OpenUCT :: Browsing by Author "Hattingh, Johann"

Browsing by Author "Hattingh, Johann"

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Open Access
A comparison of the substantive aspects of impermissible tax arrangements under South Africa's General Anti-Avoidance Rule and the Principal Purpose Test with specific reference to the examples found within the 2017 OECD Model Tax Convention
(2021) Zebert, Bradley Arthur; Hattingh, Johann
The Organisation for Economic Cooperation and Development released the 2017 Model Tax Convention on Income and on Capital (hereafter "Convention") which contains a Principal Purpose Test under article 29(9). The practical application of this test is explained with the use of various examples within the accompanying commentary to the Convention. However, various ambiguities both in the Convention and the accompanying commentary exist. The author raises these ambiguities and contrasts them with the general anti-avoidance rule (hereafter "GAAR") found within S80A of the Income Tax Act 8 of 1962. In doing so, the author asked which areas of the Principal Purpose Test are vague and can be interpreted in light of the South African GAAR to assist with attributing a meaning to it. The key findings from this paper identified various areas of the Principal Purpose Test where the GAAR could be used to assist in the interpretation and application of the Principal Purpose Test being the phrases "the principal purpose", "benefit" and "arrangement". Other areas of ambiguity which were also interpreted with the assistance of the GAAR related to whether the Principal Purpose Test contained a business reality test as well as the further aspects of the test relating to its interpretative aspect, subjective enquiry and burden of proof. It was argued that these areas may indicate how the South African courts may apply the Principal Purpose Test in the South African context.
Open Access
A critical analysis of statutory deeming in the context of the interaction between South Africa's controlled foreign company regime and model-based bilateral tax treaties
(2020) Daniels, Imran; Hattingh, Johann; Roeleveld, Jennifer
Fiction in domestic tax law is a peculiar legal construct. Set in contradiction, the result is plainly counter-factual. The question arises as to what the fiction means when constructed in the context of tax treaties? This minor dissertation draws a comparative analysis between the statutory construction of two opposing international tax treaty cases, one more recent than the other, in regard to the effect of one particular fiction in domestic tax law – the ‘as if'. In 1997, the United Kingdom court of appeal ruled on Bricom Holdings Limited v IRC. The finding from that decision surrounded the interpretation of the ‘as if' fiction in British Controlled Foreign Company (CFC) rules. In that case, the court found that the reference to ‘as if' was a purely notional definition based on fictional assumptions. These assumptions resulted in a product of artificial calculation, such that when constructed in CFC rules, resulted in a tax charge that was not a charge on the CFC's actual income, but a notional amount based on a notional definition of that income. The notional amount could, therefore, not be provided relief by way of tax treaties. In 2000, South Africa followed the British court's reasoning by updating its domestic Controlled Foreign Company rules with the same ‘as if' terminology. In 2018, the principle which formulated that longstanding argument appeared to be rejected by the same British court in the decision of Fowler v HMRC. The court of appeal reached the opposite result by finding that the fiction arising from the ‘as if' terminology did not represent a notional tax charge. Instead, the ‘as if' assumption created a new and exclusive taxable subject matter on the same income source, alike to statutory deeming. The fictional income arising from that fictional treatment was the substitution of one (notional) source of taxable income for another (actual, but disregarded) source. The deemed character in the computation was, therefore, retained in tax treaties, allowing tax treaty relief. This minor dissertation analyses both cases in order to posit whether or not the net income imputed from South Africa's CFC rules, using the same ‘as if' terminology, may be construed as a deeming rule on the same CFC's income. The finding in this minor dissertation is that an ‘as if' fiction may not represent a purely notional definition. The computation of CFC net income in tax treaties may, therefore, be afforded tax treaty relief akin to statutory deeming.
