EY Africa Tax Conference
September 2014

Moderator
Warren Taylor
Africa Compliance and Reporting Leader
EY South Africa
Panel
Aidan O’Carroll
Global Compliance and Reporting Leader
EY London
Daryl Blakeway
Tax Performance Advisory Leader
EY South Africa
Natasha Meintjes
Africa Tax Coordination Services Leader
EY South Africa
Robert Zalucki
Tax Partner
EY Nigeria
Page 2 Global compliance and reporting trends

Page 3 Global compliance and reporting trends

Page 4 Global compliance and reporting trends

Key trend 1
Share of SSA in FDI projects and job creation reaches an all-time high in 2013
► There is a clear dichotomy between FDI flows into North
Africa and SSA.
► Since 2007, SSA has accounted for an increasing share of projects, both by number and value.
►
►
This trend accelerated in 2013, with SSA’s share of overall
African FDI projects and job creation achieving all-time highs of 82.8% and 79%, respectively.
This growth is underpinned by solid FDI flows to four countries in particular: South Africa, Kenya,
Ghana and Nigeria.
Page 5 Global compliance and reporting trends

Key trend 1
Southern Africa: South Africa acts as an anchor, attracting most interest
Top 15 countries by FDI projects (2007 – 13)
South Africa
Egypt
Morocco
Nigeria
Tunisia
Kenya
Angola
Ghana
Algeria
Tanzania
Uganda
Mozambique
Zambia
Libya
Rwanda
Share of projects (%)
16.9
9.4
9.0
6.0
Share of amount
(%)
8.7
12.8
7.1
10.0
5.4
5.4
4.8
4.4
4.3
3.0
2.8
2.7
2.4
2.3
1.7
7.0
1.7
5.5
4.3
6.8
1.6
2.9
5.6
1.7
1.7
0.6
Share of job creation (%)
CAGR (FDI project)
(%)
11.6 +16.8
11.0 -3.4
11.2 -5.9
6.1 +19.4
6.5 -8.7
2.7 +40.1
3.3 -7.4
3.7 +50.5
6.0 -10.4
1.8 +22.8
1.8 +20.1
3.5 +32.8
3.2 +30.8
2.0 -11.6
0.5 +6.3
South Africa expands FDI projects’ lead in
Africa since 2008
► FDI projects in Mozambique and Zambia have grown at a CAGR in excess of 30%.
► Angola remains an important FDI destination with GDP growth averaging 11%.
West Africa: the power of Nigeria and Ghana
► Ghana has attracted investor attention on account of its abundant natural resources, its strong investment environment and its stable and well-established democracy.
East Africa: regional integration drives interest
► FDI projects in East Africa have grown at a
CAGR of 23.4%, the second-highest rate in
Africa.
Source: fDi Intelligence
Page 6 Global compliance and reporting trends

Key trend 2
Largest intra-regional investors in Africa
(Share of FDI projects from Africa as source region)
Source: fDi Intelligence
Intra-regional FDI projects grow rapidly
► African investors tripled their share of FDI projects over the last decade, from 8% to 22.8% in 2013.
►
►
►
The rate of intra-African investment expanded even faster in value, growing from a share of 4.4% to 22.3% in 2013.
Intra-African investment has driven job creation on the continent.
It is now the second-largest source of jobs behind Western Europe, jumping from fourth position in 2012.
CAGR in FDI projects by source region (2007 – 13)
Africa
Asia-Pacific
Middle East
Western Europe
North America
Latin America (and the Caribbean)
Rest of Europe
Source: fDi Intelligence
+31.5%
+16.6%
+5.8%
+5.7%
+5.5%
+0.0%
-1.4%
Page 7 Global compliance and reporting trends

Key trend 3
Financial services, telecoms, media and technology (TMT), and retail and consumer products (RCP) account for 47.7% of FDI projects
Top 10 sectors by FDI projects (2007 – 13, share)
►
Projects (%) Value (%) Job created
(%)
Foreign banks and other financial services companies are either launching or expanding operations in Africa to tap the growing but under-serviced financial services market.
Financial services
TMT
RCP
Business services
RHC
Mining and metals
Coal, oil and natural gas
Transport and logistics
DIP
Automotive
17.5
16.3
12.9
9.2
8.6
6.6
5.5
4.9
4.8
4.1
2.1
8.7
4.8
1.0
22.9
14.2
31.8
2.3
1.3
2.7
2.7
7.5
16.8
1.9
19.2
21.2
5.3
2.0
3.5
11.9
►
►
►
Regional banks and other financial services firms in Africa are also ramping up their presence across the continent.
A rising, relatively underpenetrated consumer market and improving communications infrastructure have encouraged TMT companies to invest in local knowledge transfer, and to establish country offices across the continent.
Expected increases in consumer spending, especially on discretionary goods, indicates continued, strong RCP investments in Africa.
Source: fDi Intelligence
Page 8 Global compliance and reporting trends

