Faculty of Commerce, Law and Management (ETDs)

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Subject: search.filters.subject.Transfer pricing

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Now showing 1 - 5 of 5
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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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    Tax Implications of intellectual property transactions in South Africa
    (2024) Sinobolo, Phindulo
    Intellectual property law is a category of property that includes intangible creations of the human intellect, and primarily encompasses copyrights, patents, designs, trade marks and know-how. The intention of the use of intellectual property is important to determine the correct tax treatment to be assigned in the calculation of taxable income in a particular year of assessment. The Income Tax Act 58 of 1962 (‘Income Tax Act’) is used, in this discussion, as a basis for determining the appropriate tax treatment of intellectual property transactions. Extensive focus is placed on discussing the tax incentives of royalties, premiums, acquisition of intellectual property and internally generated intellectual property. It should be noted that one should consider case law and the specific circumstances of each case, to determine whether the amount related to intellectual property will be deductible in terms of s 11(a). An overview of the tax implications for a franchisor and a franchisee is depicted when both parties enter into a franchise agreement. The taxation of image rights is specifically included in this discussion as companies, through their brands (i.e., trade marks) affiliate themselves with celebrities, sports professionals and influencers to drive their marketing strategy. A brief transfer pricing discussion regarding intellectual property is contained in the research report as it is imperative to determine whether an affected transaction has been entered into between connected persons which results in a tax benefit being derived.
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    Anti-avoidance provisions limiting interest deductions: a comparative analysis between the OECD and South Africa
    (2021) Williams, Nebresca
    Companies have two options to finance their operations: equity injections from their shareholders or loans (SARS, 2013, p. 3). The cash outflows as a result of these two methods of financing are dividends and interest respectively (SARS, 2013, p. 3). Since dividends are not allowed as a tax deduction in South Africa, it is clear that companies would benefit by financing their businesses with debt rather than equity since the interest expense on a loan is deductible for tax purposes under s 24J of the Income Tax Act 58 of 1962 (the Act)(SARS, 2013, p. 3). A study completed by de Mooij, R. & Hebous, S. suggests that debt/asset ratios increase by at least 0.14% -0.46% for corporations every time there is a 1% increase in the tax rate, which proves company tax bias towards debt (Hebous & de Mooij, 2017). Using debt rather than equity also allows for the existing owners in a company to raise funding without the possibility of losing control of the company, which may be the case when equity instead of debt funding is utilised (Halka, et al., 2017, pp. 182-183).For multinational enterprises, it may be easier to raise debt funding from a company within the same group of companies versus debt obtained from external parties such as banks as they can take advantage of internal synergies (Reynolds & Wier, 2016, p. 4) this creates a problem for tax authorities in certain instances. The reason for concern is that some multinational enterprises choose to engage in excessive debt financing particularly from companies within their group to charge high interest rates to those branches situated in high tax jurisdictions (Palanský, 2019). Some groups issue loans from a company based in a low-tax jurisdiction allowing the borrower to deduct their interest costs in the high tax jurisdiction resulting in large interest deductions that lower not just the net tax bill for the group but also erodes the tax base in the high-tax jurisdiction (OECD, 2017a, p. 23). This research report will review how multinational enterprises use debt funding as an opportunity to avoid tax and what the regulations are in South Africa to protect the tax base in comparison with the recommendations from the Organisation for Economic Co-operation and Development. Section24J of the Act governs the fundamentals of interest deductibility. Section 31(2) of the Act limits interest deductions to the arm’s length amount of cross-border debt and interest. Section 23N of the Act limits interest deductions by a company on debt obtained to purchase assets or shares in reorganisation and acquisition transactions. Section 23M limits the deductibility of interest on debt from a foreign person that is not subject to tax in South Africa and is in a controlling relationship with the resident borrower
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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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    The feasibility of trust as a generation skipping device based on the amendments to the Income Tax Act and the Davis tax committee's report into wealth taxation as well as the potential effect these may have on trusts
    (2019) Crafford, Carel Pieter
    Trusts are not as desirable as they once were, and every year they seem to become less so. The reason for their increasing undesirability is the heavy tax burden they carry.