Open Access
A proposed interpretation of the phrase "subject to tax" in section 23M(2)(i)(aa) of the Income Tax Act, No 58 of 1962, when read in context of South African Tax Treaties
(2021) Leshomo, Otladisa Patrick; Hattingh, Johann
Following the tax policy recommendation of the Organisation for Economic Co-operation and Development (‘OECD')/Group of Twenty (‘G20') member countries, under the OECD/G20 Base Erosion and Profit Shifting Project: Action 4 (‘BEPS Action 4'), the South African legislature recently enacted an internationally focused anti-avoidance provision, in section 23M of the Income Tax Act No.58 of 1962 (‘the Act'). The provision aims to limit interest expenditure incurred by the debtor, provided that the corresponding interest income accrued to non-resident creditor is, among other things, (which is most important,) not ‘subject to tax' in terms of section 23M(2)(i)(aa) of the Act. However, despite its importance, the phrase ‘subject to tax' is not defined in section 23M or in the general definition of the Act nor has the matter came before the South African courts for consideration. This has lead to confusion among taxpayers, and fragmented views among South African tax scholars, tax practitioners and the South African Revenue Services (‘SARS'). On the other hand, the phrase ‘subject to tax' has a long history in international tax law and it appears inter alia, in the South Africa-France, South Africa-Sweden and South Africa-Germany interest distributive rules tax treaties. The objective of this study is, based on the canons of interpretation of fiscal legislation, to propose an interpretation of phrase ‘subject to tax,' particularly when read in context of South African tax treaties, and thereafter apply it in the context of foreign corporate tax, normal tax and withholding tax on interest. The author concludes that the phrase ‘subject to tax' means that non-resident creditors must ‘actually' be liable to pay tax on interest, subject to deductions, set-offs and foreign tax reliefs. It is the authors view that if foreign corporate tax falls within the ambit of the word ‘tax' as defined in the applicable tax treaty and/or ‘covered tax' therein, the word ‘tax' encompass foreign corporate tax ‘actually' imposed on a non-resident creditor in its country, as a result of accrued interest from the South African source.
Open Access
An analysis of income from staking crypto assets paid to a non-resident in terms of the South African Income Tax Act No. 58 of 1962, and a tax treaty established on the OECD Model Tax Convention
(2025) Jordaan, Frederik Ernst; Hattingh, Johann; Parsons, Shaun
The increasing prominence of crypto asset transactions has brought their tax implications into focus. This thesis explores whether returns from Decentralized Finance (DeFi) transactions, particularly staking activities, can be classified as interest for tax purposes under South African law and international tax treaties, specifically the 2017 OECD Model Tax Convention on Income and Capital (OECD Model). A comprehensive legal analysis, supported by an exemplar, is used to determine how these innovative financial transactions align with existing legal frameworks both domestically and internationally. South Africa, consistent with other jurisdictions, does not classify crypto assets as fiat currency or legal tender. Current guidance suggests that income derived from crypto asset transactions is subject to general tax rules, potentially taxed as ordinary income or capital gains. This paper assesses whether the returns from staking crypto assets resemble interest and could trigger the application of South Africa's withholding tax on interest (WTI). Section 24J of the Income Tax Act provides a non-exhaustive list of items considered as interest in relation to financial and lending arrangements, with the underlying principal in common law being that interest is compensation for the advancement of credit. Interestingly, across the definition under section 24J and the common law definition, the mutual understanding is that interest is not confined to arise from money or currency and can take various forms in substance. Under the OECD Model, interest is similarly defined as income from debt claims, with no explicit reference to money or currency. By contrast, the UK acknowledges similarities between DeFi returns and traditional interest but maintains that interest can only arise from money or currency, thus excluding DeFi returns from being considered as interest. This thesis examines whether staking returns from DeFi can be classified as interest under Article 11 of the OECD Model and whether tax treaties can reduce or eliminate South Africa's WTI on such returns. It concludes that staking returns could potentially be taxed as interest under South African law but underlines the need for clearer regulatory guidance at both national and international levels to address the growing complexities posed by DeFi.
