Preperation for the new R&D tax incentive - Update & Latest Developments

Frustrating silence from the authorities as the revised deadline draws nearer

Executive Summary
The new Section 11D was codified in our legislation in December 2011, and was due for implementation on 1 April 2012. That 4-month period was intended to provide sufficient opportunity to the Department of Science & Technology (“DST”) and SARS – the authorities – to prepare and implement the new claims process, and also to produce a Best Practice Guide for taxpayers.

Earlier this year, when it became clear that the 1 April deadline was inadequate, the implementation date was revised to 1 October 2012. However, with two months to go, South Africa is growing increasingly anxious, as finer detail is still to be released.

Is It Possible For Taxpayers To Pre-Register For The New Incentive Now?
It is known from the new legislation that the new incentive will certainly require some form of pre-registration. However, what form that pre-registration will take has been left to the authorities to determine,

We are also aware that an official form is envisaged for this process. However, to date, no draft has been released for public comment. In addition, and even if a finalised Form was in place, there is still no official office that has been setup to receive and consider these forms.

So: in short – there is nothing that can be done at this point, even if a taxpayer wanted to.

What – Exactly – Is Outstanding From SARS and DST?
Unfortunately, that list is quite substantial. The major outstanding points include the following:

  • the draft Form, which will form the basis of the critical pre-approval process;

  • detail of the exact process to be followed;

  • in particular: detail of any appeals process to be followed by any aggrieved taxpayers;

  • a best practice guide that would shed certainty on a number of "grey areas" that appear through the new legislation, as well as detailed commentary on every aspect of the legislation.

  • Ideally, a period of public comment ought also to be allowed, before each of these aspects is finalised.

    Is The 1 October Deadline Likely To Move Again?
    We suspect that this is very unlikely to happen: National Treasury has already indicated its insistence that proceed as soon as possible.

    We are optimistic that at least something will be released before the 1 October deadline. However, with the clock ticking, fears have been voiced in many quarters that, whatever is released ultimately by the authorities:

    • may not be adequate, either technically and/or procedurally – which will cause major difficulties in the implementation process; and

    • will be issued far too late to ensure a smooth transition from the old system into the new.

    A better question to ask, we believe, is what will be the state of readiness of the authorities, come 1 October? More specifically: will the new process and associated documentation be sufficiently appropriate to promote the new R&D incentive?

    Another fear that has been voiced concerns the state of readiness of the authorities to deal with what will, undoubtedly, be a deluge of applications and queries from taxpayers, come 1 October.

    How Will SARS & DST Treat R&D Tax Incentive Claims Arising In The Window-Period 1 January – 30 September 2012?
    This issue has received specific attention. The answer is somewhat technical, and will differ slightly from taxpayer to taxpayer. We recommend strongly that any taxpayers wishing to rely on such a claim should consult their specialist tax practitioner for more detail.

    Will Extensions Be Granted If The 1 October Deadline Is Missed By Taxpayers?
    National Treasury has been entirely unambiguous on this point: the missing of pre-approval deadlines on or after 1 October 2012 is strictly non-excusable, and absolutely no extensions will be permitted.

    With this in mind, taxpayers would be well advised to prepare themselves for action in September 2012. For any assistance or further information, clients and colleagues are invited to contact us for further information.

    We await final detail with great interest, and will certainly be publishing further detail just a soon as it has been made known by the authorities.

    This article is not intended to be a comprehensive statement of the law, nor does it constitute an opinion or guarantee of any kind, and should not be construed as such. It should not be relied upon as a substitute for specific advice regarding particular scenarios. Margo® Attorneys, Inc. cannot accept responsibility for the consequences of any person relying on the contents of this document for any other purpose. The views expressed in this article are also not necessarily those of Margo® Attorneys, Inc.