Increasing FDI flows
The number of African cities with a population of over 3 million is expected to more than double from 16 in
2012 to 34 in 2030.
Cities with a population of over 1 million
34m > 3m
16m > 3m
Page 9
1m
– 3m
3m – 5m
Source: Oxford Economics
5m – 10m
10m – 15m
Global compliance and reporting trends
15m – 20m > 20m

Increasing FDI flows
Top 15 African destination states and provinces by number of projects
(2007 – 13)
Page 10
Source: fDi Intelligence; EY analysis
Global compliance and reporting trends

Regional attractiveness
Africa’s relative attractiveness is on the rise
Relative to the following markets, is Africa more or less attractive as an investment destination?
►
►
2011 2012 2013 2014
1 Asia (+31) 1 Asia (+26) 1 Asia (+16) 1 North America (+4)
2 North America (+16) 2 North America (+13) 2 Oceania (+11) 2 Africa
Markets more attractive than Africa
3
4
Western Europe (+16)
Middle East (+8)
3
4
Oceania (+5)
Western Europe (+5)
3
4
Latin America (+8)
North America (+5)
3
4
Asia
Oceania (-2)
5
Oceania (+6)
5 Africa 5 Africa 5 Western Europe (-3)
6
Latin America (+2)
6 Middle East (0-3) 6 Central America (-1) 6 Latin America (-14)
7
Eastern Europe (0)
7 Latin America (-1) 7 Western Europe (+4) 7 Middle East (-15)
Markets
less attractive than Africa
8
9
Africa
Central America (-14)
8
9
Eastern Europe (-3)
Central America (-5)
8
9
Middle East (-10)
Eastern Europe (-12)
8
9
CIS (-17)
Eastern Europe (-17)
10 CIS (-19) 10 CIS (-17) 10 CIS (-14) 10 Central America (-19)
Source: EY’s Africa attractiveness survey (total respondents: 503)
Africa’s stronger investment attractiveness is best explained by its own sustained growth rates in the context of slower global growth and, more recently, by structural weaknesses in many other emerging markets in the wake of the unwinding of US quantitative easing.
Africa’s growth prospects are likely to remain solid, as an urbanizing and rising middle class drives demand for consumer products and improved services.
Page 11 Global compliance and reporting trends

How investors view Africa’s countries, cities and sectors



Second most desirable regional investment destination in the world, tied with Asia, up from fifth place a year go


60% of respondents with presence in
Africa believe the continent’s attractiveness improved in 2013
73% of investors expect its investment climate to continue improving

Source: The EY 2014 Africa Attractiveness Survey
18% see infrastructure offering the most growth potential
South Africa in the south, Nigeria in the west, Kenya in the east, and
Morocco and Egypt in the north are perceived by investors as the most attractive
Perception gap between those already doing business in Africa and those with no business presence remains stark
Page 12 Global compliance and reporting trends

Page 13 Global compliance and reporting trends

Four key trends we are seeing globally in discussions with our clients:
►
►
►
►
Companies are looking to reduce cost without compromising value. For example, many multinational companies are undergoing finance transformations and exploring the use of shared service centres and new enterprise resource planning ( ERP ) systems.
Companies are continuing to globalize at an increased rate and forge expanding growth into emerging markets ( e.g., BRICS).
Companies are dealing with an increasingly complex and uncertain legislative and regulatory environment (e.g. transfer pricing, base erosion and profit shifting).
Companies are looking to drive value through an increased focus on cash tax management and effective rate planning.
Page 14 Global compliance and reporting trends