Open Access
An analysis of options for reform of South Africa’s unilateral income tax exemption of foreign pensions, with an emphasis on the cross-border interaction with pensions derived from the United Kingdom and Germany
(2018) Oliver, Ashley; Hattingh, Johann; Roeleveld, Jennifer
South Africa, recently reformed the tax policy regarding the taxation a South African resident’s foreign employment income and is in the process of reviewing the tax policy of foreign pensions. The unilateral foreign pension exemption was only meant to be on a temporary basis, but yet uncertainty existed ever since its introduction in 2000 of whether, and for how long, the exemption would be retained that is until 2016. South Africa’s Treasury proposed various reforms to South Africa’s unilateral exemption of foreign employment income in the last two years. The prevalent nexus between the foreign employment income and foreign pension exemptions, is a strong indication that the various reforms considered for the foreign employment exemption may be considered in regards to South Africa’s tax policy reform of foreign pensions. This minor dissertation seeks to answer is what the impact of the proposed future reforms are on the income tax consequences of a SA tax resident’s foreign pension, in light of the recent international trends in the mitigation of double non-taxation. The key finding arising from the research in this minor dissertation is that South African residents currently benefit from double non-taxation of UK pension annuities, UK pension lump sums and lump sums, and a German lump sum arising from a pension commitment prior to 1 January 2005. The enactment of the proposed future reforms would result in United Kingdom pension annuity becoming taxable in South Africa. German pension benefits in the form of an annuity arising from a pension commitment prior to 1 January 2005 and after 31 December 2004 will be taxed either in Germany or South Africa, or both. In the case of a SA resident’s UK lump sum or German lump sum arising from a pension commitment prior to 1 January 2005, a SA resident will continue to benefit from double non-taxation under the proposed future reforms under both the 1973 and 2008 SA-Germany DTC. In the case of a SA resident’s lump sum arising from a pension commitment after 31 December 2004 it will still be taxed in Germany under both the 1973 and 2008 SA-Germany DTC, regardless of the proposed future reforms. Following the analysis of the impact of the proposed future reforms on the income tax consequences of a South African tax resident’s German or United Kingdom pension benefits, this dissertation finally aims to provide recommendations in relation to issues identified in respect of the proposed future reforms, if any.
Open Access
An evaluation of the adequacy of the existing framework for source-based taxation in South Africa as applied to the new business models proliferated by the digitalisation of the economy
(2022) Roche, James; Hattingh, Johann
The advent of digitalisation has fundamentally shifted the manner in which the commercial world carries on business away from the traditionally established brick-and-mortar business models. The thorough permeation of digitalisation through the economy has resulted in the proliferation of new digitalised business models. Resultingly, there is growing concern that economic actors are increasingly able to avoid, remove or significantly reduce their tax liability within the existent framework which was conceived in light of traditional business models. Moreover, the emerging business models are able to take advantage of the affordances of the digitalisation of the economy to increase their geographic commercial reach, alter the manner of value creation and operate substantial business functions within a jurisdiction without the traditionally concomitant taxable or physical presence. Therefore, this dissertation evaluates and examines the adequacy of the existing South African framework for source-based taxation in its application to the new digitalised business models. Primarily, it is established that the ‘benefit theory' provides the theoretical justification for the imposition of tax on the basis of source, and therefore provides the normative framework through which the adequacy of the existing South African source rules is determined. Both the statutory rules and judicial approach to the determination of source are found to be inadequate in their application to the new digitalised business models. There is limited scope for the application of the existing statutory source rules, contained in s9 of the Income Tax Act, to the digitalised economy. The absence of a statutory rule for the determination of source with regard to digitalised business models places pressure on the judicial approach, which is ill-equipped to deal with the complexities of the digitalised economy. There exists limited scope to extend the judicial approach to determine the source of income in the absence of activity or physical presence on the part of the taxpayer. The introduction of statutory rules, as recommended by the Davis Tax Commission, has not yet materialised. The international project toward addressing the tax challenges of the digitalised economy provides some guidance in the formulation of a South African statutory response. The revenue sourcing rules – which determine the jurisdiction from which the revenue was derived – proposed by the Organisation for Economic Co-operation and Development and the African Tax Administration Forum provides for the identification of a sourcing principle for different streams of revenue, with a hierarchy of indicators to determine the source. This approach is advantageous in that it is cognisant that for different business models, different revenue souring rules are more appropriate and accurate. Alternatively, the approach adopted by the United Nation relies on the ‘payer principle', which is similar to the recommendation made by the Davis Tax Commission. However, the payer principle is criticised as it fails to allocate taxing rights to the place where the value was created.
