Exit tax to be considered when transferring functions into markets of the future like Africa or Asia South Africa Namibia Algeria Algeria Malawi Zambia South Africa Egypt Angola Mozambique** * TP legislation came into effect 1 January 2015 ** Draft TP legislation Zambia Kenya Burkina Faso Nigeria Malawi Egypt Namibia Namibia Cameroon Senegal South Africa Congo South Africa Zambia DRC* Tanzania Ghana Gabon Kenya Sierra Leone Uganda Zambia Zimbabwe There has been more than a 300% increase in transfer pricing legislation in Africa over the past 5 years Page 15

16 Megatrend 3 Technology Page 16

17 Technology Trends Automation through (further) development of intelligent robots Use of robots in logistics, production and daily lives Example: Automatic driving (Google), dronebased delivery (Amazon), home construction per 3-D printer Sharing arrangements: Forming of manufacturing communities Differentiation between producer and consumer diminishes Increasing usage of mobile devices Faster and more cost efficient processing of orders Risk through market entry of new market participants Effects on the supply chain: example 3D print R&D R&D Supply Production raw materials Classic supply chain Supply raw materials Scenario A: Modified supply chain R&D Supply raw materials Scenario B: Modified supply chain Sales/ distributor Distributor Customer Customer Customer Page 17

18 Technology Tax effects Effects: example 3D printing Key impacts: R&D Entrepreneur R&D Entrepreneur Ownership of printer Developer Customer Delivery Production raw materials Classic supply chain Blueprint License payment Modified Supply Chain Sales/ distributor Customer Customer Usage of printer Developer Customer The intercompany pricing of the flow of goods will be omitted What is the intangible asset? Problems with the allocation of intangible assets in times of automated manufacturing processes Higher importance of licensing In the future, the value creation will take place in fewer steps due to sharing arrangements Numerous combinations of property and usage of 3D printers are possible, with different tax consequences Community Community Third Party Third Party Page 18

19 Technology Trends house built in China in 2015 using a 3D printer Page 19

20 Conclusion Page 20

21 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com EYGM Limited. All Rights Reserved. EYG no. DL1428 This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com

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