Browsing by Author "Oosthuizen, Rudi"

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    Hybrid debt instruments: an investigation of intercompany instruments payable on demand in terms of section 8f. in partial fulfilment of the requirements for the degree master of commerce in South African taxation
    (2024) De Vink, Gerard; Oosthuizen, Rudi
    Section 8F of the Income Tax Act, No. 58 of 1962, was introduced as an anti-avoidance provision and its recharacterisation rules came into effect in respect of amounts incurred or accrued on or after 1 April 2014. Where the ambits of this section are applied to an intercompany instrument, the interest is denied as a deduction and deemed to be a dividend in specie. As a result, the risk exposure to intergroup companies could include understatement penalties, interest and dividends tax. However, intercompany instruments that are payable on demand are excluded from the provisions of Section 8F. Therefore, this dissertation seeks to interpret the meaning of payable in demand in relation to section 8F and intercompany instruments. In order to interpret the meaning of payable on demand, this dissertation made use of a historical qualitative research approach, that is, doctrinal research. It took the form of a literature review of relevant South African and foreign jurisprudence. Non-empirical data was collected, predominantly in the form of academic articles and case law. The research indicates that an intercompany instrument that is classified as payable on demand should be regarded as repayable from the date of the agreement. No repayment demand is required in order to render the loan as due and payable. Prescription on the debt begins immediately. Having said this, the context and circumstances of the particular case, that is the intergroup companies, must be considered in determining the obligation to make repayment. Regardless of all of this, the borrower needs to be afforded the opportunity to derive some benefit from the loan transaction and enjoy the usage of the debt. Therefore, irrespective of payable on demand classifying as immediately repayable, a reasonable amount of time must be given before repayment can be expected.
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    Is an en-commandite partnership a tax-efficient vehicle in the current private equity regime with the focus on Investments in South Africa?
    (2023) Ueckermann, Francois; Oosthuizen, Rudi
    Private equity (PE) firms often use different investment vehicles to attract high-net-worth individuals and institutional investors to invest with them, as after-tax returns are generally higher than the formal investment sector. A question that arose during a discussion with the head of tax of a large insurance company was: Is an en-commandite partnership a taxefficient vehicle in the current private equity regime? The purpose of this dissertation is to determine whether the benefits of en-commandite partnership outweighed other forms of investment vehicles with regard to flow-through of income. It also dealt with the elimination of entity-level tax, while protecting investors from personal liability for the debts and obligations of the fund. This paper firstly investigated the characteristics of the most common investment vehicles, and the legislative requirements that they are subjected to. Secondly, the tax regime that applies to these investment vehicles was investigated. It included the financial instruments used by PE firms and how different applications of these instruments are treated by the tax authorities. This was done to determine if, when, and how these instruments were taxed as income or capital, and in whose hands they were taxed. This also covered the potential pitfalls PE firms had to be aware of when structuring investment transactions. This was followed by a conclusion to the question: Is an encommandite partnership a tax-efficient vehicle in the current private equity regime with the focus on investments in South Africa? The study includes a comparative analysis of the legislative and tax consequences of the investment vehicles as well as the benefits that could be derived from each. High-net-worth individuals and institutional investors often seek investment opportunities where they are prepared to take a higher investment risk with the objective to achieve a higher return on their investments. They can either invest in ventures and manage the investments themselves, or they can use PE firms to take up shares in private or unlisted companies to manage investments on their behalf. Confidentiality of financial affairs of individuals in particular, favour PE firms that use trusts and partnerships as investment ii vehicles, as legislative disclosure requirements are very limited. In an en commandite partnership, the identity of limited partners is not disclosed. The most important considerations for investors are to maximise the after-tax return on their investments and to limit their potential liability and exposure to debts. With the current structure of PE firms and their professional oversight in the management of the underlying investments under their control, it is submitted that an en commandite partnership is the most tax-efficient vehicle in the current private equity regime. This is primarily due to the conduit principle, where taxation at fund level is averted, and the tax liability passesthrough to investors with differing tax structures. The Capital Gains Tax (CGT) inclusion rate is also the lowest for individuals when utilising an en commandite partnership. PE firms focus on maximising investment returns within the constraints of tax legislation and investors take care of their own tax affairs.
