School of Accountancy (ETDs)

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Start date: 2016Subject: search.filters.subject.OECD

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    After the 2021 amendments to section 23M, what further amendments are required in section 23M to align with BEPS Action 4 recommendations?
    (University of the Witwatersrand, Johannesburg, 2023) Busakwe, Ndawoyakhe; Kolitz, Maeve
    Debt financing is an essential source of investment in South Africa as a country importing capital. As much as an economy in a good state depends on investments, taxpayers can use debt financing to create opportunities for base erosion and profit shifting (National Treasury, 2020a:5). The use of interest deductions to fund tax-exempt income and tax relief obtained on the deduction of interest expense which is higher than the net interest expense of a group can also create opportunities and ways in which taxpayers erode the tax base (OECD, 2015:16). Kruger (2015:12) noted that revenue authorities worldwide have been concerned for many years about the tax effect of debt financing, particularly what they perceive as debt funding that taxpayers utilise for tax avoidance and erosion of the tax base. In order to combat base erosion, several foreign jurisdictions have enacted interest deduction limitations and anti-hybrid instrument provisions, and the Organisation for Economic Co-operation and Development (OECD) raised this issue as one of its focus areas on Base Erosion and Profit Shifting (BEPS) (Kruger, 2015:12). Section 23N and s 23M became effective in the Income Tax Act 58 of 1962 (the Act) in South Africa between 2014 and 2015 respectively. Both of these provisions applied an interest limitation based on the ratio between the particular interest and a tax proxy for adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) (Van der Zwan, Schutte and Krugell, 2018:1). Kruger (2015:11) stated that: ‘fiscal authorities around the world have been concerned for some time that excessive debt funding could lead to tax avoidance which is caused by a mismatch between the tax treatment of interest incurred and interest received, which could result in excessive deduction of interest expense.’ In the South African context, National Treasury also acknowledged in the 2013 Budget Review that, although debt financing might have a positive impact on a iii healthier economy, taxpayers often use it to erode the South African tax base (National Treasury, 2013a:55). In order to protect the South African tax base as far as excessive interest deductions are concerned, National Treasury introduced s 23M through the 2013 Taxation Laws Amendment Act No 13 of 2013, with effect of 1 January 2015. In a joint project by the OECD and Group of Twenty (G20) on BEPS, it was identified that the deductibility of interest for purposes of calculating taxable profits should be one of the focus areas in order to counter BEPS, which was followed by the analysis and release of the final report titled OECD/G20 Base Erosion and Profit Shifting Project: Limiting Base Erosion Involving Interest Deductions and Other Financial Payments, Action 4: 2015 Final Report (BEPS Action 4 Final Report) (Van der Zwan et al., 2018:1). BEPS Action 4 contains recommendations for jurisdictions to implement the measures proposed to address the risks by interest payments and the related tax deductions to the corporate tax base (Van der Zwan et al., 2018:1). The purpose of this report is to examine how closely the South African interest limitations rules contained in s 23M align with BEPS Action 4 recommendations and to the extent that s 23M and BEPS Action 4 are not aligned, the report will determine further amendments that are required in s 23M of the Act to align with the BEPS Action 4 recommendations. The research includes a comparison of s 23M and BEPS Action 4 recommendations before the 2021 amendments to s 23M; discussion of the 2021 amendments to s 23M; analysis of the current differences and similarities between s 23M and BEPS Action 4 recommendations; and discussion of what further amendments are required in s 23M to align with BEPS Action 4 recommendations.
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    An appraisal of a direct wealth tax as a mechanism to reduce financial inequality
    (University of the Witwatersrand, Johannesburg, 2023) Mashishi, Lerato; Nkhi, Naledi
    With the COVID-19 pandemic leading to increasing questions around wealth inequality, the role that tax reform has in addressing inequality has been a key question. With the slogan “tax the rich” increasing in popularity internationally, wealth tax proposals have been made in developed and developing countries. This study examines the approaches to wealth taxes in different countries that form part of the Organisation for Economic Co-operation and Development (OECD) in order to understand an appropriate wealth tax design. This research aims to analyse the history of tax reform in South Africa by examining the recommendations of the Katz and Davis committees relating to wealth taxes. This report includes an examination of how wealth tax revenues can be used to reduce inequality by analysing the public spending landscape in order to determine whether wealth tax revenues would be appropriately used. The research finds that the adequate design of a wealth tax is theoretically possible, however South Africa has flaws in public spending that need to be corrected prior to increasing the tax burden of taxpayers
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    Weaknesses in the legislation for tax avoidance and tax evasion in South Africa and suggested improvements
    (University of the Witwatersrand, Johannesburg, 2021) Naidoo, Katelynne Ann
    ‘Tax avoidance and tax evasion threaten government revenues’ (OECD n.d.). As the globalization of domestic and international trade continually increases, tax evasion remains a hurdle for governments around the globe (OECD 2017a:9). Governments rely on tax collections primarily to finance economic expenditure; however, governments face a huge loss of revenue through tax evasion at different levels (OECD 2014:91). It is submitted that stringent tax collections are imperative for South Africa as a developing country. An examination of the difference between tax avoidance and tax evasion will be performed given that the difference is often perceived to be faint (Davidov 2016:1). The main aim of the study is to examine the weaknesses in the legislation for tax avoidance and tax evasion in SA and suggest improvements. An analysis of the role of the government, the Organisation for Economic Co-operation and Development (OECD), and other countries towards adopting a holistic approach to designing policies to prevent tax avoidance and tax evasion will be performed. Tax avoidance, harmful practices and aggressive tax planning must be tackled (African Tax Administration, African Union and OECD 2021:18).
