3. Electronic Theses and Dissertations (ETDs) - All submissions
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Item Base erosion and profit shifting in South Africa: A critical analysis of the effectiveness of the transfer pricing rules with regard to the elimination of profit shifting(2017) Mpanza, XolaniTax base erosion and profit shifting (BEPS) is a key tax issue both locally and internationally. Multinational corporations are constantly trying to find means of reducing the amount of taxation that is payable by identifying gaps in tax laws. The aim is to lower the taxation that the group would be liable for. This study will analyse the developments of tax base erosion and profit shifting. There will also be an examination and comparison of South African transfer pricing laws with other countries' tax laws (United State of America, United Kingdom, Australia and Nigeria), specifically with regards to discouraging profit shifting in order not to obtain a tax advantage. Section 31 of the Income Tax Act 58 of 1962, is one of the tools that is currently being utilised by South Africa in addressing the issue of profit shifting. An analysis of Section 31 will be undertaken and it will be necessary to consider whether there are any loopholes or vagueness in the tax laws that may result in taxpayers manipulating the interpretation of the law in order to obtain a tax advantage. Profit shifting is a global problem that has left many countries deliberating on what could be an ideal solution. This study will also propose recommendations that might be used by Commissioner for the South African Revenue Service.Item An analysis of tax challenges arising due to digitalisation in South Africa(2019) Mochusi, ThabangSince e-commerce started, a lot of studies on its taxability and possible solutions have been done with the aim of enforcing compliance to protect governments from eroding tax bases. The traditional way of doing business is rapidly changing and companies are using e-commerce to trade with each other. Goods and services are exchanged digitally using the internet and various software without physical presence in the state which the goods and services are being provided. As a result, the current traditional tax rules do not effectively address the issue of digitalised business models. At present the enforceability of relevant tax legislation to cater for digitalisation remains a challenge in South Africa and globally. Hence, the focus of this study is to critically analyse the challenges which are brought about by digitalisation to South African tax and recommendations on how the tax rules can be modified to effectively address taxation of digital transactions. It has been reviewed and found that the greatest challenge that relate to fourth industry revolution from a tax perspective is the enforceability of the relevant tax legislation that was amended to make provision for digital transactions by South Africa. On the other hand, digitalisation also brought with its tremendous opportunities from an enforcement perspective as information can now be collated and linked in order to identify and detect evasion or avoidance with the use of specialised software which tax authorities can use. The research gives details of these main challenges and recommendations to tax policy makers.Item Estimating tax capacity, tax effort and tax buoyancy for South Africa(2019) Naape, Baneng LucasThe main objective of this study is to assess South Africa’s tax revenue performance. This is achieved by estimating tax capacity and tax effort from 1960 - 2017 and tax buoyancy from 1995 - 2017. The study is unique in that, it tracks tax capacity, tax effort and tax buoyancy at an aggregate level for a particular country. The 2SLS results indicate that GDP per capita and inflation have a strong positive and statistically significant impact on revenue mobilisation while population growth, trade openness and agriculture share in GDP have a strong negative and statistically significant impact on revenue mobilisation. Furthermore, we find that South Africa’s tax effort index varies between 0.92 which is below capacity and 1.10 which is above capacity. On average, the tax effort index is 1.00, implying that South Africa performs well above its potential tax capacity. Notwithstanding, the tax system was also found to be fairly buoyant, although there is still room for improvement. The ARDL results indicate that VAT revenues and custom duties grow at a faster pace than the growth in final household consumption and import value, respectively. Total tax revenue growth, however, still falls behind as the estimated coefficient is below unity, implying that the growth in total tax revenues does not match the growth of the economy. Given these findings, we conclude that South Africa’s tax revenue performance has been fairly satisfactory over the period 1960 – 2017, albeit there is still room for improvement. For the government to generate value from the rapidly growing population, adequate investments in human capital and entrepreneurial skill development need to be made. The focus should be on broadening the tax base than on hiking already high tax rates.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 'Is Treasury broadening the divide between shareholders and employees - an analysis of the role taxation plays in share incentive plans'(2014-08-22) Hunt, KirstenIt is commonly understood that it is the people within the organisation that hugely affect the efficiency and work environment, which ultimately brings about greater profitability and value. With this in mind, corporate entities continue to ensure that they are attracting and retaining high performing individuals to their organisations with the view of generating greater value for shareholders. The question then arises as to how to attract key individuals to an organisation and keep those individuals. The use of share incentive plans is an established tool implemented by corporates which incentivises employees to remain at an organisation for an extended term while at the same time, attempts to align the interest of the employee with that of the shareholders. Share incentive plans provide one such solution of achieving both these objectives, but how practical is it to implement such an incentive plan in light of the constantly changing tax landscape. Against this commercial driver to attract and retain employees is the apparent mistrust by Treasury and SARS of the use of share plans to incentive employees which is considered by Treasury and SARS as a salary conversion plan with the objective of obtaining a tax advantage. This paper will consider the practical issues faced by corporates trying to implement share incentive schemes to secure the employee’s income earning structure for a prolonged period and aligning the interests of the employee with the shareholders, by considering the tax influencers behind share incentive plans which are being indirectly moulded by the tax legislation, drafted by National Treasury and implemented by SARS. This report will consider the taxation of income earned qua employee versus the income qua shareholder. In order to consider this the paper will attempt to determine where the line currently rests between employee and shareholder, by providing an outline of the current legislation around share plans and some of the commonly seen share schemes implemented in practice. This paper will then consider the direction that this line is moving, if at all, by considering the proposed changes to the legislation as drafted by Treasury and lastly consider how these proposed legislative changes impacts corporates who are trying to implement a long term share incentive plan.Item 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.Item Prescriptiveness of the South African transfer pricing tax legislation in providing guidance on how to transact at an arm's length price(2011-02-25) Manyaka, Puleng OwenTransfer pricing is a significant taxation problem facing both tax authorities and multinational enterprises. Tax authorities around the world regulate transfer pricing through tax legislation, which requires that cross-border transactions within multinational enterprises be at arm’s-length. A number of countries in the international community have amended their transfer pricing tax legislation to be prescriptive by including regulations in their legislation on how to transact at arm’slength price. This research study presents an argument that the South African transfer pricing tax legislation is non-prescriptive as it does not have regulations on how to transact at arm’s-length price. With reference to the transfer pricing guidelines issued by the Organisation of Economic Development and Corporation and the experience of the United States of America in the enforcement of transfer pricing, this research study examines whether or not the South African transfer pricing tax legislation should be amended to be prescriptive by including regulations on how to transact at arm’slength price. The research findings reveal that to a certain extent the South African transfer pricing tax legislation is consistent with the transfer pricing guidelines issued by the Organisation of Economic Development and Corporation, but to a certain extent it is not. The research findings also reveal that non-prescriptive legislation has in the past created a problem in certain countries. Furthermore, the research findings reveal through an analysis of the United States of America’s transfer pricing enforcement experience, that prescriptive transfer pricing tax legislation in a tax system has a positive impact. Recommendation is therefore made in this research study that the South African transfer pricing tax legislation should be amended to be prescriptive by including regulations on how to transact at arm’s-length price. viii Keywords of the study: arm’s-length price, arm’s-length principle, income tax, IRS, multinational enterprise, non-prescriptive, OECD, Practice Note 7, prescriptive, SARS, section 31, section 482, South Africa, tax legislation, taxation, tax law, tax authority, transfer pricing, transfer pricing methods, United States of America.