Updated carbon tax policy paper

The National Treasury published the Carbon Tax Policy Paper, reducing greenhouse gas emissions and facilitating the
transition to a green economy for public comment. This is the second and final round of comments requested on carbon
tax policy, before government proceeds with the publication of draft legislation to give effect to carbon taxes later this year, for implementation from 1 January 2015.

This Carbon Tax Policy Paper updates the 2010 discussion paper “Reducing Greenhouse Gas Emissions: The Carbon
Tax Option” and takes into account the public comments received. It also takes account of the principles in both the
2010 paper as well as the 2006 Environmental Fiscal Reform Policy Paper, which provide a policy context and foundation for
the use of taxes and incentives to support the attainment of environmental objectives in a cost-efficient, socially equitable
and fiscally effective manner.

Financing of intra-group transactions

The South African Revenue Service (SARS) recently issued a new draft interpretation note on ‘thin capitalisation’ to provide guidance to South African enterprises that receive financial assistance from foreign related companies. The new interpretation note is intended to provide clarity on how the ‘arm’s length’ standard should be applied to intra-group financial assistance.

The interpretation note is in line with a five year strategic plan recently issued by SARS for the period 2012/13 to 2016/17, setting out its mandate and core outcomes, as well as its strategy to achieve these outcomes. In the strategic plan, SARS states that transfer pricing will be one of its key focus areas for the next few years, as it has been identified as a major risk area.

SE currency derivatives market

The Johannesburg Stock Exchange’s (JSE) currency derivatives market recently reached the milestone of R500 billion in total value traded.
“In the past 14 months R250 billion has been traded on our market – this is a rapid rate of growth compared to previous years. It took two years between 2007 and 2009 to reach R100 billion in traded value and a further two years to reach the R250 billion mark in 2011,” says Warren Geers, General Manager in Bonds and Financial Derivatives at the JSE.

In March the JSE saw a record R43 billion traded. Geers attributes this milestone to the division’s launch of new products to the market, including the launch of Any Day Expiry contracts in 2011 in response to the wholesale market looking to hedge their currency risk with increased precision.

“Before the introduction of Any Day Expiry contracts the trading of currency derivatives contracts were standardised. In July 2013
the Any Day Expiry suite will be enhanced, allowing the market to choose their own expiry dates on an automated electronic
process. This gives the market added ability to execute non-standardised contracts at the push of a button,” says Geers.

Numbers to remember

Career Suite offers job seekers an all-in-one, easy to use online platform to post their CVs where it’s sure to be seen by the right people, plot their next career move and even manage their entire career journey. At the same time, it provides recruiters, employers and professional service providers with access to the best recruits in the business. Visit www.careersuite.co.za to upload your CV or start browsing candidates.

Rental guarantees

Guarantee Exchange South Africa (GEXsa) launched in SA, guarantees deposits and breakages to rental market
– protects agents and provides relief to consumers.

GEXsa launched to provide much-needed guarantees to long-and short-term rental agents and owners should a
tenant abscond or leave the property in a bad state. The company also provides financial flexibility for cash-strapped
consumers who are creditworthy, but struggle to come up with a three-month rental deposit.

This is great news for consumers who in the past were hampered financially by having to pay a two to three months’
rent as a deposit. Now they sign an agreement and pay a nominal fee based on their monthly rental in lieu of the deposit.

Decline in banking M&A

Research from PwC has found that recent years’ decline in banking mergers and acquisitions (M&A) is not simply due to a cyclical
downturn, but represents changes in the regulatory and economic environments.

The recent political and economic uncertainty is making it difficult to agree on valuations, predict future impairments, arrange funding
and gain shareholder approval. The market instability is also having an effect on deal confidence, and therefore frustrating M&A activity.
Tom Winterboer, PwC Financial Services Leader for Africa and Southern Africa, says: “The picture is less gloomy in South Africa
than in Europe and the US, but some financial institutions still have some significant restructuring ahead of them. Africa has the potential to generate increasing volumes of banking M&A over the next few
According to PwC’s report ‘Brave new world: New frontiers in banking M&A’, recent research carried out by PwC (known as Project
Blue) identifies a range of factors driving a change in the financial sector. These include fiscal pressures, regulatory reform, customer behaviour, the shortage of skills, economic shifts and the future of M&A activity in the sector.

