IASB CONCLUDES FIRST ANNUAL IMPROVEMENTS PROJECT
The International Accounting Standards Board (IASB) has issued Improvements to IFRSs – a collection of amendments to International Financial Reporting Standards (IFRSs). These amendments are the result of conclusions the IASB reached on proposals made in its annual improvements project, which were exposed for comment in October 2007. Unless otherwise specified, the amendments are effective for annual periods beginning on or after 1 January 2009, although entities are permitted to adopt them earlier.
This document will be discussed at the next Accounting Practices Board (APB) meeting and will be issued as Improvements to Statements of GAAP thereafter, if approved by the APB.
These improvements to IFRSs will be covered in the annual accounting update seminar, which will be held later in the year. Improvements to IFRSs can be downloaded from the SAICA handbook-on-line, international section.
AMENDMENTS FOR DETERMINING THE COST OF AN INVESTMENT IN THE SEPARATE FINANCIAL STATEMENTS
The IASB has issued amendments to IFRSs for determining the cost of an investment in the separate financial statements.
The amendments to IFRS 1 – First-time Adoption of International Financial Reporting Standards and IAS 27 – Consolidated and Separate Financial Statements respond to constituents’ concerns that retrospectively determining cost and applying the cost method in accordance with IAS 27 on first-time adoption of IFRSs cannot, in some circumstances, be achieved without undue cost or effort. The amendments are effective for annual periods beginning on or after 1 January 2009, with earlier application permitted.
This document will be discussed at the next APB meeting and will be issued as amendments to Statements of GAAP thereafter, if approved by the APB.
The amended IFRS 1 – First-time Adoption of International Financial Reporting Standards and IAS 27 – Consolidated and Separate Financial Statements can be downloaded from the SAICA handbook-on-line, international section.
AUDITING
PROPOSED JSE AUDITOR ACCREDITATION
The JSE has decided to explore the feasibility of establishing a process by which auditors would be approved before being allowed to perform statutory audits or other assurance engagements for issuers listed on the JSE. The Listings Requirements at present include certain requirements relating to the acceptance of auditors. The JSE, however, perceives the need to enhance those requirements to ensure fairness, transparency and objectivity of the current criteria.
The proposed draft Listings Requirements envisage the establishment of a JSE Register for Auditors. A consultation document issued by the JSE, on 18 April 2008, is available on the SAICA website. SAICA provided consolidated comment to the JSE arising from member submissions and views expressed directly.
LEGISLATION
COMPANIES BILL APPROVED BY CABINET
The Companies Bill, 2007, was approved by Cabinet on 14 May 2008, but subject to errata that are of an unknown nature. The State Law Advisers were to complete the process of reviewing the Bill, which was extensively revised from the latest version that is still available to the public, during June 2008.
DTI’s intended timeline is to introduce the Bill to Parliament in June to obtain approval before end-2008. The effective date is still intended to be 1 January 2010. We will keep members appraised of further developments as we become aware of them.
INTERNATIONAL NEWS
REPORT REVEALS CHANGING ROLES OF ACCOUNTANTS
The Association of Chartered Certified Accountants (ACCA) has published a new report, A changing profession? The evolution of accounting roles, skills and career aspirations, which examines the roles and skills currently in demand across the accountancy profession and those expected to emerge in the near future. The report found a perceived gap between the skills that organisations need and the skills of current and potential employees. The report also found that accountants are becoming more mobile and careers are expanding beyond the traditional finance function. The report recommends that organisations focus on developing business skills, personal effectiveness skills and “people skills” in their finance professionals.
The report may be viewed by visiting the ‘Insight Series’ section of the ACCA website,
www.accaglobal.com.
JOKE: How do you drive an accountant completely insane?
Tie him to a chair, stand in front of him and fold up a road map the wrong way.
PUBLIC SECTOR
ACCOUNTING STANDARDS BOARD
The standards, exposure drafts, discussion papers and updates of the Board are available on the Board’s website (www.asb.co.za).
JOKE: “How have you managed to buy such a luxurious home while your income is so low?” asked the SARS auditor.
“Well,” the taxpayer answered, “while fishing last summer, I caught a large golden fish. When I took it off the hook, the fish opened his mouth and said, ‘I am a magical fish. Throw me back to the sea and I’ll give you the most luxurious home you have ever seen’. I threw the fish back to the sea, and got the home.”
“How can you prove such an unbelievable story?”
“Well, you can see the home, can’t you?”