Open Access
An analysis of the current framework for the exchange of taxpayer information, with special reference to the taxpayer in South Africa's constitutional rights to privacy and just administrative action
(2016) Möller, Louise; Hattingh, Johann; Roeleveld, Jennifer
Internationally, as well as in South Africa, legal reform aimed at increasing taxpayer information transparency has gained momentum over the past few years, especially in the light of the G20 led Base Erosion and Profit Shifting ('BEPS') Project. Ensuring that the fundamental rights of the taxpayer, guaranteed by the Constitution1, remain protected amidst the hurried implementation of these reforms is of paramount importance and cannot be overlooked or deferred. To a great extent, the question as to whether the current rules, regulations, and practices surrounding exchange of taxpayer information in South Africa would pass constitutional muster has, as yet, gone unasked and unanswered in academic literature. This minor dissertation seeks to identify and analyse the constitutional questions raised by these existing rules and practices, with special reference to the constitutional rights of taxpayers in South Africa. Specifically, the current framework for both the automatic exchange of information and exchange upon request is considered in the context of two constitutional rights, namely the right to privacy and the right to just administrative action, with due recognition of the general limitation of rights provided for in the Constitution. Importantly, this paper does not dispute the need for exchange of taxpayer information in principle, nor the desirability of effective tax administration. It is furthermore appreciated and acknowledged that a balance must be struck between the often competing interests of the South African Revenue Service ('SARS') as an administrator seeking to discharge its mandate in the most efficient manner possible, and the fundamental rights of the taxpayer.
Open Access
An analysis of the Murabahah Islamic Finance Instrument in the context of article 11 of the OECD model tax convention on income and capital
(2018) Sahabodien, Waleed; Hattingh, Johann
Conventional banking and finance is based on interest-bearing loans or investments, or equity financing arrangements. Islamic banking and finance provides equivalent functionality to conventional finance except that the underlying arrangement is based on the trading of assets, profit and loss sharing investments or leasing arrangements. International business and trade has evolved over time and contemporary transactions and methods of providing cross-border funding has undoubtedly become more fluid and complex in this regard. So much so that non-traditional sources of financing have become more prominent as a viable alternative where we have seen a considerable increase in their use. This is evident with the steady growth and expansion of Islamic finance within the wider umbrella of the ‘Islamic Economy’. Importantly, multi-national enterprises are indeed open to diversifying their funding. This is however complimentary to the primary demand for these services from a growing global Muslim population. Article 11 governs the taxation of cross-border debt financing where the focus is in essence on the taxing rights allocated between the source and resident state respectively. In practice it appears to be a rather settled article where very few meaningful amendments have been made since its inception. The formulation and policy is based on historical factors and an agreed upon balance established at that time. With the introduction of non-traditional financial arrangement such as Islamic finance, we now perhaps see this historical balance being somewhat disturbed. It is important to note that it is an express purpose of international tax treaties to facilitate cross-border trade and ensure the economic exchanges are as seamless as possible in respect of taxation matters. Whether the incorporation of non-traditional financial instruments in article 11 could indeed reduce the risk of double taxation or double-non taxation remains to be seen, and it is not the objective of this paper to speculate on these aspects. Rather, this dissertation seeks to analyse the position of Islamic finance with regards to the Organisation for Economic Co-operation and Development “OECD” Model Tax Convention and whether uncertainty is created under article 11 and a ‘debt-claim’.
Open Access
BEPS action 14 – the effectiveness of the dispute resolution proposals, with specific reference to South Africa
(2020) Lalor, Diane Susan; Hattingh, Johann
The focus of this minor dissertation is on the dispute resolution methods proposed by Action 14 of the Base Erosion Profit Shifting (BEPS) Project. The BEPS Project' was introduced in 2013 by the OECD working together with the G20 and other states to reform the international tax framework. The reform was necessary to deal with the challenges posed by globalisation. The existing international tax framework had not changed for many years and was unable to deal with these new challenges. As stated by the OECD in its Explanatory Statement in 2013, there was a need to build an international tax system to support economic growth and a resilient global economy. The report highlighted that the loss to international corporate income tax caused by these challenges was between 4% and l 0% of global corporate income revenues. As part of the proposed reforms, the report highlighted the need for new measures to address the problem of BEPS as well as provide a structure to support these newly introduced measures. Improving the international dispute resolution mechanisms was identified as an essential structural reform to support the new BEPS measures, as it was anticipated these measures would give rise to more inter-State disputes.
