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FINANCE PORTFOLIO COMMITTEE
19 November 2003
REVENUE LAWS AMENDMENT BILL; DOUBLE TAXATION AGREEMENTS; KYOTO AND ISTANBUL CONVENTIONS; FUNERAL BENEFITS ABUSES & OVERSIGHT VISITS COMMITTEE REPORTS: ADOPTION
Documents handed out:
Kyoto and Istanbul Conventions Powerpoint presentation
Double Taxation Agreements with:
Explanatory Memorandum on Double Taxation Convention between SA and Brazil
Revenue Laws Amendment Bill [B71-2003]
Committee report abuses in the funeral benefits industry
Committee report on oversight visits made by the committee during 2003
The committee adopted the following:
- After a brief presentation both the Revised Kyoto and Istanbul Conventions
- Double Taxation Agreements between SA and various nations after a brief overview of the agreement between SA and Brazil
- The Revenue Laws Amendment Bill as amended
- Committee reports on both the Abuses in the Funeral Benefits Industry and on the oversight visits made by the committee to the Registrar of Banks, the Financial Services Board, the Financial and Fiscal Commission, and the Financial Intelligence Centre.
Mr E Kieck (Manager: International Relations Office, SARS) presented the Revised Kyoto and Istanbul Conventions to the Committee (see document).
Revised Kyoto Convention
Mr Kieck gave a brief background on the World Customs Organisation (WCO) which was instrumental in the setting up of the revised Kyoto Protocol. The WCO has 162 members and their aim is to develop instruments and tools to facilitate international customs procedures.
The purpose of convention was to harmonize customs procedures internationally. To date the convention has fourteen signatories. Further objectives of the convention was to contribute towards the predictability and efficiency of international trade without compromising the quality of controls. The Kyoto Protocol consisted of a main body, general annexes, and specific annexes.
The general annexes were divided into ten chapters. Chapters one and two dealing with general principles and definitions. Chapters three to ten outlined the proposals on the various facets of international customs trade.
Dr Woods (ANC) asked why so many procedures had been outlined in the general annexes.
Mr Kieck explained that the management committee was empowered to amend the annexes. It was thus administratively easier to amend the annexes than the main body itself if the need should arise.
Ms R Joemat (ANC) asked whether SA ports adhere to the regulations in the protocol.
Mr Kieck replied that SA as a signatory had a duty to implement the standards as set out in the protocol. SA's Excises Act was required to be in line with the provisions of the protocol.
Mr A Tarr (ANC) asked how the protocol impacted on the average importer.
Mr Kieck noted that the protocol simplified customs procedures. It acted as a blue print as to what a country's customs legislation should contain. He pointed out that the usual practice was for every country to have its own customs regime and this made it difficult for the average importer. With an internationally harmonized customs regime the administrative costs for the average importer would be considerably decreased.
Dr Woods asked if the management board of the protocol was representative of the 162 members of the WCO. He also asked if the board was representative of developing countries.
Mr Kieck replied that not all members of the WCO were represented. He pointed out that only signatories to the protocol would be represented. Mr Kieck noted that any developing country who was a signatory of the protocol would be represented on the board.
The focus of the convention was on temporary admission for goods and to set up a consolidated temporary admission regime. The idea was that goods that had been imported and were immediately destined to be exported should be exempt from the normal application of customs duties. The type of goods that would qualify for temporary admission (TA) would be those displayed at exhibits, fairs, meetings, and events.
The convention consisted of a main body made up of 34 articles of general provisions in addition to thirteen annexes which were considered to be the substance of the convention.
Mr Kieck emphasized that SA had adopted only Annexes A and B1. The reasoning was that the Excises Act already covered the provisions contained in Annexes B2-B9.
The Chair asked whether imported goods - to which value could be added - would qualify for TA.
Mr Kieck replied that beneficiated goods would not qualify.
Mr B Mnguni (ANC) was concerned about goods that could be imported under the guise of TA goods.
Mr Kieck noted that there were categories of goods that could be imported duty-free and that they were not necessarily TA goods.
Dr Woods was concerned about the possibility of scams.
Mr Kieck replied that there were procedures in place to monitor fraudulent practices like round tripping.
The Chair asked what the implications were for SA adopting annexes A and B1, and not the rest.
Mr Kieck replied that every signatory had to adopt Annex A., thereafter signatories could choose which of the others to adopt. Signatories were not obliged to adopt all.
Dr Woods asked what the implications would be if SA needed to adopt some of the other annexes.
Mr Kieck replied that there were no major implications as these categories of goods were already covered by the Excises Act.
The Committee adopted both the Revised Kyoto and Annexes A and B1 of the Istanbul Convention.
