Browsing by Author "Futter, Alison"

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    Open Access
    A critical analysis of fiscal stability agreements as offered in the tenth schedule of the income tax act for energy companies in South Africa in light of recent oil and gas finds in South Africa
    (2021) Melapi, Babalwa Melapi; West, Craig; Futter, Alison
    South Africa remains reliant on a number of countries to sustain its energy requirements. The acute shortage and unreliable supply of electricity, requires that South Africa consider other energy sources, more specifically, that it considers the use of oil and gas as an alternative or complementary energy source to the main energy sources currently used in the country. The recent announcement of oil and gas discoveries in South Africa could see less reliance on other countries for the importation of crude oil and petroleum products. Despite newly discovered oil and gas resources in South Africa, the country will continue to remain reliant on the industry's international investors since South Africa does not have the requisite expertise, skill and capital to operate efficiently in this industry. The shortage of capital to further develop the industry means that the country will need to continue to compete with other emerging markets to secure international investment. One such way of being an attractive investment destination has been touted through the offering of a tax regime with incentives which, more importantly, provides certainty and stability (Mausling, 2017: iv). South Africa introduced the Tenth Schedule to the Income Tax Act No.58 of 1962 (“Income Tax Act”) which aims to provide incentives that stimulate industrial and economic growth in the oil and gas industry. Against the backdrop of recent oil and gas finds, the Minister of Finance announced in the 2019 Budget Speech that changes to the Tenth Schedule would be considered. This has brought about the need to consider the role of fiscal stability agreements (“FSA”). Under the Tenth Schedule, South Africa offers FSAs which allows for the “freezing” of the Income tax provisions when the FSA was signed i.e. even if there is a new tax regime, the investor may elect to continue to use the old tax regime. Firstly, this dissertation considers whether there is a need for FSAs. To achieve this aim, the dissertation considers the reasons for fiscal instability and considers these within the South African context. These reasons are used to substantiate whether there is a need for FSA's as a remedy for fiscal instability. The current incentives offered by the Tenth Schedules are examined in order to determine the reasons as to why oil and gas companies would find FSAs advantageous. Secondly, the dissertation examines the types of FSAs typically offered, including freezing clauses (currently used in the FSA offered by South Africa), economic balancing clauses and, finally, hybrid clauses. In critically reviewing these different clauses, the most preferred clause is suggested. A further review of this preferred clause is enhanced through the consideration of the types of FSAs offered by comparable countries. Ghana and Mozambique have been identified and selected for comparison for the purposes of this study. The paper further considers aspects of the FSA such as the legality and legal effectiveness of FSAs. Such issues are critical in light of the challenges that have been identified in the use of FSAs, particularly that such instruments limit the State's sovereignty. Furthermore, the costs associated with FSAs are considered. Lastly, the remedies available should the state elect not to adhere to a FSA once in force are considered. The findings of the study suggest that there remains a need for FSAs in South Africa. However, the findings indicate a need to change the current fiscal stability clause into an economic balancing clause, in particular a negotiated economic balancing clause.
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    A critical analysis of how paragraph 5 of the tenth schedule interacts with section 20 of the income tax act
    (2025) Mvelase, Nethi; Futter, Alison
    The oil and gas industry has the potential to contribute to the country's economic growth, job creation and energy security. Until 2006, the OP26 lease regime governed the taxation of South Africa's upstream oil and gas mining rights. As the expiration of this regime approached, which coincided with the transition from the Minerals Act to the Mineral and Petroleum Resources Development Act, the National Treasury and the Minister of Finance proposed a Money Bill. Parliament's General Assembly supported the enactment of the Tenth Schedule to the Income Tax Act, which aimed to renew and standardise the tax treatment of oil and gas rights based on previous agreements that were only known to the parties involved. The purpose of the Tenth Schedule is to incentivise foreign direct investment by offering favourable deviations from the general tax code, whilst providing investors with certainty and transparency. These deviations sought to recognise the unique risks faced by oil and gas companies and the varied geographical probabilities in the country. In 2019 and 2020, the National Treasury announced plans to revise the oil and gas tax regime and the corporate income tax regime. The objective of this revision for oil and gas companies was to assess whether the current tax regime remained appropriate. Whilst for corporate taxpayers, the goal was to align the regime more closely with international standards. This review involved reducing the corporate income tax rate to encourage investment and revising tax incentives to ensure uniformity across all sectors. Ultimately, National Treasury concluded that the oil and gas tax regime would not change; however, the decrease in the corporate income tax rate introduced limitations on the assessed tax losses of companies and amended interest deduction rules concerning debts owed to entities not subject to tax. Using the theoretical approach of legal interpretive research, which is doctrinal, this minor dissertation analyses the application of the tax loss limitation by oil and gas companies, focusing on how paragraph 5 of the Tenth Schedule interacts with section 20 of the Income Tax Act. In examining the relationship between the assessed loss rules in the Tenth Schedule and the broader body of the Act, the minor dissertation details the taxation of the oil and gas industry, discusses the applicable provisions along with their interpretative challenges, and considers whether the limitation on assessed loss, which is applied to other companies (except for those engaged in mining operations), should also pertain to oil and gas companies, especially in light of the Tenth Schedule's intended purpose.