Open Access
Does South Africa have a coherent policy for source-based taxation based on the permanent establishment concept, and how has this policy been implemented in its bilateral tax treaties?
(2019) Eksteen, Michiel Marthinus; Hattingh, Johann
The difference between South Africa’s domestic PE definition and the PE definition in its various DTCs and regional MTCs suggest some material inconsistency in South Africa’s PE policy. The research question this minor dissertation seeks to answer is whether South Africa has a coherent PE policy for source-based taxation. In addressing this question, this thesis considered what South Africa’s PE negotiating policy is and identified trends in its tax treaty practice in order to determine any inconsistency with its domestic PE definition. The key finding arising from the research of this minor dissertation is that South Africa does not have a coherent PE policy as its domestic policy is based on the OECD PE definition from time to time, whereas its tax treaty negotiating position and tax treaty practice is closely aligned with the 2006 SA MTC. Finally, this thesis provide recommendations to South Africa’s relevant fiscal authorities on how to reform the PE policy in a coherent manner.
Open Access
An evaluation of the Country-by-Country Reporting (CbC Template) for transfer pricing documentation purposes from a South African perspective
(2016) Van Wyk, Lindie; Hattingh, Johann; Roeleveld, Jennifer
In February 2013, the OECD published a report on its findings concerning base erosion and profit shifting ("BEPS").1 That report, in particular Action Plan 13, dealt with the re-examination of transfer pricing documentation wherein the shifting of profits to lower tax rate jurisdictions is addressed. The OECD proposed a Country-by-Country ("CbC") methodology whereby certain information is required to be disclosed within a Country-by-Country Reporting Template ("the CbC Template"). The main purpose of the CbC Template is to assist tax administrations to identify risks related to base erosion and profit shifting; also, and where applicable, data collected via the CbC Template can be used for economic and statistical analysis. The OECD is of the view that the CbC Template in assisting tax administrators to determine transfer pricing risk, will serve as a high-level risk assessment indicator for transfer pricing. Accordingly, the main aim of the CbC Template is to be a tool for tax administrators to identify and consequently ensure that the revenue of a country is not eroded unfairly. The objective of this paper is to review the CbC Template from a South African perspective and to determine the consequences for taxpayers arising from the information required to be disclosed. It follows that this paper will focus, in particular, on the challenges and consequences that exist within a South African context for a South African taxpayer conducting business in different tax jurisdictions. The paper will further analyse the CbC Template requirements in light of the legislative requirements for Transfer Pricing Documentation in South Africa.
Open Access
Improving the tax dispute resolution process in Nigeria with special attention to the tax appeal tribunal: insights from South Africa with an emphasis on tax courts
(2021) Esomeju, Nneka Cecilia; Hattingh, Johann; Gutuza, T
The patent problems experienced in Nigeria's tax dispute resolution processes inspired this thesis. The disbanding of specialist tax tribunals by the Nigerian higher courts epitomised the disorder. The South African tax dispute resolution regime was reviewed primarily to identify practices that could be recommended to improve the Nigerian regime. The research questions in respect of improving the tax dispute resolution system in Nigeria are the following: How has the current tax dispute resolution system in Nigeria evolved? How should it evolve further? Can South Africa provide insights about the direction it should take? To answer the research questions, the tax dispute resolution environments in Nigeria and South Africa were assessed based on the convergent norms of good dispute resolution common to both. In this assessment of the two jurisdictions, emphasis was placed on judicial independence, access to justice, procedural fairness, administrative or judicial discretion, and timeousness. A combination of empirical and doctrinal methods was used. The key findings were as follows: (a) some current shortcomings can be explained by the historical evolution of the Nigerian tax environment, chiefly because taxation was introduced at different periods in the different regions of Nigeria and laws were not amended in a uniform manner; (b) there is no uniform centralised in-house dispute resolution process in the Nigerian federal tax authority; (c) the federal tax authority prefers to settle disputes out of court; (d) taxpayers comply better when a diplomatic approach to settling disputes is used by the tax authority; (e) Lagos was the most tax-compliant and litigious state in Nigeria; (f) conflicting decisions by courts of commensurate rank did not change the pre-existing practices of the tax authority as the authority will continue with the practice until it is vacated by a higher court; and (g) litigation was possibly a form of tax planning for some taxpayers. Recommendations were formulated based on the notion that convergent norms of good dispute resolution require the improvement of existing frameworks and practices. The reform of legislation and operational aspects of the Nigerian regime was also recommended. Key recommendations include (i) the retention of the TAT as a venue for the resolution of tax disputes; and (ii) the introduction of an in-house mediation process.
