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PwC Australia - AfricaPractice: Tax Breakfast
August 2014
www.pwc.com.au
Important NoticeThis presentation has been prepared for general guidance on matters of interest only, and does not constitute professional advice. Youshould not act upon the information contained in this presentation without obtaining specific professional advice. No representationor warranty (express or implied) is given as to the accuracy or completeness of the information contained in this presentation, and, tothe extent permitted by law, PricewaterhouseCoopers, its members, employees and agents do not accept or assume any liability,responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the informationcontained in this presentation or for any decision based on it.
1 Project Structuring and Financing
Holding Jurisdictions
Managing Tax Residency
Thin Cap
Returns on Foreign Investment
2 Transfer Pricing
Outbound Funding
Outbound Services
3 People
4 Research and Development
Key Points
Project Planning
Ideas & How We Can Help
5 Our PwC Australia–Africa Team
Agenda
Project Structuring and Financing
What to look for in a ‘Holding Company’ Jurisdiction?
0
5
10
15
20
25
30
35
Treaties Not in force
4PwC Australia-Africa
1. Business Operating model
2. Tax Considerations
3. Non-tax Considerations
How do ‘Holding Company’ jurisdictions compare?
Country No CFCNo Thin
CapParticipation
Exemption
WideTreaty
Network
No FXcontrol
NormalTax Rate(Other)
South Africa 38.8%
SA - HQ 28%
Mauritius 3%
UAE 0%
Luxembourg 28.59%
Ireland 12.5%
Switzerland 7.8%
Netherlands 25.5%
Malta 5%
Botswana 15%
France 34.43%
5PwC Australia-Africa
• UK?
Managing Tax Residency
Substance - a mere quantitative approach may not be sufficient
PwC Australia Africa6
August 2014
Managing Tax Residency
‘Ideal’ substance requirements
The majority of BoD should be foreign tax residents
Location of BoD meetings
Company Secretary
Bookkeeping & minutes of BoD meetings
Physical office
7PwC Australia-Africa
Thin Cap
PwC Australia-Africa 8
The Rules
Limit the amount of “debt deductions” (e.g. borrowing costs and interest expenses) amultinational group may claim in Australia.
The Proposed Amendments
The following key amendments are likely to impact our existing Thin Capitalisation rulesfrom 1 July 2014 (note: Bill still going through Parliament):
Increased de minimis threshold from $250,000 to $2 million.
Safe harbour debt limit reduced from 3:1 (75 per cent) to 1.5:1 (60 per cent).
The new worldwide gearing test for inward investing entities (and inward investmentvehicles that are also outward investing).
Worldwide debt limit for outward investing entities reduced from 120% to 100%.
Returns on Foreign Investment
PwC Australia-Africa 9
The Current Law – s23AJ
“Non-portfolio dividends” paid to Australian companies by non-residents will be non-taxable.
The Proposed Amendment – s768-A
Foreign “equity” distributions paid to the ‘entity’ are non-taxable.
Practical Example of the Proposed Amendment
9 Year MRPS
Term Loan
< 10 years > 10 years
Arm’slength
interest
Low or nointerest
Division 974
Classification?Debt Debt Debt Equity
Treatment of
Coupons?Taxable Taxable Taxable Exempt
TOFA Accrual? Yes Yes Yes No
CGT 768-G TOFA TOFA 26BB
FX Division 775Division
230Division 230 No
TP? Yes Yes Yes No
Transfer Pricing
PwC Australia
Outbound Funding
11
Funding Options
Equity
Section 768-A equity
Debt
o Vanilla
o Quasi-equity
o Deferred interest
Hybrids
Key Considerations
African and Australian transfer pricing rules
African withholding tax, exchange controls,deductibility etc.
Foreign exchange/currency choice
How to determine arm’s length interest rate
Optimal funding structure duringexploration versus development versusproduction phases
Example Funding Structure
Head Office(Australia)
Subsidiary(Africa)
Project
Projectfunding
Shareholderfunds
Third partyfinance
PwC Australia
Outbound Services
12
Scenario 1:Offshore project only
Head Office(Australia)
Subsidiary(Africa)
Services
Scenario 2:Australian and Offshore Projects
Head Office(Australia)
Subsidiary(Africa)
Services
Subsidiary(Australia)
Key Considerations
African and Australian transfer pricing rules
Other African pressure points
o African withholding tax, exchange controls, VATetc.
Calculating the arm’s length service fee:
o Service v Shareholder costs
o Services v Expense recharges
o Mark-ups
o Deductibility of shareholder costs remaining inAustralia
o Calculation and evidence of costs
Getting the structure right
Other African pressure points
People
PwC Australia
People issues
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Mobility as a leadership differentiator
Mobility policy design
Candidate selection
Immigration and contract
Tax planning and compliance
Repatriation and IP retention
PwC Australia
Global mobility in Africa
• Report issued in February 2014
• 42 companies surveyed
• Main findings:
• Purpose of mobility
• Flexibility
• Talent management
• Cultural awareness
• Management of tax and immigration risk
15
Research & Development
PwC Australia
Key Points
Overseas Activities
Conditions to be met:
1. An advance finding is required on the overseas activities
2. Requirement for a scientific link to Australian core R&D activities
3. The activity cannot be conducted in Australia
4. Australian activities entail a greater financial commitment than the total overseasactivities
Satisfying (4) and optimising Australian R&D claims requires careful thinking upfront ofthe project
17
PwC Australia
Project Planning
Structuring the project
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Recharge toAusCo
Retain staff &costs in AusCo
AusCo
OverseasSubsidiary
Subcontractors
Consider the project:
cost structure
plan, can tasks:
1. be done in Aus
2. overseas be runfrom Aus
technical personnelmay be based in andclaimed for in Auseven when the minesite is overseas
Australia
Africa
PwC Australia
Ideas & How We Can Help
Competitively plan in the global economy
Project structuring and transfer pricing to maximise R&D incentives in Australia andoverseas tax jurisdictions
Contract reviews to enable R&D operational effectiveness in engaging subcontractors
19
Our PwC Australia–Africa Team
Our team
Ben GargettPartner – AssuranceAustralia - Africa Practice LeaderDirect Line +61 8 9238 3200Mobile +61 407 279 [email protected]
William CampbellPartner – Corporate TaxAustralia – Africa Practice Tax LeaderDirect Line +61 8 9238 3343Mobile +61 413 139 [email protected]
© 2014 PricewaterhouseCoopers. All rights reserved.PwC refers to the Australian member firm, and may sometimes refer to the PwC network.Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.
Liability limited by a scheme approved under Professional Standards Legislation
Hamish McElweePartner – Transfer PricingDirect Line +61 8 9238 3571Mobile +61 434 350 [email protected]
Amanda GellPartner – Research and DevelopmentDirect Line +61 8 9238 3515Mobile +61 401 511 [email protected]
Olivier MarionDirector – Corporate TaxAustralia-Africa PracticeDirect Line +61 8 9238 5115Mobile +61 402 296 [email protected]
Lisa HandoPartner – PeopleDirect Line +61 8 9238 5116Mobile +61 416 107 [email protected]
Michael BonaPartner – Corporate TaxDirect Line +61 8 9238 5202Mobile +61 457 515 [email protected]