School of Accountancy (ETDs)

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A comparative analysis and subsequent recommendations for improvement of the draft advance pricing agreement legislation in South Africa
(University of the Witwatersrand, Johannesburg, 2023-06) Carvalho, Monique Fernandes; Blumenthal, Roy
When dealing with multinational enterprises (MNEs) which are connected parties and located within in different jurisdictions, they must transact with each other and set prices at which they transfer goods or services1 between each other on an arm’s length basis (Ernst & Young (EY)(2021); United Nations (UN)(2021: 29)). According to the Organisation for Economic Co-operation and Development (OECD), the arm’s length principle (ALP) assists MNEs to identify the price at which a transaction would take place, had its members in fact been subject to market forces. In other words, the transfer price set for those transactions between unconnected persons should be used as a benchmark against which to appraise those transactions taking place between connected persons; any identified discrepancies may thereafter lead to a potential future adjustment which gives rise to transfer pricing disputes between taxpayers and the tax authorities. (South African Revenue Service (SARS) (1999: 8).) In order to minimise these transfer pricing disputes, the OECD emphasised the need for a more proactive, clear, effective discussion to take place between taxpayers and the tax authorities. The OECD has identified and communicated a proactive, upfront dispute resolution mechanism, known as advance pricing agreements (APAs). APAs are a tool that attempts to prevent disputes from arising through the proactive, upfront engagement betweenthe taxpayers and tax authorities. (Organisation for Economic Co-operation and Development (OECD)(2016: 7 – 8); OECD (2022 a: 213).) APAs are not yet governed under South African (SA) legislation; however, although the South African Revenue Service (SARS) has submitted draft legislation on APAs for public comment, nevertheless no further steps have yet been taken to date (SARS (2021)). One of the biggest challenges of APAs which far removes their practically is the period within which they take place until completion. Statistically, there is a limitation in the amount of data which is available when dealing with APAs as a topic in isolation. The author selected a number of OECD member countries from which she was able to retrieve a limited but relevant amount of data from reliable sources, which clarifies the average time period it takes to complete an APA from start to end. The author selected both the United States of America (USA) and United Kingdom (UK) for reasons which are set out below in this research report. This research report provides a comparative analysis of the draft APA legislation submitted by SARS in SA, in comparison with the APA legislation promulgated and followed in the USA and UK. Subsequently, suggested improvements to the draft APA legislation in SA by reference to the APA legislation followed both in the USA and UK are further provided.
A comparative study and analysis of the amended foreign employment income exemption in South Africa
(University of the Witwatersrand, Johannesburg, 2023-01) Essop, Ahmed; Blumenthal, Roy
Tax exemptions are granted by the government for a multitude of reasons. These include providing some form of tax relief, alleviating specifically identified tax burdens, encouraging investment, promoting donations to approved public benefit organizations and avoiding the possibility of double taxation (Kransdorff, 2010, p. 79). One specific provision in section 10(1)(o)(ii) of the South African Income Tax Act of 1962, pertained to South African residents working abroad, namely the foreign employment income exemption. The intention of this exemption was to prevent residents from being double taxed (SARS, 2021a). Over the last few years, there has been a noted increase in the number of South Africans working abroad and this has been alluded to as being one of the reasons that government decided to review and amend the section 10(1)(o)(ii) foreign employment income exemption (Ryan, 2020). The impact of this amendment on South African residents working abroad will be analysed and investigated. A comparative analysis will be done on the tax payable of South African residents working in the following countries: the UK, the UAE and India
A critical analysis of sugar tax in South Africa
(University of the Witswatersrand, Johannesburg, 2022-03-30) Irinoye, Nakedi Jane Vanessa; Blumenthal, Roy
