Taxation is an integral part of our business and the natural outflow of each business decision. However, tax can be managed effectively within the parameters of tax law to support Exxaro's goal to create value and apply good corporate governance. It is useful to understand the external and internal factors that influence value creation in terms of taxation.
The implementation of carbon tax took effect from 1 June 2019. The effect on Exxaro in 2019 has been conservatively calculated at R3.5 million based on direct scope 1 carbon emissions. Although the payment procedures have not yet been finalised, registration opened on 2 January 2020. Exxaro's first payment for the seven-month period from 1 June to 31 December 2019 is due and payable on 31 July 2020.
During the year, the South African Revenue Service (SARS) made significant progress in launching an e-filing platform for mineral royalty compliance that enables taxpayers to e-file annual royalty returns and make provisional payments. Exxaro expects the system to be fully operational by June 2020.
Following the outcome of the United Manganese of Kalahari Proprietary Limited (UMK) case with the commissioner of SARS in October 2017 (and the subsequent appeal case finalised in March 2020), Exxaro Coal Proprietary Limited claimed its capital transport and handling costs incurred during the 2019 year of assessment in calculating the mineral royalty liability.
During the year, Exxaro had several engagements with SARS on Exxaro's diesel-rebate audits. However, the separation of the diesel rebate system from the VAT system has not been completed, making it increasingly difficult for Exxaro to maintain its tax compliance status.
IFRS 16 Leases
The new accounting standard on leases, IFRS 16, was implemented during the year. Implementation of the standard did not have a material impact on the tax position of the legal entities within the Exxaro group of companies.
Exxaro welcomes the appointment of Mr Edward Kieswetter as the new SARS Commissioner in 2019 and SARS' vision statement of:
"Our 2024 vision is to build a smart, modern SARS with unquestionable integrity, trusted and admired by government, the public as well as our international peers."
To achieve its 2024 vision, SARS committed to, among others, the following:
Exxaro supports SARS' new vision and looks forward to a fruitful relationship based on trust and ethical behaviour. The SARS Large Business Centre re-opened during the tax year and its new service charter was also launched. The SARS Large Business Centre is the service centre used by Exxaro.
PwC* noted the following statistics through various benchmark studies and digital IQ surveys:
of effort could be realigned to more value-driven activities through
the use of automation1
improvement in productivity of individual processes4
of executives are making significant investments in artificial
intelligence (AI) over the next three years2
of employees’ time is spent gathering rather than analysing data
due to inefficient processes5
|46% of time is saved in completing key data-gathering processes3|
|*||PwC Synopsis August 2019.|
|1||PwC Finance Effectiveness Benchmark Study 2017.|
|2||PwC’s 2017 Global Digital IQ Survey.|
|3||PwC Finance Effectiveness Benchmark Study 2017.|
|4||Strategy business, 2018.|
|5||PwC Finance Effectiveness Benchmark Study 2017.|
A rapidly emerging trend is tax through automation. Trends such as robotic process automation (RPA) and artificial intelligence (AI) assist the tax function in becoming a strategic partner within the organisation. New technologies such as Block-Chain and cloud computing provide new possibilities for improving efficiency and effectiveness. RPA executes processes that take up valuable resource time as tax functions are often tied up in repetitive, manual and time-consuming tasks. Tax automation will enable the tax function to free up time and focus on tasks that add real value to the business.
SARS committed, in its annual performance plan, to increase its data analytics capability to enable better decision making and improved internal efficiencies. This will benefit Exxaro by reducing the number of audits through better risk profiling and reducing the time and cost of tax compliance.
In keeping with Exxaro's digital trends, Exxaro's tax function (in consultation with EY) embarked on a VAT digitalisation project in the prior year. A visualised analytics dashboard was implemented in 2019. The aim is to proactively identify and manage VAT risks and benefits.
A decision has also been taken to employ a dedicated VAT accountant in the Exxaro corporate tax function in 2020 to assume the accounting and compliance responsibilities currently performed by the transactional finance function at the Exxaro corporate head office. The VAT accountant will, among others, be responsible for monitoring the VAT analytical dashboard.
Plans for digital automation by Exxaro's corporate tax function include robotic processes to facilitate:
A cost benefit and risk analysis will be performed before implementation of these tools.
Exxaro Resources Limited is classified as a multinational enterprise and is obliged to lodge a master file, local file and a country-by-country report to SARS.
Exxaro has business interests in two countries for commercial purposes:
The group has equity-accounted investments in:
Exxaro therefore has to report the following offshore companies as controlled foreign companies and impute their income in terms of section 9D of the Income Tax Act, 1962 (Act 58 of 1962):
During the year, Exxaro received a refund of approximately R34 million from the Dutch revenue authorities relating to a withholding tax suffered on a deemed dividend from the Netherlands in 2012. This is directly related to a recent court case ruling that the "most favoured nation" clause should be applied to the Netherlands South African treaty. The clause allows for the dividend withholding tax rate to be reduced from 5% to 0% between the Netherlands and South Africa.