introduction and opening Andries Myburgh

Transcription

1 introduction and opening Andries Myburgh director tax

2 draft TLAB: debt foregone / conversions Kristel van Rensburg director tax

3 topics to be covered 1. debt forgone 2. conversion of debt into equity 3

4 debt forgone dormant companies proposed changes effective 1 January 2018 currently no group relief for debt used to fund operating expenditure (section 19) impediment to wind-up dormant companies para 12A(6)(d) group exemption to be changed: more targeted and exemption only applies if dormant group company extends to section 19 4

5 debt forgone dormant companies DTLAB: debt forgone of group company (definition of group of companies - section 41) and company for preceding 3 years: not traded no amounts received or accrued no assets transferred (will be relaxed) no liabilities incurred or assumed does not apply if debt arose in respect of assets that were disposed of under re-organizational rules Response document 3 years 1 year 5

6 conversion of debt into equity effective date: 1 January 2018 sections 19A & 19B applicable only in group of companies (section 41) HoldCo (Lender) Step 1: Subscription R100 SubCo (Borrower) Loan R100 Step 2: Set-Off

7 conversion of debt into equity cease to form part of the group: exemption from sections 19 & 12A creditor & debtor must form part of group of companies for at least 5 years from the date of conversion if cease to form part of group within 5 years difference: debt reduced; and MV of shares (at the time of de-grouping) deemed reduction amount

8 conversion of debt into equity interest reduce assessed loss balance in the year converted recoup balance: 1/3 over next 3 years cease to form part of the group: balance is fully recouped 8

9 thank you questions Kristel van Rensburg director tax +27 (0)

10 share buy-back and dividend stripping Okkie Kellerman executive tax

11 share buy-back & dividend stripping (1) avoid CIT and CGT on outright sale of shares limited scope of current rules dividend funded by purchaser seller holds more than 50%

12 share buy-back & dividend stripping (2) current rules dividends loose exempt nature dividends added to consideration amend section 22B and par 43A disposal after 19 July 2017

13 share buy-back & dividend stripping (3) new rules seller must be a SA-resident seller holds at least 50% OR at least 20% with no majority dividend received 18 months prior to disposal of shares by reason or consequence of disposal of shares

14 share buy-back & dividend stripping (4) concerns normal dividend declared long before offer to buy shares received clean-up of inter-group loan assets before a sale of shares

15 share buy-back & dividend stripping (5) extra ordinary dividend concept 15% of market value of shares at beginning of 18 months OR the date of the disposal exclusion for preference shares where dividends are determined with reference to a specified rate of interest limited to a rate of 15% excess dividend regarded as extraordinary dividend

16 share buy-back & dividend stripping (6) effective date not applicable where agreements were finalised on or before 19 July 2017 only applicable where agreements were not finalised on 19 July 2017 listed companies 10% for listed companies not the 50% and 20%

17 share buy-back & dividend stripping (7) 20% test whether alone or together with connected persons hold majority BEE partners rules will apply where BEE partner disinvests smaller BEE holdings in non-listed companies or holdings by individuals will not be subject to these anti-avoidance measures

18 share buy-back & dividend stripping (8) indirect shareholding did not receive a dividend should apply only to the shareholder that directly benefits reference to indirect interest removed from qualifying interest corporate roll-over provisions not used to avoided these anti-avoidance rules

19 share buy-back & dividend stripping (9) in specie distributions also affect the value of the shares sold not excluded

20 thank you questions Okkie Kellerman executive tax +27 (0)

21 discussion Advocate Peter Solomon

22 coffee break breakout sessions mining companies please make your way to ground floor cross-border tax planning with a focus on intellectual property please remain

23 breakout session cross-border tax planning with a focus on IP Andre Erasmus, Anne Jenkinson and Okkie Kellerman executive tax

24 index current Excon rules for IP current tax rules for IP 2017 Budget proposals on IP new Excon rules for IP new Section 23I hard-to-value IP possible solutions

25 current Excon rules Excon prohibits sale, cession or transfer of IP to related non-residents SARB sale, cession or transfer of IP to unrelated third party non-resident at fair market-related price licencing back into SA: only on a royalty-free basis

26 current rules tax = restrictions on the deductibility of royalty on tainted intellectual property

27 2017 Budget proposal (1) current tax legislation: affect legitimate commercial transactions discourage use of SA-based group infrastructure to further develop offshore IP relaxation of the policy without causing erosion of the tax base

28 2017 Budget proposal (2) relax Excon policy in respect of IP no ARB approval for standard IP transactions lift prohibition on loop structures for all IP transactions at arms-length and at a fair market price consider changes to the Excon restrictions for IP and loop structures relevant amendments to Section 23I updated TP practice note re hard to value IP

29 2017 Budget proposal (3) focus on TP of IP transactions remain IP transferred at early stage of development hard-to-value intangibles

30 new Excon rules (1) AD approve sale, cession or transfer of IP to unrelated parties at a fair and market-related price view the legal agreement obtain auditor's letter or IP valuation certificate re for sales price excluding sale and lease back's proceeds repatriated to SA

31 new Excon rules (2) AD approve licensing of IP: arm's length royalty view license agreement obtain auditor's letter re basis for royalty calc royalties repatriated to SA subject to correct tax treatment

32 new section 23I not apply to a CFC where net income is nil application of high tax jurisdiction 75% of SA taxes amounts on or after 1 Jan 2018

