3. Electronic Theses and Dissertations (ETDs) - All submissions
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Item An examination of base erosion and profit shifting exposure for South Africa(2016-01-29) Bob, VanessaBase erosion and profit shifting (BEPS) is a key concern in international tax. In 2010 the Organization for Economic Co-operation and Development (OECD) was tasked with the study of BEPS. In 2013 the OECD released the study report “Addressing base erosion and profit shifting” emphasising BEPS and the risk for the world’s economies and tax bases. The OECD has been focused on BEPS due to several reasons, namely; increase in globalisation, an ever-changing digital economic environment, mismatches of different countries’ tax legislation and the ease with which intellectual property can be transferred. They has released several documents detailing the risk of BEPS as well as an action plan outlining their aim for the transformation of local and international tax. According to the OECD corporate income taxes, as a percentage of gross domestic product (GDP) is a possible indication of base erosion. In South Africa, the corporate income tax rate as a percentage of GDP has decreased from 7.2 % in 20081 to 5% in 20132. Is this a possible indication of base erosion or profit shifting taking place? Protecting South Africa’s tax base is paramount for future growth of the country and the economy. It is therefore important to identify whether BEPS is a real risk and to determine whether South Africa has adequate legislation in place to protect its tax base. Keywords: Base erosion and profit shifting, BEPS, Organisation for Economic Co-operation and Development, OECD, international tax, transfer pricing, thin capitalisation, treaty abuse, treaty shoppingItem An analysis of the taxation effects and considerations for multinational entities with dual residency issues, from a South African perspective(2016-01-29) Weideman, NicoletteThere has been significant advances in the international arena with regards to global economic growth and trade, as well as enormous competition by countries to attract inward foreign direct investment from multinational enterprises (MNEs) to ensure the sustainability of their own economies. Fundamentally the contentious issue is the possibility of double taxation (DT), due to the dual residency of the MNE. The MNE operates in various markets which results in cross-border transactions, whether physical or electronic, and this ultimately means that different tax jurisdictions will become applicable and enforceable by each relevant country. These dual resident MNEs could be seen as a tax resident in both countries and thus be liable for tax obligations in both of these countries. This would therefore lead to the same income incurring DT or double non-taxation (DNT), which would have a devastating impact on that MNE. This lead to the establishment of double taxation treaties, agreements and conventions (DTA’s), between various countries which are aimed at addressing this imbalance. As technology advances at an alarming rate, so too does the possibility of abuse of tax treaties. Two important criteria are ‘the place of effective management’ (POEM) and the ‘permanent establishment’ (PE), which are critical to the determination of the correct tax jurisdiction where the dual resident MNE will incur various tax liabilities. These concepts, POEM and PE, can be confusing but are imperative, in order to prevent DT, and which could prejudice the relevant fiscus, as well as an attempt to avoid any conflict between the taxing regimes. An interesting facet of the POEM and PE conundrum is the interpretation by the Organisation for Economic Co-operation and Development’s (’the OECD’) Model Tax Convention (MTC) compared to the interpretations by the South African Revenue Service (SARS). Another area of contention for MNEs is the current enormous global focus on the concept of Base Erosion and Profit Shifting (BEPS), which is under great scrutiny, and is of great concern for the majority of revenue authorities. These authorities are intensifying their focus on improving and enforcing anti-avoidance provisions to prevent taxation leakage in their respective tax jurisdictions. This shift in priorities opposes one of a MNE’s main business objectives which is to maximize profits, by either diverting, extracting and/or distributing profits out of a high tax paying jurisdiction into a lower tax paying jurisdiction. This will consequently create an additional business risk which emphasises the need for international tax expertise. The international tax expert is a valuable business team member, as their knowledge and expertise is imperative for the mitigation of possible tax risks, correct interpretation and application of the relevant tax legislation on the business flows of the MNEs as a result of operational expansion or any cross-border transactions or activities. Key Words: Taxation, Tax Treaties, Agreements, BEPS, Conventions; Cross-border, Double Taxation; Dual Residency; International tax, Multinational enterprises; Permanent Establishment, Place of Effective Management; OECD Model Tax Convention; Tax Intelligence, Tax Jurisdictions