EY global survey
68% of companies indicated local resources are important to tax compliance and reporting processes (i.e., they need in-country support).
67% of companies indicated that changes in regulatory requirements will impose significant challenges on tax compliance and reporting process.
80% of companies consider the use of outside providers as an effective means of accessing local expertise.
80% of companies indicated they have recently completed or will soon complete a finance transformation.
Page 15
68% of companies identified additional cost of compliance and reporting as a risk of excluding tax compliance and reporting from a finance transformation.
Global compliance and reporting trends

Finance transformation projects are mostly driven by cost-efficiency
Cost of finance (COF) ratio Finance process areas
Decision support
►
►
►
►
Perform planning, budgeting and forecasting
Perform cost management and profitability analysis
Evaluate and manage financial performance
Manage capital
Today
(1% –2%)
Control
► Manage internal control
►
►
Manage treasury
Manage taxes
Reporting
►
►
Manage policies and procedures
Perform product and general accounting
► Deliver reporting
Transaction processing
►
►
Process accounts payable
Process expense reimbursements
►
►
Process payroll
Process revenue accounting
“Value” of the activity for the business – adding or protecting
In the future?
(<0.75%)
Reduction in COF
Direction : become more efficient by reducing transaction processing and reporting work – strengthen the ability to provide decision support
Page 16 Global compliance and reporting trends

Finance process
Order to cash
Procure to pay
Intercompany
Fixed assets
Record-to-report
Treasury
Page 17
Tax relevance or impact
►
►
►
Tax on invoices
Tax point
Tax registration
►
►
►
►
►
Recoverable taxes
Withholding tax
Tax exemptions
Tax deductibility
Tax registration
►
►
►
Transfer pricing
Tax on invoices
Withholding tax
►
►
►
Tax deductibility
Capital allowance
Tax depreciation
►
►
►
►
Tax adjustments
Tax disclosures and enforcement
Tax loss management
Tax filings
►
►
►
Tax paid
Interest deductibility
Thin capitalization
Global compliance and reporting trends
Direct tax Indirect tax

Depth of insight
H
G
2
D
E
F
Control, access and visibility over local process
C
B
A 3
Simplification, standardization and cost reduction
A
B
EY clients
Leading software company
Worldwide networking company
C
D
Oilfield services provider
Foreign automotive company
E
F
Global computer manufacturer
Global media company
G Financial services company
H Global diversified company
1
Local country approach
Local
Degree of standardization
Regional and global
Global compliance and reporting trends Page 18

Page 19 Global compliance and reporting trends

Overview
►
►
►
►
Large-scale finance transformation programs:
►
►
►
►
Driven by business change
Often technology enabled
Change management focused
Finance-led business transformation
Leveraging technology:
►
►
New technology implementations (e.g., financial systems such as SAP and Oracle)
Upgrading older ERP systems or consolidating different instances
Shared services and outsourcing:
►
►
Global finance delivery model
Outsourcing, off-shoring, shared services centers (SSCs) and regional centers of excellence
Global standardization and global delivery models:
►
►
Process and reporting efficiency
Robust controls
Page 20 Global compliance and reporting trends

Overview (continued)
► Finance transformation will help to create a lower-cost finance function by changing the way finance processes are delivered.
Finance process class Level of process
Transaction processing High
Typical change achievable*
Saving 25% –40%
How?
Aggressive globalization – shared services and outsourcing
Reporting Medium Saving 10%
–20%
Control
Decision support
Medium or low
Low
Saving 10%
–20%
Saving 50%
–100%
Rationalization of reporting process and systems; extensive use of shared services for record-to-report
Investment in people and tools to support a global control framework
Investment in resources to support the business areas with value-adding finance activity
*Indicative benefits based on typical maturity levels and scope for standardization.
The benefits available will depend on individual company circumstances.
Page 21 Global compliance and reporting trends

► Example of client objectives and potential impacts for tax:
Client objectives
Design the finance function organization, including operating model and roles and responsibilities.
Improve the operational efficiency and effectiveness of processes.
Improve finance systems effectiveness, including transactional systems.
Improve consolidation and close, reporting, planning and budgeting.
Sample tax organization impacts
►
►
►
There are fewer local finance resources available to support tax organization and various tax processes, such as provision reporting or managing outside service providers
Delivery of tax activities supported in business will change (e.g., local country vs. SSC)
There is an opportunity for tax organization to better align to new finance model
►
►
►
Shorter close cycle places additional pressure on the tax-provision process
New standard global finance or business processes no longer support tax planning or supply chain structures
Functions performed by “shadow tax” resources may be altered and need to be assumed by the tax function
►
►
►
Systems changes may affect current data sources and lead to more data rework and data gathering
Redesign of the chart of accounts (COA) may result in change of tax-sensitized accounts
There is an opportunity to significantly improve tax data and tax-sensitize systems
►
►
Improved financial reports and forecasts may be optimized for management and oversight needed for legal entity reporting
Budget is available to improve global tax provision process through new tools and technology
Page 22 Global compliance and reporting trends