Open Access
International exchange of information and taxpayers' rights: opposing forces or two sides of the same coin? An analysis of the legislative protection in Kenya of taxpayers' rights to privacy and confidentiality
(2022) Musibi, Prisca Eleanor; Hattingh, Johann
Domestic Resource Mobilisation (DRM) has since 2015's Addis Ababa Action Agenda come to the fore as one of the critical avenues for developing countries to raise the resources required to fund the implementation of the Sustainable Development Goals. However, Illicit Financial Flows (IFFs) continue to undermine these DRM efforts, especially in Africa. Increased transparency in tax through mechanisms such as the cross-border collaboration of tax administrations through the exchange of tax information has been put forward as one of the ways the issue of IFFs can be tackled. The Multilateral Convention on the Mutual Administrative Assistance in Tax Matters (MCAA), as amended by the 2010 protocol, is now the most comprehensive multilateral instrument available for all forms of tax co-operation to tackle tax evasion and avoidance. This is because it is possible to establish an assistance relationship with each jurisdiction signed onto the MCAA on sign-up. Regarding tax information exchange, for countries such as Kenya with a lean network of Agreements for the Avoidance of Double Taxation, the utility cannot be overemphasised. The possibility of this vast amount of information exchange raises the issue of taxpayers' rights in relation to said information. Article 21 of the MCAA provides for the protection of persons and limits to the obligation to assist. However, this protection of rights is pegged on the domestic law provisions of the specific jurisdiction concerned. Thus, by implication, the more robustly taxpayers' rights are protected under a jurisdiction's domestic law, the more confidently requested parties would be in supplying information. This dissertation seeks to analyse Kenya's legislative framework to determine the protection available for taxpayers' rights. The key finding from this analysis is that, save for provisions on the non-disclosure of confidential information, there is a general lack of explicit provisions promoting the protection of taxpayers' rights within taxation legislation. Protection is imputed through the reading of non-taxation legislation. Following this finding, this dissertation provides recommendations of legislative reforms that can be undertaken in order to provide more robust protection of taxpayers' rights.
Open Access
Is there a divergence between the OECD Transfer Pricing Guidelines and post-BEPS interpretation of the Arm?s Length Principle in OECD materials, with emphasis on the control of risk and value creation?
(2023) Ball, Gavin; Hattingh, Johann
This minor-dissertation contends that the arm's length principle is not being interpreted and applied in transfer pricing practice as intended by the OECD in its 2022 Transfer Pricing Guidelines (the TPG).1 Whether deliberate or unintentional, such a divergence has the potential to become permanent and has been exacerbated, accelerated, and entrenched by the OECD's work on digitalisation as part of the BEPS Project, with concomitant emphasis on the concept of value creation. Increased complexity in the OECD's guidance on the control of risk has also contributed to such divergence. Ultimately, there may be tacit recognition by the OECD itself of the economic reality of how MNE's operate and the challenges associated with applying the separate entity principle in group context. This has contributed, it is suggested, to increasing tolerance of and even promotion of profit-split approaches, both conceptually and in practice.
Open Access
Judicial review of revenue authority decisions in a specific tax treaty context – a study of the extent of convergence in the reasoning of different courts reviewing revenue authority decisions under model-based tax treaties
(2021) van Rensburg, Liesl Nicola; Hattingh, Johann
This minor dissertation analyses how different courts review the exercise of discretion under specific model-based tax treaty clauses that confer wide decision-making powers to officials. The aim is to identify whether there is convergence in argument that may be of relevance to other courts for the uniform interpretation of tax treaties. The research methodology adopted in this dissertation is doctrinal research. It was conducted primarily through foreign case law sourced from the International Tax Law Reports and the International Bureau of Fiscal Documentation. It is concluded in this minor dissertation that there is evidence of convergence on the justiciability of requests for the cross-border exchange of taxpayer information. The courts are recognising the principle of legality with differences in their approach to judicial review. There is an extent of convergence in respect of the interpretation of the standard of foreseeable relevance as condition to legality in this context, with most courts applying a deferential approach. There is also evidence of convergence in relation to confidentiality provisions with the courts applying principles of procedural fairness with slight divergence on issues of disclosure. It is not possible at this stage to determine convergence in respect of the model-based mutual agreement procedure and principal purpose test. Case law analysed in these contexts are however instructive and provide arguments that may be of value to other courts.