Gadget of the Month Nokia Lumia 925

Nokia’s latest flagship smartphone, Nokia Lumia 925, introduces a metal design and showcases the latest PureView
camera innovation, new features and third party applications entering the Nokia Lumia range.

It includes the most advanced lens technology and next generation imaging software to capture clearer, sharper
pictures and video, including the best low light images. It also introduces the new Nokia Smart Camera mode, soon available
as an update to all Lumia Windows Phone 8 smartphones.

Nokia Smart Camera offers an easy way to capture ten images at once and edit the pictures with options like Best Shot, Action
Shot and Motion Focus for creating the perfect high quality image.
“We keep innovating,” said Jo Harlow, Executive Vice President of Nokia Smart Devices. “We’re advancing experiences on the Nokia Lumia portfolio, whether that means great new benefits for an existing Lumia owner, or bringing new showcase devices
like the Nokia Lumia 925.”

The new Nokia Lumia 925 is a sleek and sophisticated smartphone delivering great performance and outstanding imaging.
The polycarbonate back comes in white, grey or black.

Economic uncertainty

South African privately held businesses are feeling the pressures of continued constraints, which are directly restricting expansion,
with 40% of businesses citing a lack of skilled workers and 39% indicating excessive regulation and red tape as major concerns.

A total of 19% of businesses surveyed lamented a shortage of orders, caused by a reduction in demand.
The Grant Thornton International Business Report (IBR) quarterly research data for the first quarter of 2013 confirms current global economic reports and the concerns of analysts that a bcontinued international slowdown, coupled with additional issues
locally constraining business growth, are all having a major impact on South African businesses.

The data also revealed that 57% of business executives are being negatively impacted by poor government service delivery,
with 41% stating the issues as being utilities (water and electricity supply), 23% naming billing issues and 21% of businesses citing
roads (potholes, traffic lights).

Political uncertainty
When business executives were asked whether uncertainty about the future political direction of South Africa is impacting current business decisions, some 36% said ‘yes’.
Of the executives who concurred that political uncertainty is a concern, 32% stated that present conditions were causing them to put off important investment decisions, with 19% placing investments offshore rather than within South Africa.

Political uncertainty has spurred business executives in South Africa to review their B-BBBEE status, with Q1 research revealing that 29% are currently working hard to improve their B-BBBEE status.

Ensuring that companies are doing more than just ticking the boxes for B-BBBEE compliance is promising – it means that the
legislation is beginning to have a direct and measurable impact on a company’s bottom line.

Accounting news

Jacob Buys CA(SA) from Eskom has been appointed as a member of the IASB’s consultative group on the
Rate-regulated Activities research project

This consultative group will assist the IASB in its project on rate regulation by providing a variety of expert perspectives
into the project. It comprises senior professionals with extensive practical experience in the operation of a variety
of rate-regulatory schemes. The IASB press release can be downloaded from the IASB’s website.

Interim IFRS on regulatory deferral accounts to be issued
The International Accounting Standards Board (IASB) is proposing a new standard that will provide guidance on how to account for regulatory deferral account balances that arise when an entity provides goods or services to customers at a price or rate that is
subject to rate regulation.
The proposed interim standard is only applicable upon the initial adoption of IFRSs and therefore must be applied at the same time as an entity applies IFRS 1 – First- time Adoption of International Financial Reporting Standards.

One of the objectives of the development of the interim standard is to improve comparability of financial reporting by reducing barriers to the adoption of IFRS by entities with rate-regulated activities until guidance is developed through the IASB’s
comprehensive Rate-regulated Activities project.
The deadline for comment to SAICA on this exposure draft, ED 331 – Regulatory Deferred Accounts, is 5 August 2013. ED 331, the IASB press release and the project snapshot can be downloaded from the SAICA website.

Guidance on accounting for employee contributions to defined benefit plans simplified

The IASB is expected to amend IAS 19 – Employee Benefits, to simplify the accounting for contributions from employees
and third parties to defined benefit plans. The objective of the amendments is to provide a more simplistic alternative
accounting treatment when the contributions payable in a particular period are linked solely to the employee’s service
rendered in that period.