► Tax is embedded in every finance process. Understanding finance processes is a new language and challenge for tax departments:
Example finance process
Order to cash
Procure to pay
Intercompany
Tax relevance or impact
Tax on invoices such as value-added tax (VAT), tax registrations and changes to accounting methods
Recoverable taxes such as VAT, withholding tax, tax deductibility, tax registration, inventory, customs, changes to accounting methods
Transfer pricing, tax on invoices, withholding tax and supply chains
Fixed assets (acquire to retire)
Record-to-report
Treasury
Tax deductibility, capital allowance or tax depreciation, changes in accounting methods and tangible property regulations
Tax adjustments, tax disclosures and enforcement, tax loss management, tax filings and tax accounts
Tax paid, interest deductibility and thin capitalization, changes to functional currency, tax hedging rules and changes in accounting methods
Page 23 Global compliance and reporting trends

►
The tax sensitization of ERP involves building tax requirements into the company’s business processes and practices.
Tax accounting and reporting controls
Training and guidance for tax users
Tax technology solutions
Procure to pay Order to cash Record to report
Transfer pricing
AP tax decisions
Jurisdictional segregation
AR tax codes AR tax determination
AP tax codes
Segregation of sales and returns
International sourcing
Tax depreciation rules
Supplier master data
Material master data
Customer master data
Fixed assets master data
Critical tax-sensitive accounts
GL account reports
Tax fixed asset reports
Intercompany and jurisdictional reports
Foreign jurisdictional indirect tax reports
T&E systems Base ERP system Third-party logistics Legacy systems Middleware solutions
Page 24 Global compliance and reporting trends

► Driving tax value from non-data finance transformation:
Project types Potential tax benefit
Shared service implementation ► Improve the consistency, timing and access of key tax inputs, such as statutory accounts preparation
►
►
►
Re-evaluate tax personnel roles and deployment and use of outside providers
Create consistency and standardization across tax processes
Move to lower-cost tax operating model
Process and sub-process redesigns
►
►
►
Reduce overall effort from both tax and accounting personnel by incorporating tax- sensitization decisions at the source of recording
Increase ability to automate manual tasks, resulting in significant time savings
Redesign and automate tax financial close to support shorter close with increased accuracy
Finance service delivery model ► Centralize tax activities across business units and geographies to reduce costs
► Consider how to migrate activities to achieve cost efficiencies without increased tax risk or lost tax opportunities
Page 25 Global compliance and reporting trends

►
►
►
►
►
When the business is discussing or evaluating global organization models
When the business is doing benchmarking studies and evaluating performance
When the CIO is evaluating ERPs and technology solutions
When the CFO is developing short- and long-term agenda
Pre- or post-transaction event
Page 26 Global compliance and reporting trends

Areas to focus on when looking at tax value drivers
► Efficiency
►
►
Reduction in effort of tax processes
Optimization of tax software
► Effectiveness
►
►
►
Increased productivity with better automation
Better visibility of tax positions and risks
Enhanced process and controls
►
►
Tax efficiencies
►
►
Enable sustainable tax planning
Improved quality and access to data and reporting
Lower costs
►
►
Process standardization and simplification
Leverage shared services models
Page 27 Global compliance and reporting trends

►
►
►
CFO
►
►
►
Why do we need to spend money now?
Why can we not get these benefits without the initiative?
Why and how additional budget is necessary beyond the proposed project team – quantify value?
CIO
►
►
►
►
You will get what you get today
Tax’s involvement will slow down the project
How do the benefits link to the technology component?
Why would you need additional resource to support tax?
Business
► There is a lack of integration with the business owners
Page 28 Global compliance and reporting trends