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    A critical analysis of the impact of the MLI in the determination of corporate residency in South Africa: a synthesis of a hierarchy of factors to used for resolving dual residency under map
    (2025) Naamdhew, Akira; Futter, Alison
    South Africa was a signatory to the Multilateral Instrument (“MLI”) on 7 June 2021. South Africa has deposited its ratified, accepted, and approved MLI and list of reservations and notification with the OECD on 30 September 2022. The MLI applies from 1 January 2023 in South Africa. In alignment with the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”) Action 6, South Africa has elected to include Article 4(1) of the MLI. Article 4(1) deals with the determination of corporate residency and modifies the existing tie-breaker rule in South Africa's Double Taxation Agreements (“DTAs”) to solving cases of dual residency through a Mutual Agreement Procedure (“MAP”). The MLI's approach of using MAP as a tie-breaker includes a non-exhaustive list of criteria that tax authorities may consider as relevant. This approach lacks clear criteria of factors to resolve dual residency, which may lead to delays, uncertainty, and the risk of double taxation where tax authorities do not reach agreement. This research considers South Africa's domestic tax legislation concerning corporate residency and the application of Article 4(1) of the MLI on its treaty network. The study overlays the South African considerations with the United Kingdom and Mauritius domestic legislation and case law in determining corporate tax residency and how this interacts with the application Article 4(1) of the MLI. The result of this study is a proposed hierarchy of factors for taxpayers and tax authorities to consider when determining corporate residency for MAP purposes in instances of corporate dual residency. The study concludes that while Article 4(1) of the MLI acts as an anti-abuse measure, it imposes challenges that should be managed by tax authorities to maintain the fairness and certainty for taxpayers. Thus, suggesting that tax authorities adopt a structured sequence of criteria to provide certainty for corporate dual residency cases.
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    Flow-Through Share as a fiscal mechanism to encourage exploration in the mining industry: An in-depth study of the Canadian Legislation for prospective implementation in South Africa
    (2024) Sauls, Richard; Futter, Alison
    An element of great concern in the South African economy is the underwhelming amount of investment in mining exploration. The South African government through the Department of Mineral Resources and Energy (DMRE) formulated a strategy to combat the deterioration discerned in mining investment. The strategy tables the introduction of a flow-through share incentive in South Africa, to stimulate investment in mining exploration (DMRE, 2022:3). Flow-through shares, equity instruments in mining and petroleum companies, are subject to unique tax rules established through agreements between investors and investees (Jog, Lenjosek & McKenzie, 1996: 1017). This research aims to comprehensively analyse flow-through share arrangements, offering insights into their issuance, technical tax aspects, and additional incentives. Furthermore, the study identifies deficiencies in the South African mining taxation landscape, presenting recommendations to incentivise further investment in mining exploration. The research begins with an in-depth examination of regulatory and legislative requirements, progressing from defining flow-through shares to exploring their intricate mechanics. The research provides a practical overview and understanding of the design, tax consequences and benefits of a flow through share arrangement, with specific focus on capital gains implications. The study also conducts a detailed analysis of the South African Income Tax Act, highlighting shortcomings of the legislative provisions regarding incentives incorporated within the legislation. The findings underscore the potential significant benefits to the South African mining industry as it improves the Mining Attractiveness Index (MAI) and leveraging associated tax advantages. Despite the multifarious benefits, the research acknowledges specific areas of concern, particularly regarding capital gains tax (CGT), which may deter investment. Additionally, the study provides indication that the government needs to introduce alternative incentives, as several benefits are reaching sunset clauses. Consequently, resulting in the deterioration of the Income Tax incentives to invest in mining.
