Faculty of Commerce, Law and Management (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.
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    Taxing Facebook: user data and participation as taxable assets
    (University of the Witwatersrand, Johannesburg, 2023-02-12) Novazi, Zinhle; Gutuza, T.
    Facebook is said to have 2.93 billion active users and it is estimated that by 2026 the number of Facebook users in South Africa will reach 35.92 million. Facebook is said to generate 98.5% of its revenue from digital advertising in the form of targeted advertisements on Facebook and Instagram. A plausible case can be made about the contribution of user data to the profitability of a highly digitalised company such as Meta Platforms Incoporated. This research report has identified three fundamental problems. First, Meta Platforms Incoporated extracts data from users and generate profits through targeted advertising at the location of the user without paying sufficient income tax in the user jurisdiction. Secondly, there is a fundamental problem with how South Africa deals with the income taxation of companies such as Meta Platforms Incoporated. Thirdly, the current tax rules do not allow for taxation to take place at the location of the user and therefore need to be revised. This research report therefore provides five potential solutions that South Africa can adopt to impose income tax on Meta Platforms Incoporated. The solutions include first, the use of the South African source rules (source being at the location of the server); secondly the use of the South African source rules (source being atthe location of the Internet Service Provider); thirdly a tax akin to the mineral royalty tax in the form of a data royalty tax; fourthly the OECD’s Two Pillar Proposal; and fifthly unilateral legislative solutions (using Nigeria and India as a case study)