REGULATED INDUSTRIES
LONG-TERM AND SHORT-TERM INSURANCE NOTICES
The following Notices and Amendments were published in the government Gazette on
25 April 2008:
- Notice issued of intention to vary Rule 16 of the Policyholder Protection Rules (Long-term Insurance) 2004 and invitation to comment on proposed variation.
- Notice issued to increase the maximum amount contemplated in the definition of “assistance business” in section 1 of the Long-term Insurance Act from R10 000 to R18 000 with effect from 1 April 2008.
- Notices issued to increase the maximum amount that a friendly society can provide if it enters into an insurance policy in terms of section 7(2)(b) of the Short-term Insurance Act and section 7(2)(b) of the Long-term Insurance Act from R5 000 to R7 500 with effect from 1 March 2008.
- Amendment to Regulation 4.2 of the Short-term Insurance Act to increase the maximum guarantee amount to be provided by independent intermediaries that collect premiums on behalf of short-term insurers from R50 000 000 to R100 000 000. The increase will be phased in over a five-year period starting on 1 April 2008.
- Notice issued to amend the prescribed returns that independent intermediaries must prepare in terms of regulation 4.4(a) of the Short-term Insurance Act.
The notices are available on the Insurance page of the FSB website (www.fsb.co.za).
TAX
WHAT’S NEW AT SARS?
The latest updates can be viewed on the SARS website (www.sars.gov.za).
2008 TAX SEASON TIMELINES
The Finance Minister, Trevor Manual, officially launched the SARS 2008 Filing season on 15 May 2008. Some of the major changes include changes to the PAYE process and further changes to the Personal Income Tax process.
The 2008 Tax Season is divided into the following three periods:
- A preparation period for employers as well as individual taxpayers.
- A period during which employers must submit their EMP501 reconciled declarations.
- A period during which individual taxpayers must submit their income tax returns, where required.
Employer submission dates:
1 July 2008 – New PAYE reconciliation process goes live (Release of new software and new EMP501 manual and electronic forms)
29 August 2008 – Deadline for PAYE reconciliations
Taxpayer filing dates – Individuals:
1 September 2008 – Filing Season opens
21 November 2008 – Deadline for manual submissions of income tax returns
23 January 2009 – Deadline for electronic submissions of income tax returns (e-filing)
Other tax season dates:
Trusts:
19 December 2008 – Deadline for manual submissions
20 February 2009 – Deadline for electronic submissions
Exempt entities and companies:
12 months after financial year end
Further details can be accessed on
www.sars.gov.za
NEW REPORTABLE ARRANGEMENTS LEGISLATION
Background
Around the world, tax administrations find themselves at a disadvantage when responding to transactions that are intended to exploit the tax system. The inevitable delays between the conclusion of the transactions, submission of the related annual returns, and the returns’ assessment and audit mean that years may pass before the transactions are detected, analysed, and challenged. One measure to improve response times, which is increasingly being adopted worldwide, involves the advance reporting of transactions meeting criteria that indicate that they may give rise to concern.
South Africa’s reportable arrangements legislation came into force in 2005 and provided for the reporting of two classes of arrangement. The first related to arrangements that resulted in a tax benefit and were subject to an agreement that provided for the variation of interest, fees, etc. if their actual tax benefits differed from the anticipated tax benefits. The second related to certain hybrid debt and equity instruments. The legislation was intended to give the SARS early warning of arrangements that were potentially tax driven. SARS would then be in a position to take appropriate action to counter abuse more quickly than would otherwise have been the case.
Unfortunately, the number and nature of the transactions disclosed to SARS proved disappointing. Fewer than 150 transactions, most of them involving well known hybrid instruments, were reported in the 25 months the legislation was in force. Some taxpayers raised technical points to avoid reporting or restructured their transactions to avoid the triggers for reporting. More encouragingly, some commentators indicated they had encountered fewer transactions that they believed would give rise to concern.
The adoption of a new General Anti-avoidance Rule (GAAR) in 2006 provided the opportunity to revise the reportable arrangements legislation and to link it to the factors that are indicative of a lack of commercial substance for GAAR purposes.
THE NEW LEGISLATION
Following extended consultations with key commentators on the legislation, the new reportable arrangements legislation contained in section 80M to 80T of the Income Tax Act, 1962, was brought into force on 1 April 2008.