►
►
►
Understand the initiative(s)
►
Learn your CFO’s agenda
►
►
►
Align with key initiatives of the business
Develop link from tax case to broader initiatives
Align tax function with business
Secure a seat at the table
►
►
Never too early to build the case for tax
Keep it simple; don’t boil the ocean
Gain sponsorship
►
►
Identify initiative sponsor (such as CFO, CIO or CEO and Board)
Understand key stakeholders (including enterprise leadership and program management team)
Page 29 Global compliance and reporting trends

Page 30 Global compliance and reporting trends

Business language considerations in Africa
Page 31
French
Portuguese
Spanish
Amharic
Arabic
Global compliance and reporting trends
►
►
►
With an estimated 1,500 to 2,000 languages spoken, Africa is a continent with exceptional linguistic diversity.
In both Angola and Mozambique, returns are completed in Portuguese.
UEMOA countries complete returns in French.

Page 32 Global compliance and reporting trends

Top 10 FDI destinations
EY 2013
– 14 Africa by numbers
Country
Number of payments
Time to comply hours
Cameroon 44 630
49 348 Congo
Cote d’Ivoire
Ghana
Kenya
Mozambique
Nigeria
62
32
41
37
47
270
224
308
230
956
Tanzania
Zambia
Zimbabwe
48
38
49
176
183
242
Source: The World Bank – tax payments (number) and time to prepare and pay taxes (hours) 2014
Page 33 Global compliance and reporting trends

Page 34 Global compliance and reporting trends

A total of 27 returns due in June
December
21
November
October 7
5
5
January
February
6
19
March
20
April
September
16
August
5
9
July
27
June
7
May
Page 35 Global compliance and reporting trends
No information available

Annual CIT returns
July
December
4
2
March
7
June
7
12 April
May
4
► No annual returns due in January, February,
August, September, October and November
Page 36 Global compliance and reporting trends
Provisional or minimum tax returns
December
17
5
6
February
19
March
November
5
October
7
8
April
3
May
3
16
►
September 20
5
7 June
August
July
No provisional returns due in Nigeria and Libya

In Nigeria, a 10% penalty and interest at the prevailing bank lending rate are imposed for late payment of assessed tax
In Kenya, late payments are subject to 20% penalty of tax balance plus 2% per month. Late filing is subject to a 5% penalty with a minimum of KES10,000 (US$115)
In Cote d’Ivoire,
5% of the first month, 0.5% thereafter are imposed for late payments
In Equatorial Guinea, 50% of amount not declared if shortfall is one-tenth of declared profits. 100% in the case of bad faith
In Mozambique, fines for non-payment of taxes vary between the amount of the tax due to double of this amount, without prejudice of payment of the tax due. The maximum cap on the fines is MT2.5m (US$84,000) per offense
In Angola, penalty of 55% of tax due for non-payment
Global compliance and reporting trends
In South Africa, penalty of up to 200% for intentional tax evasion
Page 37

Page 38 Global compliance and reporting trends

VAT filing dates (monthly returns)
8%
19%
35%
19%
8%
11%
10th 15th 20th 21st 25th 30th
Manual or electronic return
21%
79%
Manual Electronic
Page 39
Changes in VAT legislation:
Promulgated
Kenya (2013)
Ghana (2014)
Global compliance and reporting trends
Forthcoming changes
Angola (2015)
*Consumption tax
Payment EFT or cheque
54%
EFT Cheque
46%

Page 40 Global compliance and reporting trends

Number of payroll taxes due monthly
3%
68%
29%
1 - 2
2 -4
> 4
Manual or electronic submission
18%
Electronic
Manual
82%
Page 41 Global compliance and reporting trends
Recent changes to Social Security
Kenya – new NSSF Act (2014)*
Namibia – vocational education and training levy introduced
(2014)
Nigeria – new pension reform act (2014)
Annual employer return
25%
75%
Yes
No

Page 42 Global compliance and reporting trends

Local
GAAP (8)
OHADA (17)
IFRS (28)
Benin
Congo
Guinea-Bissau
Burkina Faso
Cote d’Ivoire
Mali
OHADA member states
Cameroon
Central African
Republic
Chad
Democratic Republic
Equatorial Guinea Gabon of Congo
Niger Senegal Togo
Page 43 Global compliance and reporting trends
Comoros
Guinea
No information available

Page 44 Global compliance and reporting trends

Page 45 Global compliance and reporting trends

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