Globally the major leading cause of death is associated with non-communicable diseases (NCDs) and increasing in both First and Third World countries, including South Africa. The change from traditional to processed food, more energy-dense food, sugar-based drinks, more added salt, fat and sugar, are all referred to as the ‘western diet’. The transition of the food environment has been associatedwith individual influences such as behaviors, knowledge and attitudes. Globally the consumption of sugar-based drinks has increased at an alarming rate and major non-communicable diseases (NCDs) are associated with the excessive intake of sugar. One of the global health risks is obesity. In creating food environments that are healthy, international jurisdictions formulate policies and environmental interventions as an effective tool. Taxes have been employed to stabilise a downturn in the market and change the price, which have affected consumers’ purchasing decisions. In this report, sugar tax was critically analysed by evaluating the impact of the tax on the market, employment, imports and exports. Several policy design options of taxing sugar-based drinks as formulated and introduced by the World Health Organization (WHO) and The Organization for Economic Co-operation and Development (OECD) were compared. In order to determine the sustainability of the policy design option implemented by South Africa, the policy design option was compared to that implemented by other jurisdictions namely, the United States of America, Mexico and Denmark. The opponents of sugar tax challengedthe implementation of initiatives and utilization of income generated from sugar tax in South Africa
Assessment of administrative burden on South African Controlled foreign company rules relative to the imputation
(University of the Witwatersrand, Johannesburg, 2022) Matlou, Tracy; Blumenthal, Roy
South African multinational enterprises must comply with the controlled foreign company (CFC) rules in section 9D of the Income Tax Act 58 of 1962 (the Act). The provisions of section 9D of the Act are collectively referred to in this document as CFC rules. The CFC rules are anti-avoidance provisions that discourage South African multinational enterprises from shifting income to foreign companies under their control. This study examines the administrative burden placed on South African multinational enterprises (MNEs) to comply with section 9D of the Act and assesses this administrative burden for reasonableness when compared to the amounts eventually imputed. The study investigates whether South African CFC (SA CFC) rules, which are complex, carry a significant administrative burden on South African MNEs. SA CFC rules are confusing and often are misunderstood by the South African multinational enterprises. This study compares SA CFC rules to the Organisation for Economic Co-operation and Development (OECD), Base erosion and profit shifting (BEPS) action 3’s recommendations for effective CFC rule
Effect of Anti-Tax Avoidance Laws on the Location of Patent Ownership and Research and Development Activities in Multinational Corporations
(© University of the Witswatersrand, Johannesburg, 2022-03-31) Masiye, Fortunate; Blumenthal, Roy
Multinational corporations (MNCs) are always under scrutiny for engaging in activities that tax authorities allege are solely intended to lower the tax burden of these organiza- tions. Consequently, governments are always formulating new laws, rules, and regula- tions that target tax avoidance activities of MNCs, limiting approaches and legal loop- holes that may be used to lower the corporations’ tax burden. This study investigates how anti-avoidance laws influence the location of patent ownership and research and devel- opment (R&D) activities of MNCs. It is a study that takes a closer look at the murky waters that characterize the international taxation system to see how global players navi- gate taxation measures for their own benefit. The study visits tax destinations like South Africa, Ireland, and the US to highlight the characteristics of tax systems and to throw light on the situation on the ground. Ultimately, growing evidence from resource studies and the news media indicates that MNCs have resorted to shifting profits from high- to low-tax jurisdictions with the aim of lowering their overall corporate tax obligation. It is an explosive study that reflects the interesting web of activities that persist behind the international tax regulations. People have forged careers out of maneuvering tax ju- risdictions to save millions of dollars for MNCs.
Retirement planning for financial independence: exploring different investment vehicles from a tax benefit perspective
(University of the Witwatersrand, Johannesburg, 2022) Mthembu, Zizile; Blumenthal, Roy
Planning for retirement is an important step in the lives of South Africans, whether they are employed or self-employed. The Labour Relations Act 66 of 1995, of South Africa, does not specifically prescribe the age of retirement, however the normal age of retirement for employed individuals is generally between the ages of 55 and 65 years, depending on the industry and the rules of the retirement funds involved (Western Cape Government, 2018). This study evaluates the different investment options available to the ordinary South African in planning towards his or her retirement. It focuses specifically on three investment vehicles, namely, Real Estate Investment Trusts (REITs), retirement annuity funds and offshore endowment policies. The study examined the characteristics of these investment vehicles, the tax benefits available, the risks involved and how to use those returns to ensure a financially independent and sustainable life during retirement