33 hard-to-value IP (1) OECD has a Discussion Draft guidance on the implementation of HTVI tax administrations can use ex post evidence on financial outcomes of HTVI transaction as presumptive evidence on the appropriateness of the ex ante pricing arrangements circumstances or safe harbours where such presumptive evidence may not be used potential revised valuation should not be based on actual income or cash flow alone consider probability of such income or cash flow at the time of the transfer of the HTVI

34 hard-to-value IP (2) HTVI and the MAP resolve double taxation from application of the HTVI approach methods income approach akin-to-a-sale theory market approach CUP cost approach no PN from SARS

35 possible solutions profit split principle company structure CCA

36 profit split (1) operations integrated - use of one-sided methods may not provide an arms length outcome both make unique and valuable contributions one owns the IP other undertakes activities independent parties will share the profits based on contributions determine fee payable by operator to IP owner

37 profit split (2) transactional PS method eliminate the effect on profits of special conditions first identifies the profits to be split for the associated enterprises (the combined profits ) then splits the combined profits between the associated enterprises on an economically valid basis residual PS method first allocate arm s length remuneration to each participant for nonunique contributions residual profit then allocated based on weighting risks, functions and assets R(responsible) A(accountable) C(consulted) I(informed) factor

38 principle company structure principle undertakes all business operations owns valuable IP mitigate POEM and PE risks low tax or assessed loss subcontracts: Manufacturing toll manufacturing for principle Distribution low risk distributing product for principle R&D IP for principle other support services low level services

39 CCA (1) contractual arrangement share the contributions and risks joint development of IP or services

40 CCA (2) with direct benefits for each participants exercise control over the risks arising from the CCA have the financial capacity to assume such risks

41 CCA (3) each participant an effective owner IP ownership is shared may exploit IP without any additional consideration

42 CCA (4) no need for cross-licensing development CCAs services CCAs

43 thank you questions Andre Erasmus executive tax Anne Jenkinson executive tax Okkie Kellerman executive tax

44 the venture capital company update Mansoor Parker executive tax

45 structure investors [individuals, trusts, companies] dividends / capital gains equity finance venture capital company dividends / capital gains equity finance [80% rule] qualifying investee companies unlisted company [R50 million asset limit] junior mining company [R500 million asset limit]

46 upfront deduction cost of the VCC investment individual / trust investor company investor subscription in VCC shares R100,000 R100,000 income tax rate 45% 28% (less) tax relief (R45,000) (R28,000) net cost of the investment R55,000 R72,000 initial value of the VCC investment gross subscription by the investor R100,000 R100,000 issue costs (say 5%) R5,000 R5,000 initial net asset value R95,000 R95,000 initial uplift: (Rand) R40,000 R23,000 initial uplift: (percentage) 73% 32%

47 TLAB 2017 the mischief investor share sale incoming Investor return of capital share buyback venture capital company (9) Notwithstanding section 8(4), no amount shall be recovered or recouped in respect of the disposal of a venture capital share if that share has been held by the taxpayer for a period longer than five years. [Sub-s. (9) deleted by s. 271 read with para. 37 of Sch. 1 of Act No. 28 of 2011 and inserted by s. 23 (1) (e) of Act No. 43 of 2014 with effect from 1 January, 2015.] Less than or equal to 5 years Longer than 5 years share sale recoupment in terms of section 8(4) no recoupment s12j(9) share buyback recoupment in terms of section 8(4) no recoupment s12j(9) return of capital recoupment in terms of section 8(4) no recoupment

48 TLAB 2017 the solution investor share sale incoming Investor return of capital share buyback venture capital company (9) Notwithstanding section 8(4), no amount shall be recovered or recouped in respect of the disposal of a venture capital share or in respect of a return of capital if that share has been held by the taxpayer for a period longer than five years. (2) Subsection (1) comes into operation on 1 January 2018 and applies in respect of years of assessment commencing on or after that date. Investor holds the VCC shares for less than or equal to 5 years Investor holds the VCC shares for longer than 5 years Share sale Recoupment in terms of section 8(4) No recoupment s12j(9) Share buyback Recoupment in terms of section 8(4) No recoupment s12j(9) Return of capital Recoupment in terms of section 8(4) No recoupment

49 TLAB 2017 the issue not dealt with Para 20(3), 8th Schedule, Income Tax Act 1962 (3) The expenditure contemplated in subparagraph (1)(a) to (g), incurred by a person in respect of an asset must be reduced by any amount which Section 9C(5) (a) (i) is or was allowable or is deemed to have been allowed as a deduction in determining the taxable income of that person; and (ii) is not included in the taxable income of that person in terms of section 9C (5), before the inclusion of any taxable capital gain; or (5) There shall in the year of assessment in which any equity share held for a period of at least three years is disposed of by the taxpayer be included in the taxpayer s income any expenditure or losses incurred in respect of such equity share and allowed as a deduction from the income of the taxpayer during that or any previous year of assessment in terms of section 11: Provided that this subsection must not apply (a) (b) in respect of any expenditure or loss to the extent that the amount of that expenditure or loss is taken into account in terms of section 8(4)(a) or section 19; or to equity shares in a REIT or a controlled company, as defined in section 25BB (1), that is a resident. Section 11(x) 11 General deductions allowed in determination of taxable income. For the purpose of determining the taxable income derived by any person from carrying on any trade, there shall be allowed as deductions from the income of such person so derived (x) any amounts which in terms of any other provision in this Part, are allowed to be deducted from the income of the taxpayer.

50 thank you questions Mansoor Parker executive tax