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    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
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    The taxation of interest in South Africa
    (© University of the Witswatersrand, Johannesburg, 2023-05) Mhlafu, Mthetho
    This research report comprehensively explores the tax treatment of interest in South Africa, assessing its nuances and complexities from multiple perspectives. The study begins by defining interest within various contexts, then examines interest as a tax-deductible expenditure under South African law, supported by key court cases. The investigation extends to the practical implications of interest taxation, focusing on the nature and purpose of the loan and its relation to income production. Furthermore, the report delves into the insights from classical economists and their relevance to contemporary tax laws, specifically critiquing the South African Supreme Court of Appeal's decision in the Brummeria case. The report concludes with an exploration of international tax standards regarding interest, emphasizing the need for harmonious interplay between domestic tax laws and international tax treaties
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    A comparison of the United Kingdom’s Digital Services Tax regime and the OECD Two-pillar approach: Is this unilateral measure hindering the implementation of the Pillar Two model?
    (© University of the Witswatersrand, Johannesburg, 2023-05) Nong, Thato; Padia, Misha
    Base Erosion and Profit Shifting (BEPS) has become the focal point for Multinational Enterprises (MNEs) with the aim of maximising their profits and minimising or totally avoiding their tax payable to a jurisdiction. The goal of this study is to highlight the tax concerns that have arisen as a result of digitisation, which have exacerbated the erosion of the tax base and profit shifting in the United Kingdom from the standpoint of Corporate Income Taxes (CIT). It will examine the Digital Services Tax in further depth, contrast it to the OECD Pillar Two, and provide a proposal on whether the DST impedes a global solution. BEPS has left several governments concerned about their revenue collection regulations, especially as the world commerce economy becomes more computerised. The research methodology used for this study is qualitative and interpretive of the UK's Digital Services Tax Act and the OECD Two- Pillar model. The introduction of the Digital Services Tax in the United Kingdom to tax in- scope earnings is an appropriate interim solution; nonetheless, multinational corporations face the possibility of being double-taxed, with no easily available redress, thus not aligning with global best practices as explained in the study. In order to combat BEPS, the Organisation for Economic Cooperation and Development (OECD), in collaboration with the Group of Twenty (G20) forum and other developing countries, established a two-pillar approach, which, before implementation, will require the rejection of all unilateral measures such as DSTs. This study supports the worldwide proposal that unilateral actions adopted by jurisdictions such as the UK to safeguard their tax base must be opposed in the context of direct taxeS
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    Trusts in hybrid mismatch arrangements: does the OECD BEPS action plan adequately address the unique attributes of trusts?
    (2022) de Koker, Lori Adiella
    This paper assesses whether the Organization for Economic Co-operation and Development (OECD) has effectively neutralised trust-based hybrid mismatch arrangements with the recommendations incorporated in Action 2 of the Base Erosion and Profit Shifting (BEPS) Action Plan. The OECD employed a consequentialist approach to hybrid mismatch arrangements, focusing on mending the outcomes of mismatch transactions as opposed to the source of the mismatches. Since trusts comprise several distinctive attributes, such as conflicts of attribution, which may result in mismatches, the OECD encountered difficulties in addressing trust-based mismatched systematically through the consequentialist approach. Slow convergence from the international community represents a further threat to the success of the OECD initiative. This paper will explore the adoption of the Action 2 recommendations concerning trustbased mismatches within the international community, placing a focus on South Africa. Possible alternatives to address hybrid mismatch arrangements will also be assessed.
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    A critical analysis into the Organisation for Economic Co-operation and Development ‘Standard for Automatic Exchange of Financial Account Information in Tax Matters’
    (2017) Mohanlal, Dhanesh
    The impact of the Organisation for Economic Co-operation and Development’s Standard on Automatic Exchange of Financial Account Information in Tax Matters has a significant impact on Financial Institutions globally. This paper aims to critically evaluate the current South African legislation and the obligations it places on financial institutions. The research also highlights the challenges faced by a financial institutions in interpreting and implementing the often complex requirements of the regulations with a particular focus on the following areas namely customer on-boarding and enhanced due diligence procedures, monitoring of accounts, remediation of the existing customer base, system development, and reporting to the South African Revenue Service. The research also looks into the readiness of developing countries in implementing the Automatic Exchange of Information. The research concludes with a discussion into the appropriateness of South Africa’s decision to agree to be one of the early adopters of this legislation despite the challenges identified above. Key Words: OECD, Standard on Automatic Exchange of Financial Account Information for Tax purposes, Common Reporting Standard, Financial Institutions.