Faculty of Commerce, Law and Management (ETDs)

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    A critical analysis of the pillar one direct tax solutions for businesses in the digital economy
    (University of the Witwatersrand, Johannesburg, 2023) Mthembu, Sibonelo
    Business profit under the existing international tax system is taxed in the state of residence unless the entity has generated the said profit through a permanent establishment in another state. Traditionally, a business had to have a physical presence in the source state to be considered a permanent establishment. (European Parliament, 2019a, p. 17; World Bank, 2021, p. 26). The digitalisation of the economy allows multinational entities to do business with customers worldwide without having a physical presence in those customers' locations. (World Bank, 2021, p. 26), while the current international tax law is depended on the physical presence of the entity in a location, i.e., a permanent establishment (European Parliament, 2019a, p. 16; World Bank, 2021, p. 26). In the digital economy, the concept of a permanent establishment becomes irrelevant (Medus, 2017, p. 15). The OECD acknowledged that businesses with high levels of digitalisation could generate significant profits and engage in national economic life without having a sizable physical presence (OECD, 2015a, pp. 100-102). The European Parliament (2019a, p. 16) reported that due to these gaps in the current international tax system, digital businesses pay an average tax rate of 9%, while traditional businesses pay an average tax rate of 21%. In October 2020, the OECD published the blueprint with the recommendation to address the direct taxation of the digital economy, entitled ‘Tax challenges arising from Digitalisation – Report on Pillar One Blueprint’ (Pillar One). These recommendations will be effective in 2024 once the inclusive framework members have signed the Multilateral Convention (OECD, 2022a, p. 5). In addition to the Pillar One report, the OECD issued a progress report entitled ‘Progress Report on Amount A of Pillar One, Two-Pillar Solution to the Tax Challenges of the Digitalisation of the Economy’ (Progress Report) in July 2021. Lastly, to address the administrative challenges, the OECD, in October 2022, issued the draft administrationprinciples to be followed by the in-scope multinational entities on the report entitled ‘ProgressReport on the Administration and Tax Certainty Aspects of Pillar One’ (the Administration Report). Researchers and tax policymakers have researched the taxation of the digital economy or e-commerce. However, the focus of those studies was to analyse the tax challenges brought about by the digitalisation of the economy and propose solutions that can be adopted to 2 | P a g e address the direct tax challenges brought about by the digitalisation of the economy (European Parliament, 2019). This research report aims to analyse how digital businesses will be taxed using the recommended direct tax solutions from Pillar One. The OECD issued Pillar One to address the current international tax law gaps.
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    Exploring institutional factors enabling the Nigerian digital economy policy and strategy
    (2020) Olanusi, Olabode
    This study explores the viability of the deployed institutional framework that are mandated to enable the implementation of the National digital economy and strategy in Nigeria. The study employed a qualitative research approach utilising interpretative phenomenological data analysis and interpretation due to the emergent policy implementation and the nuances associated with digital economy evolution in Nigeria. Purposive sampling method was used for selecting participants from the primary stakeholders mandated to drive the implementation of the National digital economy policy and strategy. The research approach necessitated the use of semi-structured interviews for data collection, leveraging digital meeting platforms like Zoom and Microsoft Teams due to the restrictions on physical meetings occasioned by the COVID-19 pandemic. All interviews were recorded as agreed by the participants and collected data was transcribed and analysed using the interpretative phenomenological analysis. Discussions emanating from presented data were guided by research questions posed by the study. The findings obtained from this research show that institutional frameworks are key enablers of the national digital economic policy and strategy; established institutional frameworks needs to be operationalised synergistically to enable the national digital economic policy and strategy and that well-resourced institutional frameworks are vital to enabling the national digital economy policy and strategy in Nigeria. Amongst others, the study provides recommendations that the National digital economy policy and strategy document be reviewed to ensure collaboration with, and participation of all stakeholders. The study further recommends an outcomes-based approach for policy and strategy implementation. The study further provides suggestions for further research to nurture the development and implementation of digital economic policy and strategy in alignment
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    Assessing the entrepreneurial ecosystem readiness to support high-growth digital startups in South Africa
    (2021) Pardesi, Sabica