In the proposed amendment, the IASB proposes that the contributions from employees or third parties to a defined benefit
plan may be recognised as a reduction in the service cost in the same period in which they are payable if, and only
if, they are linked solely to the employee’s service rendered in that period.

The proposed guidance would be applicable to, for example, accounting for contributions that are a fixed percentage of an employee’s salary.

G20 sets deadline for IASB and FASB to complete convergence projects

The G20 Finance Ministers and Central Bank Governors have reiterated the call on the IASB and US FASB to
finalise the key convergence projects, including financial instruments, leases, revenue and insurance contracts by the
end of 2013. The G20 Communiqué from the meeting of Finance Ministers and Central Bank Governors Washington, held
on 18-19 April 2013, can be downloaded from the G20 website.

Due process of the IASB and IFRS Interpretations Committee revised
The Trustees of the IFRS Foundation have revised the due process of the IASB and IFRS Interpretations Committee.
In this review, the Trustees amended the comment periods in respect of pronouncements issued by the IASB and IFRS
Interpretations Committee.

The revised IASB and IFRS ‘Interpretations Committee Due Process Handbook’ and feedback statement can be downloaded from the IASB website.


We asked …

Do you think that the Guptagate Report released by Minister Jeff Radebe was honest?

There is no reason to doubt it – 6%
The report is cover-up for the President and other ministers – 33%
All the relevant ministers cannot be blamed for the landing of the plane – 3%
Whoever is guilty must face the wrath of the law (if there is any left) – 5%
The real problem is not the Guptas – it’s the general corruption in our government. – 53%

SARS released interpretation note number 73
In terms of the Tax Administration Act No 28 of 2011 (The TAA) an interpretation note is an official publication and any practice
set out in such a publication would constitute a practice generally prevailing.

The stated purpose of this particular note is “to provide guidance on the income tax implications of the letting of tank
containers”. In the note SARS describes the typical tank container leasing arrangement as one “where the investor purchases a tank
container and appoints a South African investment management company as the investor’s agent for a period of 10 years.

The investment management company in turn has agreements with various offshore lease managers who manage the container on
a day-to-day basis and conclude lease agreements with lessees on behalf of the investment management company and hence the
investor. The tank is generally placed in a pool and the investor derives a share of the net pool rental income which is determined
after deducting various operating costs such as insurance and the fees paid to the leasing agents and investment manager.”

The note then deals with the source of the income from a container. It is interesting to remember that the Income Tax Act No
58 of 1962 (The Act) was amended in 1985 to deem the income derived from the leasing of containers to be derived from a source
within the RSA. With regard to a South African tax resident this discussion is not really important as the income from a container
would be gross income irrespective of its source. We agree with SARS’s view (in a footnote) that it is not likely that “a person who
is not a South African tax resident will have South African-sourced rental income from tank containers…”

What is important are the comments made regarding “trade” and particularly SARS’s view expressed in the note. Whilst SARS
agrees that “the determination of where trade is carried on will depend on the facts and circumstances of the particular case”
they do conclude that it is unlikely that the trade (in respect of the leasing of tank containers) will be in the RSA.

SARS submits that the place where trade is carried on will be where the main business activities occur on a continuing basis. In the context of tank containers this will be the place where the international leasing managers carry on their business activities, for example, where they take orders, enter into leases, collect the rent and generally deal with the administration of the container pool on behalf of the taxpayer and the place where the tank containers are actually used by lessees.

The consequence of a determination that the trade in respect of a tank container(s) is in respect of the carrying on any trade
outside the RSA is of course that the assessed loss (if any) will be ring-fenced [refer to paragraph (b) of the proviso to section

The rental loss (which may also have been limited in terms of section 23A) may then not be set off against other RSA
trade income. It is available for set-off against other foreign trade income derived during the same year of assessment and the
remaining balance of the foreign assessed loss must be carried forward to the succeeding year of assessment in which it will be
available for set-off against foreign trade income.

It is important to remember that where it can be proved (as required by section 104 of the Tax Administration Act) that the
trade is in fact carried on in the RSA the ring-fencing provisions mentioned above will not apply – refer to ITC 1779 (2004) 66
SATC 353 (C) where the court based its finding on the place where the exercise of the taxpayer’s wits and labour were


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