Open Access
The possibility of base erosion and profit shifting through special economic zones: A critique of the South African and Kenyan SEZ regimes based on BEPS action 5
(2016) Chimbombi, Ame Rebecca; Hattingh, Johann; West, Craig
The OECD/G20's Base Erosion and Profit Shifting (BEPS) Project has been described as the most significant international tax initiative post the 2008/2009 global economic crisis. BEPS speaks to companies engaging in aggressive tax planning strategies that exploit loopholes in tax systems to make profits 'disappear' or shift them to tax jurisdictions with little or no overall corporate tax. The BEPS Project has fifteen Actions targeting various formations, computations and permutations that could potentially give rise to BEPS. BEPS Action 5 is entitled "Countering Harmful Tax Practices More Effectively Taking into Account Transparency and Substance" and is of central importance to this minor dissertation. Special Economic Zones (SEZs) are a creature of international trade law that refers to spatially delimited areas within an economy afforded favourable administrative, regulatory and fiscal benefits when compared to the rest of the economy. The term SEZ is used as an 'umbrella' or 'label' encompassing various types of spatially delimited areas with favourable conditions. Examples of SEZs are Free Trade Zones (FTZs) and Export Processing Zones (EPZs). Although this minor-dissertation focuses mainly on tax benefits associated with SEZs, SEZs usually encompasses a wider range of benefits to the companies they host. Such other benefits could include a one-stop shop for setting up and processing work permits. This minor-dissertation examines whether South Africa and Kenya's SEZs create conducive environments for harmful tax practices in light of and as described in BEPS Action 5.
Open Access
Practical challenges in applying The Place of Effective Management Test for Tax Residency in the context of South Africa's Headquarter Company Regime
(2022) Dumisa, Sinenhlanhla; Hattingh, Johann
It is common for residency to be determined by place of incorporation or place of effective management (‘POEM'). As a result, the place of effective management test often results in two rival claims regarding taxation based on residency. Prior to 2017, paragraph 3 of article 4 of the OECD Model expressed that a non-individual ‘shall be deemed to be a resident only of the State in which the “place of effective management” is situated.' In 2017, the term ‘POEM' was abandoned, and the revised 2017 OECD Model now expresses that ‘the competent authorities of the Contracting States shall endeavour to resolve, by mutual agreement, cases of dual residence of a person other than an individual.' Most commentators interpret POEM as the point where key and commercial and strategic decisions are made. As such, a company headquartered in South Africa with a presence in other regional countries may have senior management based in South Africa and senior management in the regions, but may find the subsidiary restricted by the interpretation of POEM. The South African-headquartered company would be resident of South Africa if the key pronouncements were made by executives in South Africa. This study explores the practical challenges in the application and interpretation of the term ‘place of effective management' in tax treaties to establish the residency of South African headquartered companies investing in selected African jurisdictions. An analysis of the Mutual Agreement Procedure (‘MAP') is conducted, including in the form of a case study of Botswana and Lesotho. One of the challenges identified in the MAP is the lack of resources and empowerment to reach a resolution. Consequently, the OECD formed a forum to address the administrative and practical challenges by providing the competent authorities with adequate resources to individual agreements under negotiating the MAP, as well as to train employees. This study concluded that the test for residency should account for where the economic nexus is strongest. Future research could be conducted on the unique challenges that multinational businesses with a significant digital (but little physical) presence encounter, as well as value creation.