    There has been a prevalence of studies that suggest that high-growth startups are an important determinant of national economic growth. Furthermore, with both the transition into the digital economy and the emergence of digital technologies, entrepreneurs and new ventures are increasing at an exponential rate globally. This has led to a rise in ‘entrepreneurial ecosystem’ studies that aim to understand how to establish environments that can best assist these new ventures. The focus of this qualitative study was to explore and assess how the entrepreneurial ecosystem supports venture growth for high-growth digital startups in South Africa. In contrast to popularised local studies that focus on the material manifestation of the ecosystem, this study honed into the narratives of twelve founders within the framework of a dynamic capabilities model in order to explore how they identified, captured, and redeployed resources and opportunities as well as the role that location played in supporting their venture growth. The data was collected through semi-structured interviews and analysed using an exploratory approach. The contributions underline the dynamic relationship that digital startup founders have with other ecosystem actors. The first key finding revealed that the South African entrepreneurial ecosystem is primarily led by entrepreneurs who had developed advanced sensing capabilities, i.e., the ability to recognise opportunities within the entrepreneurial ecosystem. The second key finding revealed that all of the interviewed founders took on significant personal and financial risk when starting their businesses. South African stakeholders show increasing concerns about the high-failure rate of startups. It was concluded that there needs to be two differentiated strategies to support high-growth entrepreneurship; one that supports experienced entrepreneurs, and one that is focused on nurturing younger inexperienced entrepreneurs. Linked to this, risk appetite should be viewed as an independent determinant for ecosystem growth; it is the missing glue required to promote innovative entrepreneurship. Lastly, recommendations were made for both ecosystem stakeholders and technology-based entrepreneurs looking to scale in the South African entrepreneurial ecosystem
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    Equalising taxing rights in the digitalised economy: an analysis of diverse tax practices implemented globally
    (2019) Forman, Ashleigh
    There are limitations to the application of existing international tax laws as a result of digitalisation as these were formulated based on traditional ‘brick and mortar’ transactions. These laws are not well suited to the realities of the ‘modern way of doing business’ as they do not cater for business models which can generate returns from offering digital services in a jurisdiction without being physically present in that jurisdiction. Ultimately, if left unaddressed, these weaknesses threaten to expose tax authorities to erosion of national tax bases and profit-shifting manipulation (OECD, 2015b). The international tax framework needs to be responsive to the changing nature of global economies in the digital age. The tax framework should be able to accommodate new digital businesses which operate and create value in different ways (Saint-Amans, 2017). As a result, “there is a disconnect between where value is created and where taxes are paid” (European Commission, 2018b). In response to digitalisation, different jurisdictions have hastily imposed their own domestic tax practices to prevent further base erosion and to improve the collection of tax revenue (Petruzzi and Buriak, 2018). The OECD has attempted to address these tax challenges but has failed to provide clear guidance on taxing rights, as well as on how the profits should be allocated (Medus, 2017). The objective of this report is to summarise the tax practices implemented by the United Kingdom, the European Union, Italy and India in responding to the digitalisation of the economy. The aim will be met through a correspondence analysis between the different tax solutions implemented or proposed by these jurisdictions, and the problems identified in taxing the digital economy.
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    A critical analysis of the international direct tax solutions for businesses in the digital economy
    (2019) Peres, Monique Helena Alfonso
    Taxes are not paid where value is created when it comes to the digital economy. Current international tax laws were written before the digital economy started. The digital economy has changed our lives and how business is done. Value is created in different ways by digital businesses compared to traditional businesses. Digital businesses can do business in any jurisdiction in the world without a physical presence. The permanent establishment concept is still based on physical presence which is irrelevant to digital businesses. The permanent establishment concept and its irrelevance to the digital economy will be discussed in the report. Foreign digital businesses use the physical presence required by the permanent establishment concept in their tax planning to reduce their tax liability. The questions that will be answered in the report are how and where value is created and where should digital businesses pay direct taxes such as income tax, amongst other taxes. The purpose of this report is to critically analyse how digital businesses should be directly taxed when they have a significant digital presence with little or no physical presence in a jurisdiction. The report will critically analyse the direct tax solutions that have been proposed to tax businesses in the digital economy.