31 August 2021
NEWS & OPINION
Compliance is the be all – and end all – of success in the insurance industry BY ELZABE BOTHA Director, Compli-Serve Gauteng
The policy contract (wording) is a legal document, and you can’t use plain enough language when advising on it. Advisers should be well positioned to explain the wording and the terms and conditions to a client, confident in the accuracy of the advice they are providing. TCF first To echo the above, and in line with TCF Outcome 4, providing suitable advice to clients is crucial to the success of an adviser and his or her ability to run a compliant business. You need to know how to evidence this, which is best done through being on top of product specifics. You should never sell on something you are unsure about.
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ompliance is a process and a result, not just a department. Here are some key tips to help you achieve this result. Providing proper advice stems from true understanding When it comes to selling products like short-term insurance, it can quickly become complicated if any terms and conditions are neglected in the process. It is really important for an adviser to know a product inside and out before selling it on. This may seem obvious, but time and time again, compliance issues like this creep up in the short-term space. The ability to provide appropriate advice is dependent on an adviser understanding a product and how it will address his or her client’s needs. Specialised products, where the terms and conditions are complex, require indepth training and understanding. Even advisers who think they know a product could stand to refresh their knowledge from time to time. Insurers could use their claims data (specifically repudiated claims) to inform their product-specific training and to identify advisers who need further training, which will deter errors as well.
From POPI to COFI Being compliant now also extends to adhering to – and evidencing adherence – to the POPI Act, by safeguarding not only personal and special personal information, but sensitive information and data too. The COFI Bill requires of advisers to segment their service offering and value proposition to clients and insurers to ensure proper market conduct and fair outcomes for clients. Get Fit and Proper Fit and Proper requirements are complex and ever-changing. Getting it right is a fundamental requirement, getting it wrong is disastrous, but in the middle of right and wrong are several shades of grey and FSPs should have a trusted source of advice and guidance to ensure compliance with these requirements. Compliance is practical and needs to be consistent to be successful. It’s not just a tick-box process to stay on top of your compliance obligations either. Working with a trusted, external compliance partner can make a big difference, allowing for time to focus on business growth and other areas where compliance could take up time. Regulatory requirements will never cease (in fact, they may increase), so implementing the correct controls are crucial and will guarantee compliance.
“Compliance is practical and needs to be consistent to be successful“
10 www.moneymarketing.co.za
Potential negative tax consequences of 12J deductions for non-residents BY BOBBY WESSELS Associate, AJM Tax
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easing to be a South African tax resident often does not come without tax consequences. In particular, section 9H of the Income Tax Act (ITA) triggers a deemed disposal of your worldwide assets, despite those assets not actually being disposed of. There are some assets that are noticeably excluded from the deemed disposal, but typically the most common assets that trigger a tax consequence are shares held in any company (or similarly, units held in unit trusts or ETFs). While the tax consequences on the deemed disposal have typically been well documented in so far as it affects shares held in a company, being both listed and unlisted, what is often overlooked is how specific types of shares may trigger different consequences. In particular, shares held in a Venture Capital Company (VCC) and for which a deduction against taxable income was claimed in terms of section 12J of the ITA, may trigger potentially adverse tax consequences as a result of the deeming provision. This is because any amount that has been allowed as a deduction, which amount has been recovered or recouped during the year of assessment, must be included in the taxable income of any person. The deduction claimed in terms of the VCC shares forms part of the deductions for which there can be a recoupment. Therefore, in the context of VCC shares, where a recoupment occurs, the amount to be included in the taxable income of the person could in some instances be equal to the deduction claimed. Typically, such a recoupment will be triggered where the VCC shares are sold; however, if those shares have been held for a period longer than five years, then the recoupment can be ignored for tax purposes. What stands to be considered is whether a deemed disposal would trigger a recoupment for tax purposes on any VCC shares held. In other words, whether a recoupment will be triggered where a person holds shares in a VCC, but which shares have been held for a period less than five years, and that person ceases to be a tax resident. The contention ultimately boils down to the interaction between a deemed disposal and the meaning to be attributed to ‘recoupment’. Despite the word ‘recoupment’ not being defined for tax purposes, South African courts have on occasion considered the true meaning to be attributable to the words ‘recover’ or ‘recoup’. In that context, the word ‘recover’ was held to connotate the regaining of possession, while the word ‘recoupment’ was regarded to be the act of ‘recovering or recompensing’. The crisp question is therefore whether a deemed disposal (not being an actual disposal) is considered akin to the recovery of the deduction claimed in respect of the VCC share. If this were to be the case, it would result in a recoupment of the deduction claimed in respect of VCC shares acquired. The matter is not a settled one at all. There are various academics that have disputed this very point. The one school of thought advocates that a deeming provision should be treated as if there was an actual disposal. On that basis, the taxpayer must deemed to have recouped the deduction and therefore the deduction must be included in the taxable income of the taxpayer. Interestingly, this position accords with the position taken by the South African Revenue Services. Contrastingly, where a literal approach to the meaning of the word recoupment is favoured, the argument is put forth that no recoupment can be created in the hands of the taxpayer. In the absence of any amount being physically received by the taxpayer, they can simply not be regarded to have recovered any amount. Ultimately, the question is one for which no concrete answers exist, but of which taxpayers should take note so as to avoid any potential adverse tax consequences from being triggered.
“What stands to be considered is whether a deemed disposal would trigger a recoupment for tax purposes on any VCC shares held”