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    The impact of IFRS 17 transition mechanisms legislated by tax authorities on the GloBE effective tax rate of South Africa headquartered insurers
    (2025) Modise, Keletso; Futter, Alison
    During 2021 the Organization for Economic and Cooperative Development (‘OECD') released the Global Anti-Base Erosion Rules (‘GloBE Rules') as part of a two-pillar solution to address the challenges identified regarding the digitization of the economy. This significant development was preceded by the release of IFRS 17 Insurance Contracts in the same year and is issued by the International Accounting Standards Board. IFRS 17 is the culmination of a multi-year two phase project aimed at developing what is considered the first truly international insurance contract standard. The combination of the implementation of these two key developments and the practical impact of them on long-term insurers has not yet been fully ascertained. The research conducted seeks to determine the extent to which the transition mechanism legislated by tax authorities in response to and in preparation for the transition to IFRS 17 may impact the effective tax rate computed under the GloBE Rules. In addressing the research problem a two-pronged approach was taken, the first being a comparative analysis between the transition mechanisms opted for by tax authorities in South Africa and the United Kingdom, and the second being a case study using Discovery Limited, a South Africa headquartered MNE Group as the subject to illustrate the potential impact of the former, on the effective tax rate in the jurisdictions it operates in. The research indicated that the tax transition approach may have a significant impact on the effective tax rate of long-term insurers headquartered in South Africa resulting in the liability for top-up taxes.
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    Will implementing pillar two measures hinder the rehabilitation of South African Mines?
    (2025) Gouws, Janke; Futter, Alison; Ger, Barry
    South Africa imposes rehabilitation obligations on mining right holders to address the damage caused by mining operations. The National Environmental Management Act, 17 of 1998 (“NEMA”) requires each mining right holder to make financial provision to cover their rehabilitation costs in the future. A rehabilitation trust is one of the allowable financial vehicles listed under NEMA for purposes of financial provisioning. The mining right holder funds the rehabilitation trust through contributions that the trust invests in. Under section 37A, read with section 10(1)(cP) of the South African Income Tax Act, 1962 (“ITA”), the mining right holder can deduct these contributions for income tax purposes. The rehabilitation trust is also granted a tax exemption for all receipts accruing to it. In December 2024, the Global Minimum Tax Act, 46 of 2024 (“GMT Act”) was enacted in South Africa to implement Pillar Two measures in South Africa. Pillar Two imposes a global minimum tax of 15 per cent on multinational entities with revenue of EUR750 million or more to prevent large multinationals from shifting their profits to low-taxed jurisdictions. The Global Anti-Base Erosion (“GloBE”) rules and commentary guide the calculations to determine the effective tax rate and resulting top-up tax payable in terms thereof. This dissertation evaluates whether imposing Pillar Two measures in South Africa would render rehabilitation trusts ineffective and inefficient due to the ITA tax incentive that may result in a lower GloBE effective tax rate, ultimately forcing mining groups to pay a top-up tax for rehabilitation compliance. The main finding of this dissertation is that rehabilitation trusts, as members of a multinational group (“MNE”) with revenue of EUR 750 million or more, will have their financials included in the mining group's effective tax rate calculation regarding Pillar Two. The tax incentive provided in the ITA could affect the calculation by lowering the mining group's effective tax rate to below 15 per cent, resulting in the payment of top-up taxes. The concern is that mining groups will be deterred from using rehabilitation trusts, which would abandon them and complicate their regulation, as the other vehicles are not as regulated. The solution presented in this dissertation is to include rehabilitation trusts as an excluded entity for purposes of Pillar Two, as they operate similarly to governmental entities.