Browsing by Author "Parsons, Shaun"

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    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.
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    Developing a foundation for a globally coordinated approach to the taxation of crypto-asset transactions
    (2022) Parsons, Shaun; West, Craig; Roeleveld, Jennifer
    Crypto-assets and blockchain technology have created much uncertainty within the field of taxation. While some jurisdictions have attempted to formulate responses, others have yet to meaningfully engage with the topic. In contrast to the taxation of the digitalised economy, a coordinated global approach to the taxation of crypto-asset transactions is notably lacking. Rather than focusing on individual jurisdictions, this study addresses the consequences of crypto-asset transactions within the international tax system. It begins by applying an adapted form of the constant comparison method traditionally employed in grounded theory research to a selection of crypto-assets white papers to inductively identify possible taxable events, and from these to develop ten transaction categories, each with definitive characteristics. These categories then form the basis of a doctrinal analysis of the nature within the international tax system of the income arising and its classification within the text of the articles of the model tax conventions. Finally, the study considers the potential future impact of measures to tax the digitalised economy. The study finds that while it is possible to classify each of the identified transaction categories within the articles of the model tax conventions, alternative constructions within treaties and existing differences in interpretation may still significantly impact the allocation of taxing rights. In addition, crypto-asset transactions may further challenge the role of the permanent establishment concept in determining taxing rights and contribute to base erosion. While such transactions may fall within the measures to tax the digitalised economy, the pseudonymous, decentralised nature of blockchain technology may frustrate the application of these measures. This study may inform individual jurisdictions in designing the scope and outcomes of a comprehensive response to crypto-asset transactions. It may also provide a basis for the classification of these transactions within the international tax system, and support the development of a globally coordinated response to the taxation of crypto-assets. Finally, it may contribute to the broader development of the taxation of the digitalised economy, in which crypto-asset transactions may play an increasingly significant role in the future.
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    Informal Sector Taxation: A Qualitative Analysis Of The Experience Of The Urban Informal Operators In Rustenburg, North West Province
    (2023) Mokgatlhe, Amogelang; Parsons, Shaun
    Most developing countries, including South Africa, consist of large informal sectors that are vital to their economies. In South Africa, the informal sector plays a significant role in both production and employment. Government revenue and spending are affected by informality. South Africa faces evident revenue and fiscal pressures. The Davis Tax Committee has highlighted the necessity of increasing tax compliance and broadening the tax base to reduce revenue shortfalls. This research is informed by the informal sector's low tax revenue contribution, that contrasts with its continuing expansion and significant GDP contribution. This study is also motivated by the scarcity of research focusing on informal sector taxation in South Africa. The research explores the perceptions of the informal operators to obtain an understanding of their tax compliance behaviour and attitude. The study employed semi-structured interviews with ten informal operators in Rustenburg in the North West Province of South Africa to obtain an in-depth understanding of their tax compliance behaviour. The research found that the informal operators generally possess a positive willingness to comply with taxation. It also revealed challenges faced by informal operators regarding tax compliance. Recommendations were made towards improving tax collection in the informal sector based on the observed tax compliance behaviour of the participating informal operators and the challenges they faced as revealed by the study.
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    Investigating the ability of taxpayers to determine the income tax consequences of cryptocurrency transactions in South Africa
    (2021) Vumazonke, Namhla; Parsons, Shaun
    In 2018, the South African Revenue Service (SARS) issued a media statement providing guidance for the first time to South African citizens on the taxation of cryptocurrency transactions. The SARS media guidelines indicate that the normal income tax rules of the South African Income Tax Act will apply to cryptocurrency transactions and that cryptocurrency gains or losses must be declared as part of taxable income. The purpose of this research study was to investigate the ability of South African taxpayers to determine the income tax consequences of cryptocurrency transactions using the SARS media guidelines. Previous research has focused on establishing the theoretical income tax consequences of cryptocurrency transactions, rather than on the ability of taxpayers to determine those consequences. The study made use of both doctrinal and quantitative research methods to address the research questions. Using doctrinal research, in-depth document analysis was performed to benchmark the SARS media guidelines to that of selected tax authorities, to ascertain the completeness of this guidance. Quantitative data was collected through a cross-sectional survey questionnaire, to test the ability of participants to determine the income tax consequences of cryptocurrency transactions. This study found that the SARS media guidelines did not comprehensively address all the cryptocurrency transactions considered by the guidelines of the other selected tax authorities examined. The SARS media guidelines did not have a statistically significant effect on the participants' ability to determine the income tax consequences of the cryptocurrency transactions presented to them. However, the tax literacy level of participants was found to influence their understanding of the income tax consequences of cryptocurrency transactions, particularly in respect of those transactions not addressed by the SARS media guidelines. These findings support the recommendation that SARS provide more comprehensive guidance to taxpayers, and should focus on improving the tax literacy of taxpayers in general and, with respect to cryptocurrency transactions.
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    Value-Added Tax (VAT) Implications within the South African environment arising from the classification of cryptocurrencies as financial services under the VAT Act
    (2022) Hendricks, Rodney Francois; Roeleveld, Jennifer; Parsons, Shaun
    Cryptocurrencies have been growing rapidly in South Africa (SA) since the initial user alert in 2014 that was issued by National Treasury to South African citizens on the uses of cryptocurrencies. During this time, the number of cryptocurrency merchants, including popular online marketplaces in South Africa that began to accept cryptocurrencies for goods or services, has also increased steadily. This rapid increase in the use of cryptocurrencies prompted the South African Revenue Services (SARS) to issue a media release in April 2018. The main points relevant to this study included inter alia the statement by SARS that the onus is on taxpayers to declare all cryptocurrency related transactions, cryptocurrencies are not legal tender as a means of payment or exchange and not regarded as currency, and, more relevant to this study, that the Value-Added Tax (VAT) treatment of cryptocurrencies would be reviewed. Pending policy clarity in this regard, SARS would not require VAT registration as a vendor for purposes of the supply of cryptocurrencies. After further consultative processes on the classification of cryptocurrencies involving National Treasury and other stakeholders, cryptocurrencies were classified as financial services in 2019. This study was limited to the VAT implications arising from the classification of cryptocurrencies as financial services and did not look at the income tax implications. Also, the study discusses cryptocurrencies in general and not a particular cryptocurrency like Bitcoin. The main objectives of this study were to firstly identify whether there will be a compliance risk or impact to the fiscus through the trading in cryptocurrencies by a vendor resulting in mixed supplies and apportionment issues that could lead to possible VAT leakage, and secondly to compare the classification to cryptocurrencies within the SA VAT system to the approach taken by foreign jurisdictions. The study examined the nature and history of cryptocurrencies, the SA VAT system, the possibility of potential VAT leakage, and drew a comparison of SA VAT legislation to the approach taken by other countries with regards to cryptocurrencies. The findings of this study suggest that there is likely to be a compliance risk with regards to VAT apportionment which has the potential to lead to VAT leakage for the fiscus or alternatively for the taxpayer. The study also found that the treatment that SA has adopted for the classification of cryptocurrencies for VAT purposes is comparable to other countries. Another important finding is also that the European Union (EU) appears to apply a more appropriate and fair method of apportionment than SA, as the EU turnover formula is more flexible and allows for adjustment for potentially distorting items, such as interest and dividends. In SA the debate between taxpayers and SARS as to what constitutes a fair and appropriate apportionment method is ongoing and the results of this study suggest that the classification of cryptocurrencies as financial services is likely to further fuel that debate. This study therefore recommends that SA move towards a more nuanced basis of apportionment in instances of mixed supplies.