Reportable arrangements
The new reportable arrangements legislation is generally triggered where an arrangement gives rise to a tax benefit, which:
- provides for interest, fees, etc. that are partly or wholly dependent on the assumptions relating to the tax treatment of that arrangement (other than a change in law);
- has any of the characteristics of, or characteristics which are substantially similar to, the indicators of a lack of commercial substance in terms of the GAAR;
- is or will be disclosed by any participant as a financial liability for purposes of Generally Accepted Accounting Practice but not for income tax purposes;
- does not result in a reasonable expectation of a pre-tax profit for any participant; or
- results in a reasonable expectation of a pre-tax profit for any participant that is less than the value of those tax benefits to that participant on a present value basis.
Specific reporting of hybrid equity and debt instruments is retained, but the five year redemption threshold previously set has been extended to ten years. This change is intended to make restructuring these instruments to fall outside the scope of the legislation more commercially challenging. The Minister of Finance’s authority to include or exclude arrangements for disclosure by way of regulation has also been retained.
Excluded arrangements
The previous exclusions for arrangements that are unlikely to be tax driven, such as ‘‘plain vanilla’’ loans, leases, share transactions and collective investment scheme investments have been retained. Following consultations between commentators and SARS, as well as a review of international experience, the Minister has also excluded any arrangement where the tax benefit from the arrangement —
- does not exceed R1 million; or
- is not the main or one of the main benefits of the arrangement.
Responsibility for disclosure
The responsibility for disclosing a reportable arrangement is principally placed on its promoter, as this is the person most likely to have full insight into its operation. In the absence of a promoter who is a resident, the responsibility falls on all the participants, although the responsibility falls away for participants that have written confirmation that the required disclosure has been made by another. This approach ensures that disclosure is comprehensive while minimising duplication. Disclosure must be made within 60 days of funds flowing or liabilities being incurred in terms of the arrangement. It is the first flows or incurrals that are most relevant for the purposes of the legislation, so arrangements where they took place before 1 April 2008 need not be reported in terms of the new legislation but may well be reportable in terms of the previous legislation. The first disclosures in terms of the new legislation will thus be due by 31 May 2008.
Information to be disclosed
The information to be disclosed is similar to that previously required, except that a list of the arrangement’s agreements is required instead of a complete set of agreements. This will reduce the compliance cost with respect to the initial disclosure of an arrangement. Once the required information has been disclosed, SARS will issue a reportable arrangement number to each participant in an arrangement for administrative purposes only. Additional information, including agreements, may be requested if an arrangement is selected for further analysis.
Penalties for non-disclosure
Finally, a clear penalty provision has been introduced to serve as a deterrent for non-disclosure of reportable arrangements, which typically involve substantial amounts. A penalty of R1 million is imposed for non-disclosure but may be reduced where —
- there are extenuating circumstances and the non-disclosure is remedied within a reasonable time; or
- the penalty is disproportionate in relation to the tax benefit from the arrangement.
Enquiries
Enquiries with respect to the new legislation may be directed by e-mail to
reportable@sars.gov.za.
SAICA SUBMISSIONS
The following submissions were made to SARS:
- Draft IN Deduction of Security Expenditure
- Draft IN Par 7 of 7th Schedule – Right of use of Motor Vehicle
- Taxation of Artists, Models and the Crew in the Film Industry
- Draft IN Section 10(1)(q) – Scholarships or Bursaries
- Draft Addendum A to General Note 29
- Draft Interpretation Note No 2 (Issue 3) s11C
- Tax Guide for Share Owners
- Guide to the Taxation of Lump Sum Benefits
- Draft VAT 420 Guide for Motor Dealers
- Draft Interpretation Note No 16 (Issue 2)
- Draft IN squat – Rebate or Deduction for Foreign Taxes on Income
- Draft VAT 419 Guide for Municipalities
- Draft Interpretation Note on Section 23A
The following submissions were made to Treasury:
- Avoidance Closure Alert Funnel Financing Masquerades
- Media Statement: Revised Taxation of Distributed Profits
Edited by: Ewald Muller
Technical queries: standards@saica.co.za
Ethics and Discipline queries:
standards@saica.co.za
Information Centre: pelmag@saica.co.za Telephone: 011 621 6641
Telefax: 011 621 6819 | Website:
http://www.saica.co.za
JOKE: Old accountants never die, they just loose their balance.
JOKE: Laws of Auditing:
- Trial balances don’t
2 Bank reconciliations never do
- Working Capital does not
- Return on Investments never will
TAX COMMITTEE ERATUM
Cicelia Potgieter – CA(SA), BCom Hons (Accounting),
M Com (Taxation)
Associate professor – North West University
Protas Thamsanqa Phili – CA(SA), BCom (Accounting), M.Com (Tax)
April 27 Corporate Finance – Corporate tax Specialist