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    VAT on medical supplies in South Africa: A critical analysis of whether the VATCOM's argument to standard rate medical supplies in 1991 still holds true
    (2021) Hablutzel, Cuan; Oosthuizen, Rudi
    This paper aims to critically evaluate whether the existing VAT consequences on medical care services (and goods) is still relevant and valid given the developments within the South African economy since 1991, when VAT was first introduced in South Africa. Furthermore, this paper seeks to identify alternative VAT consequences that could be utilised if it is considered that the existing VAT consequences on medical care services and goods are no longer relevant and valid. Medical services and goods currently receive no concessional VAT treatment. This is because, when VAT was first implemented in 1991, patients of lower- and middle-income classes used the State medical systems and hence only paid nominal VAT or no VAT on their medical services. Therefore, VAT did not significantly impact them. Furthermore, services which had higher input costs would be negatively affected by exempting these services from VAT. However, the private healthcare system has increased significantly since the adoption of VAT in 1991. In today's economy, the private sector accounts for over 50% of healthcare spending in South Africa (Department of Health, 2017:42). The majority of this, however, is funded via medical aid, and only 14% of this expenditure is recorded as occurring from out-of-pocket plans (RH Bophelo , 2017). Therefore, the Value-Added Tax Committee's (“VATCOM's”) reasoning for not zero-rating VAT on medical care services and goods in 1991, was because it only impacted a nominal amount of the economy as a result of people using the State's healthcare system and, hence, only having to pay nominal VAT. It needs to be questioned if this is still relevant and valid in today's more robust South African economy. This is as a result of the ever-increasing portion of the economy who are either required to pay for private medical services, are not covered by medical aid, or need to add on an additional 15% (National Treasury, 2018:11) on top of the already expensive cost of these services due to the standard-rating of VAT for these supplies in South Africa. When South Africa first implemented its VAT Act it was based on the New Zealand model for General Sales Tax (Lang, et al., 2009: 264). Under the New Zealand GST model, healthcare services were standard-rated (New Zealand Government, 1985), hence providing reason as to why South Africa standard-rated medical services. However, Australia, who adopted GST in 2000, implemented healthcare as a GST free (zero-rated VAT) supply (Office of Parliamentary Counsel, 1999:98). Further to this, the United Arab Emirates, which is one of the most recent countries to introduce the VAT system into their economy, in 2018 (Deloitte, 2017:4), healthcare services from VAT (President of the United Arab Emirates, 2017:20). Additionally, the increased number of private healthcare institutions and the reliance on private medical care providers in South Africa (not to mention the fact that there is no concessional treatment, even though this healthcare system not only positively benefits patients receiving the healthcare and the South African Healthcare system, but also the South African economy as a whole) brings into question the validity and relevance of the current treatment of VAT on medical goods and services. When the current consequences of the legislation do not fully fulfil the intentions of the Vat Act, the legislation needs to be reconsidered and the tax consequences thereof re-evaluated. The preferred alternative VAT treatment recommended is for medical services and supplies, as well as medical insurance, to be zero-rated. This will allow for a reduced cost of providing these goods and service. Furthermore, zero-rating will alleviate the competitive disadvantage that private medical care suppliers are placed under as result of the substantial government presence in the public healthcare system. Additionally, it will decrease the burden of VAT being added to charges for medical services and goods, as well as decreasing the burden of VAT on medical insurance that is non-recoverable. An alternative VAT treatment (should the zero-rated approach fail) would be to exempt the supply of medical care services and goods, or to tax the supply thereof at a reduced rate. However, the high input cost being “trapped” if it were VAT exempt (in addition to the high administration complexity under a reduced VAT rate system) results in standard-rating of supplies being recommended ahead of these other concessional VAT treatments.