A critical analysis of the corporate restructuring rules
Date
2023-01
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
University of the Witwatersrand, Johannesburg
Abstract
As a result of Covid-19, there is likely to be an increase in company restructuring in South Africa. The Income Tax Act 58 of 1962 contains group relief measures, also commonly referred to as the “corporate rules”. The purpose of the corporate rules, considering the policy objectives of competitiveness, was twofold, firstly, to encourage domestic restructuring of South African companies to promote growth and, secondly, to alleviate unintended hardships caused by the introduction of capital gains tax, which was introduced at the same time. The corporate rules provide relief from capital gains tax and normal tax consequences. In addition, the corporate rules defer the payment of dividends tax, transfer duty, donations tax, securities transfer tax and value-added tax. In this report the corporate rules contained in the Income Tax Act are critically analysed to ascertain whether the rules are economically and administratively efficient and whether the purpose and needs for which they were introduced, are met. In the current study, where the corporate rules are found to be inefficient, suitable recommendations are made. In analysing the corporate rules, the recommendations made during March 2018 by the Davis Tax Committee in its report to the Minister of Finance, are considered. In addition, this research investigates whether successive transactions utilising the corporate rules could be implemented, as well as whether the general anti-avoidance rules contained in the Income Tax Act could apply to corporate rule transactions. A group company taxation regime, as an alternative to the corporate rules, is also briefly discussed. The report concludes that the corporate rules currently achieve the purpose for which the rules were implemented, that is, to alleviate unforeseen hardship caused by the enactment of capital gains tax in 2001, as well as normal tax and to encourage domestic restructuring of South African groups of companies to promote growth. Ultimately, the shortcomings of the corporate rules, such as the mechanical nature of the rules due to the rules being rules based, possible double taxation and the various complex anti- avoidance provisions should be considered further by the legislature.
Description
A research report submitted to the faculty of commerce, law and management in partial fulfillment of the requirements for the degree of master of commerce (specialising in taxation)
Keywords
UCTD, Corporate rules, Group restructuring, Income Tax Act 58 of 1962, Roll-over’ tax relief, Corporate income tax, Successive corporate rule transactions, General anti-avoidance rules, Davis Tax Committee
Citation
Botha, Petrus Henrik (2023). The role of design houses [Master’s dissertation PhD thesis, University of the Witwatersrand, Johannesburg]. Wiredspace.https://hdl.handle.net/10539/38596