3. Electronic Theses and Dissertations (ETDs) - All submissions
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Item 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 JurisdictionsItem The difficulities of determining whether a permanent establishment has been created by the presence of a foreign company(2014-08-13) Andreou, AntoniaInformation technology is a driving factor in the process of globalisation. Improvements in the early 1990s in computer hardware, software and telecommunications greatly increased people’s ability to access information. (The Levin Institute, 2013). Globalisation is not a new concept however the pace of integration of national economies and markets has substantially increased in recent years (OECD, 2013e: 7). It can be argued that ‘globalisation’ began with Christopher Columbus and Vasco da Gama (O’Rourke and Williamson, 2000), but the term has only been in existence since the 1960s (Jeffery, 2002). It can be said that information technology has been the most recent major catalyst for global integration (The Levin Institute, 2013) which has enabled globalisation to change the way in which companies do business (PWC, 2013a). In relation to the globalisation of the world’s economies, the concept of ‘a permanent establishment’ has gained significant importance worldwide, due to the direct impact on the tax revenue generated (Nayyar, 2010). In the current era of cross-border transactions and the increase in international trade and commerce among nations, there is a continuous movement of human capital across borders. One of the most significant results of globalisation is the noticeable impact of one country’s domestic tax policies on the economy of another country. Double taxation has an adverse effect on trade and services. Taxation of the same income by two or more countries (juridical double taxation) would constitute an unfair burden on the taxpayer. (Aimurie, 2013). Many countries agree that in order to eliminate double taxation, a base of clear and predictable international tax rules must be applied in order to give certainty to both governments and businesses (OECD, 2013e: 7). Hence the question of taxing rights is created. The possibility of creating a permanent establishment in a jurisdiction by a company or its employees or an agent arises as well as the taxing rights of the tax authorities. This research report will examine the concept of a permanent establishment and its application in commercial business activities, the building and construction industry and in the activities of an agent.