Open Access
A principled evaluation of the effectiveness of selected aspects of the OECD's BEPS proposals to prevent "tax treaty abuse"
(2015) Davids, Tharwah; Hattingh, Johann; Roeleveld, Jennifer
The BEPS Action 6 Report identified "tax treaty abuse", and in particular "treaty shopping", as one of the most important sources of BEPS. As such, the objective and purpose of the Action 6 Report is intended to address "the granting of tax treaty benefits in inappropriate circumstances" to prevent the perceived "tax treaty abuse". This has been a primary focus for the BEPS project. This paper evaluates the effectiveness of selected aspects of the BEPS proposals against this purpose and objectives of the OECD BEPS project. To evaluate the effectiveness of these proposals, this paper examines the development of basic principles to understand what is meant by the term "tax treaty abuse". An overview of these developments proposes to provide clarity and ensure that the broader context is conceptualised for the purposes for this paper.
Open Access
Public policy considerations arising from the exchange of information about South African taxpayers with countries that sanction the use of death penalty, with a focus on China
(2019) Els, Karla; Hattingh, Johann; Roeleveld, Jennifer
The paper evaluates how South Africa’s public policy towards the death penalty is protected amidst increased taxpayer information transparency. The People’s Republic of China (China) may, under article 22(4) of the Joint Council of Europe/OECD Convention on Mutual Administrative Assistance in Tax Matters (2010) (Multilateral Convention), use information received from South Africa, for criminal prosecution of a South African taxpayer in a non-tax matter in China, if the South African Revenue Service (the SARS) authorises such use. The Criminal Law of the People’s Republic of China 86 of 1997 sanctions the use of the death penalty for various economic crimes and this law has an unlimited territorial scope. China may therefore impose the death penalty on a South African taxpayer at the hands of information supplied by the SARS. This study will establish what public policy-based remedies are available for a South African taxpayer in this scenario. The SARS is not obliged to exchange information with China’s tax authority, as such an action will be contrary to South Africa’s public policy. Where the South African taxpayer concerned is in South Africa, including at a sea- or airport, then the SARS has a constitutional obligation not to exchange the information. Further, the South African state has an international obligation not to exchange the information where the method of execution in China is cruel, inhuman or degrading. The paper concludes that before exchanging the information and authorising its use for non-tax purposes, the SARS must take reasonable steps to evaluate whether it is foreseeable that the exchange of taxpayer information will be against South Africa’s public policy. The SARS is under a legal duty not to exchange information with China where the SARS foresees that such an action may lead to the imposition of the death penalty on a South African taxpayer in China. A further recommendation is that the public policy protection must be reinforced by amending the wording of the Multilateral Convention and the bilateral income tax treaty between China and South Africa in line with what other countries have done, in order to clarify that South Africa’s public policy specifically prevents the imposition of the death penalty.
Open Access
Should Kenya repeal its domestic limitation of benefits rule in favour of the simplified limitation of benefits rule in the MLI?
(2025) Mulama, Doreen Muteyitsi; Hattingh, Johann; Ger, Barry
The Limitation of Benefits (LoB) rule is a recommended measure to fight treaty abuse by the Organization for Economic Cooperation and Development (OECD). It works by preventing residents of third-party states from accessing treaty benefits between states where they do not have sufficient connection in the contracting state based on set criteria. The rule originates from US tax treaty practices and has since been embraced in domestic and treaty practice by other countries worldwide. Kenya is one of the countries that have a domestic LoB rule, which was enacted in 2014. In addition to the domestic LoB rule, Kenya has also elected to include in its treaty practice a version of the rule known as the simplified LoB (SLoB). This has been done under the auspices of the OECD's multilateral tax treaty (MLI). While the two rules operate in different legal realms, there are similarities and differences in their construction and application. Similary, there are different challenges and opportunities in applying each rule in its own legal realm. By analyzing the current law in Kenya, the study highlights the history of the rule and examines its utility for anti-abuse purposes in Kenya today. The SLoB, which is poised to be applied at the treaty level once Kenya ratifies the MLI, is also discussed in detail in contrast to the domestic law provision. The study finds that while the two rules can co-exist, there is a convincing case for why the domestic LOB rule should be repealed. This is because of the main challenge it poses in jurisdictions where it is use which is allowing domestic law to override treaty law. Its repeal will also be a step towards bringing the practice in this area on par with best practices, as reflected in the drafting and content of the treaty version of the rule espoused by the SLoB. The study concludes that for Kenya and other developing countries that have the rule in their domestic law, the MLI presents an opportunity to align with international best practices.

Browsing by Author "Hattingh, Johann"

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