Faculty of Commerce, Law and Management (ETDs)

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    A critical analysis of the foreign business establishment exemption and its role in the prevention of base erosion and profit shifting
    (University of the Witwatersrand, Johannesburg, 2023) Vally, Ra’eesah
    Section 9D of the Income Tax Act 58 of 1962 sets out the controlled foreign companies rules. This section contains anti-avoidance provisions that seek to prevent South African tax residents shifting their taxable income to foreign countries by way of a controlled foreign company. In terms of section 9D the net income of controlled foreign companies is taxed in the hands of the South African residents in proportion or their shareholding, unless the amount is subject to one of the specific exemptions. One such exemption is the foreign business establishment exemption. This exemption has been criticised as the definition of foreign business establishment is not adequate. The criticism arises from the fact that many controlled foreign companies meet the definition of a foreign business establishment by default even though they do not constitute a bona fide foreign business establishment. This paper critically evaluates this exemption considering the OECD BEPS Pillar Two Rules, the Income Tax Act 58 of 1962 and the Mauritian and UAE substance standards and whether the rules of this exemption should be more specific and stringent. The substance standards were found to be more stringent in comparison to the FBE definition and therefore enhanced the FBE definition. The scope of the Pillar Two blueprint meant that many South African companies would more likely than not be scoped out of its realms and therefore would not assist in enhancing the FBE definition
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    Does section 9D achieve the objectives of the BEPS action 3 in the ever changing business environment?
    (2021) Maesela, Lungile Nosibusiso Gloria
    The Organisation for Economic Co-operation and Development (OECD) Action 3 in the Base Erosion and Profit Sharing Project (BEPS) outlines a roadmap on the formulation of the controlled foreign company rules. Countries can elect to adopt the recommendations or may even expand on them. South Africa (SA) has adopted the BEPS action 3 even though it is not a member state. The research report will examine whether section 9D (which codifies the South African controlled foreign companies rules) addresses the BEPS action 3 objectives and how some provisions of the section 9D interact with other parts South African tax legislation (transfer pricing) to address these objectives in the ever changing business environment. The methodology adopted in this report is of a qualitative, interpretive nature, based on a detailed interpretation and analysis of the literature. The literature review will mainly focus on the OECD documentation and South African statutes. The other sources are supporting material to help answer the main research question and to achieve the aim of the study