The section 6quin foreign tax rebate as an incentive for South African headquarter companies
The Katz Commission recognised that South Africa could benefit from multinational enterprise (MNE) groups headquartering in South Africa. MNE headquarter companies create jobs and attract highly skilled individuals who impact on the economies in which they reside. These highly skilled individuals are also high taxpayers in the countries where they provide their services. South Africa has a number of attributes which would encourage MNE groups to headquarter in South Africa but the cost of doing business with the rest of Africa is high due to withholding taxes levied by African countries on technical and management fees. Countries with low tax rates attract MNE groups to headquarter in those countries as this effectively reduces the cost of doing business with the rest of Africa. The National Treasury introduced section 6quin of the Income Tax Act to provide effective relief to the South African taxpayer from double taxation on South African-sourced service fees charged to other countries and, in particular, other African countries. An examination is conducted on the impact of double taxation and whether section 6quin provides more effective relief from double taxation compared to other double tax relief mechanisms available to the South African taxpayer which will incentivise MNE groups to headquarter in South Africa. An analysis is performed on the income tax forfeited by the South African Receiver of Revenue (SARS) in the National Treasury providing this incentive to South African headquarter companies compared to if the headquarter is relocated out of South Africa. The results indicate that section 6quin provides a feasible solution to reducing double taxation on South African-sourced services provided to other African countries which incentivises MNE groups to headquarter in South Africa. If section 6quin is withdrawn from the South African Income Tax Act, MNE groups potentially will not headquarter in South Africa and seek low tax jurisdictions to reduce costs of providing headquarter services into Africa. This study indicates that the fiscus stands to lose more income tax if the MNE group headquarters outside of South Africa compared to the relief provided to the MNE group headquarter company in accordance with section 6quin by reducing income tax payable. This study informs MNE groups seeking to headquarter in South Africa and the National Treasury of the effects of double taxation on South African-sourced services provided to other African countries and the requirement for relief against double taxation. This study highlights the need for the National Treasury to retain section 6quin in the Income Tax Act or provide an alternate suitable solution to reducing double taxation on South African-sourced services provided by South African headquarter companies to other African countries.
A research report submitted to the Faculty of Commerce, Law and Management, University of the Witwatersrand, Johannesburg, in partial fulfilment of the requirements for the degree of Master of Commerce (specialising in Taxation) Johannesburg, 2015
Statham, Ian (2016) The section 6quin foreign tax rebate as an incentive for South African headquarter companies, University of the Witwatersrand, Johannesburg, <http://wiredspace.wits.ac.za/handle/10539/22158>