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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    The analysis of the requirements of the new General Anti Avoidance Rules as compared to the repealed section 103(1)
    (University of the Witwatersrand, Johannesburg, 2023) Ngcobo, Nelisiwe Mukeliwe
    There is a constant struggle between the South African Revenue Services (SARS) and the taxpayer. SARS wants to collect as much money as possible from taxpayers; on the other hand, taxpayers want to pay as little tax as possible. The Government tries to implement new legislation and provisions in the Income Tax Act to make sure that taxpayers are restricted or limited in structuring their agreements in a way that reduces or limits their tax liabilities. On the other hand, taxpayers also try to find loopholes in the Income Tax Act that will work in their favour to reduce their tax liability. Most taxpayers structure their agreements in a way that ensures that they are still within the ambits of the provisions of the Income Tax Act but at the same time, mitigating their tax liability. It has been established over the years that taxpayers have a right to structure their financial affairs in a way that benefits them. This research paper will be looking at the requirements of the new General Anti Avoidance Rules (section 80A – 80L), compared to the now repealed anti-tax avoidance provisions of the old section 103 (1) of the Income Tax Act, which made a huge impact on this topic as most court cases used the interpretation of this section to reach judgments. The new anti-avoidance provisions are based on the important elements of the old provisions. This research report will analyse the General Anti-Avoidance Rules (GAAR) under section 80A to 80L of the Income Tax Act 58 of 1962. The aim is to analyze and conclude on the developments and effectiveness of the new GAAR in curbing tax avoidance
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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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    The impact of tax avoidance practices on tax revenue collection in South Africa
    (2023) Nkadimeng, Hendrick Legamane
    The study examines the impact of the tax avoidance practices on the collection of tax revenues by the South African Revenue Service. It examines the extent to which collection of tax revenues is compromised by the application of some of the tax avoidance practices by the taxpayers. Various tax avoidance practices were studied and analyzed for the purposes of the study. The analysis includes, amongst others, the court cases, online academic articles, books, media releases and theses for the purposes of putting together reliable source of data. Each source of information was studied and analyzed separately for the purposes of the study. South Africa, as a developing country, has been impacted negatively by some of the tax avoidances practices applicable within the South African tax law. The country has lost quite significantly, over the years, some of the tax revenue amounts which could have been collected had the tax avoidance practices not been applicable within the tax legislation in South Africa. The research study concludes by analyzing few possibilities and recommendations on how the South African Revenue Service could possibly ensure that collection on tax revenues is maximized while the tax legislation remains fair and transparent to the taxpayer.
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    The effectiveness of trusts, including companies within a trust structure, as a tax saving mechanism in relation to investment property
    (2021) Naidoo, Shanolan
    This report analyses the tax benefits and disadvantages of utilising a trust as an investment vehicle for residential property investment versus purchasing these in one's individual capacity. It also assesses if the trust can be utilised as part of a wider structure involving companies to legitimately reduce the effective tax liability of the investor while still being able to extract value from the investment. The tax consequences of the various investment vehicles (natural person, trust, company) have been assessed in relation to an investment property portfolio. This assessment includes current tax, capital gains tax, estate duty, anti-avoidance (such as section &C), specific property related legislation (such as sections 13sex), as well as specific scenarios involved in property investment (such as the fact that these will typically generate losses during the initial years of investment). Based on analysis of the various types of taxes that has been performed, it is clear that there is no standard solution indicating that one investment vehicle is more suitable than the other. The most tax efficient vehicle is dependent on how much the individual earns in a tax year, whether the investment property portfolio is loss or profit making, the intention and business model involved (whether to hold for long term appreciation or to sell), the type of investment property being purchased (such as whether these would qualify for special allowances such as 13sex), the value of the portfolio involved, whether these would generate capital gains or losses upon sales, etc.
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    Neutralising the effects of branch mismatch arrangements: a South African perspective
    (2019) Lindeque, Anlia
    Base erosion and profit shifting (BEPS) has become an increasingly important matter for both multinational enterprises (MNEs) and the countries in which they operate. The tax avoidance strategies used to exploit gaps and mismatches in tax rules have become progressively complex and advanced over the past decade. The aim of this research report is to determine the importance and relevance of addressing BEPS via branch mismatch arrangements, as proposed by the Organisation for Economic Co-operation and Development (OECD), to an emerging economy such as South Africa. The report discusses and analyses the concept of branch mismatch arrangements, the concerns and challenges arising from the use of these arrangements, the recommendations from the OECD in addressing these mismatches and the approaches taken by selected countries. Current domestic legislation is contrasted with international approaches and the recommendations by the OECD. The outcome of adoption or non-adoption of the recommendations will be investigated.