Double Taxation Agreement with Brazil: briefing
As the Committee was well acquainted with the Double Taxation Agreements except the one with Brazil, Mr F Tomasek (SARS Assistant General Manager: Legislation) briefed them on selected portions of the Brazilian Double Taxation Agreement:
Article 5: Permanent Establishment
One of the main goals of the Agreement was to determine the right of a Contracting State to tax the profits of an enterprise of the other Contracting State, which arose through a permanent establishment situated in the first mentioned State. The Article defined what was to be regarded as a permanent establishment.
Article 9: Associated Enterprises
The Article was effective in dealing with the effects of transfer pricing between associated enterprises. The Article does not provide for corresponding adjustments where adjustments for transfer pricing are made. Brazil's position is that the double tax that arises in these circumstances is an appropriate penalty for transfer pricing.
Article 10: Dividends
The Article provided for the common international tax treatment of cross-border dividends, in terms of which the State in which the dividends were declared may impose a limited withholding tax and the State in which the dividends were received may impose full tax. This concept was not new to SA. A distinction is made between portfolio and substantial interests.
Mr Tomasek read out excerpts from the protocol and noted that SA accepted the Brazilian stance on Capital Gains Tax. Paragraph 5 of the protocol provided that if Brazil changed its stance South Africa would automatically be entitled to the benefit of the change.
The Chair remarked that President Mbeki had already signed the agreement.
The Committee adopted the DTA's that SA was party to.
Double Taxation Agreements: adoption
The Committee adopted the Double Taxation Agreements with Botswana, Brazil, Rwanda, Belarus and Oman.
Revenue Laws Amendment Bill
Mr Tomasek informed the Committee that additional changes had been made to the Bill. He outlined the amendments very briefly:
Clause 33: Deductions in respect of erection or improvement of buildings in urban development zones.
- Emfuleni had been added to the list of municipalities in subclause 6. (Page31)
- Subclause 7 had previously contained a provision, which had capped the areas to be demarcated at 650 hectares. The amendment now introduces a sliding scale for the purposes of demarcation.
In answer to the Chair asking if the area chosen in terms of the sliding scale would remain constant, Mr Tomasek said that the idea was to review it at regular intervals.
Clause 36: Ring-fencing of assessed losses of certain trades (Page 37)
Mr Tomasek noted that ring-fencing was no longer automatic where a taxpayer failed to make separate disclosure of the suspect trade, as was the case with previous versions of the Clause.
He also pointed out that horse racing was not listed as suspect trade and that it would be subjected to the same 3 out of 5 year test as with any other trade.
Clause 69: Reportable Arrangements (Page 63)
Mr Tomasek said that provision had been made for three additional concessions in subclauses 2, 3, and 4(b) respectively.
Clause 202: Provisions for the administration of customs controlled areas within industrial development zones (Page 131)
Mr Tomasek said that previously benefits for industrial development zones had been allocated on a piecemeal basis.
The amendment introduces a notion of a "Customs Controlled Area" with the benefit that customs duty and VAT were deferred until imported goods were brought into SA from the CCA or exported.
Clauses 219-223: Exchange Control Amnesty and Amendment of Taxation Laws Act 2003
Mr Tomasek explained that in Clause 219 a textual change and a substantive change were made. Previously offenders who had contravened tax Acts other than those covered by the amnesty were not entitled to amnesty. With the amendment, offenders could apply for amnesty if amnesty if they regularized their other affairs with the Commissioner for SARS. There was a relaxation of the legislation for offenders who wished to rehabilitate themselves.
Clause 220 dealt with beneficiaries of foreign discretionary trusts. With the amendment, it was now possible for beneficiaries in SA to apply for amnesty.
Subclause "d" also provides for the exclusion of donations tax.
Clauses 221 and 222 provide for an extension of the period within which applications for amnesty may be made, as announced by the Minister.
Clause 223 clearly sets out the closing dates for amnesty, as certain advisors were trying to argue that amnesty could be granted for the submission of income tax returns for 2003.
The committee adopted the Revenue Laws Amendment Bill.
Committee Report on Abuses in the Funeral Benefits Industry
It was evident from the report that the Committee was not in a position to make final recommendations to correct the wrongs in the industry based on the information that had been made available to them. It did however recommend that more research be conducted by the National Treasury and the Financial Services Board on issues outlined in the Report.
Some of the problems identified in the industry were:
- Lack of information to clients
- Problematic clauses in policies
- Delayed payments
- Fraudulent practices
The committee adopted the Report
Committee report on Oversight visits by the committee for 2003
The Committee visited the Registrar of Banks on the 10 June, the Financial Services Board on the 12 June and the Financial Intelligence Centre and the Financial and Fiscal Commission on the 11 June. Each of the institutions gave an overview of their respective operations and their specific views on the restructuring of the regulation of the financial services industry.
The committee adopted the report.
Meeting was adjourned.