Browsing by Author "Tickle, Deborah"

Now showing 1 - 11 of 11
  • Thumbnail Image
    Item
    Open Access
    A lifeline for Small Business in South Africa: An evaluation of section 12J, Venture Capital Incentives
    (2020) Mynhardt, Tertius Mader; Tickle, Deborah; West, Craig
    This dissertation seeks to answer two questions. In the main it aims to answer does the section 12J venture capital incentive advance government's original stated intention of incentivizing the provision of equity funds to the SME sector. Based on the outcome of the primary research question the secondary question seeks to answer whether section 12J should be extended beyond 2021. In seeking to answer these questions the dissertation critically evaluates the section 12J legislation, researches the venture capital industry in South Africa including section 12J venture capital companies and investigates the role and success of targeted tax incentives in South Africa. The VCC incentive targeted start-ups and SME's generally considered high growth and high-tech, or junior mining and exploration companies. SME's, especially entrepreneurial businesses, have the potential to be a catalyst for economic growth and job creation. Inter alia, access to finance is stunting the development of the SME sector with up to 70% of SME's failing due to a lack of funding. Venture capitalists can provide equity finance, management and technical support that could reduce some of the high risks associated with SME's. The advantage of equity finance is that it allows the SME's to better weather economic downturns and reinvest cash surpluses instead of servicing debt. In the main, whether the section 12J tax incentive is successfully advancing government's original intention still remains to be seen. Although there has been significant uptake of the regime and evidence to suggest that jobs are being created and meaningful investments are occurring, it still needs to be assessed to what extent the jobs and investments would have occurred even without the incentive. There also remain some short-comings to the design of the incentive and uncertainty to the regime which affects the sustainability of VCC's and the type of investments being made. The VCC industry has evolved to be more conservative, investing into asset-backed businesses and generally providing more growth capital, meaning that start-ups and other industries such as high growth technological companies are benefitting to a lesser extent. As such, government's intention to provide equity finance to start-ups and high growth industries appears to not be being addressed. Due to the late uptake of the regime, it is further unlikely that sufficient data would be available to analyze the incentive before 30 June 2021, the current sunset date. For these reasons, it is the writer's view that Treasury should appoint an external research organisation to prepare a thorough analysis of the incentive and whether it should be extended, but in any event, as a minimum the incentive should be extended for at least another six years (to make up for the years from its introduction to the year it began to show significant uptake, i.e. 2009 to 2015). Alternatively, the section 12J incentive should not be extended but rather replaced with a similar incentive taking into account the recommendations made in this dissertation.
  • Thumbnail Image
    Item
    Open Access
    A qualitative analysis of the international conformity of the proposed amendments to section 23M of the Income Tax Act No. 58 of 1962
    (2022) Gallant, Allistair; Tickle, Deborah
    Base erosion and profit shifting (BEPS) is the practice whereby multinational entities use tax planning mechanisms to exploit gaps in tax legislation to avoid a potential tax liability. In order to address this risk in South Africa, the Government previously introduced, amongst other things, section 23M of the Income Tax Act, No. 58 of 1962 (the Act) (an interest deductibility limitation section). However, in 2021, the Government proposed certain amendments to the interest limitation rules found in section 23M. The research question that this dissertation thus seeks to address is: will the proposed restriction on deductibility of interest on connected party debt, which is proposed for South Africa to be at 30% of adjusted earnings, align with international best practice? This dissertation thus, firstly considers the international conformity of the proposed amendments to section 23M of the Act. To establish such conformity, the benchmarks against which the South African amendments are measured are the BEPS project, as produced by the Organisation for Economic Co-operation and Development (OECD), guidance provided by the African Tax Administration Forum (ATAF) and research performed by the International Monetary Fund (IMF). This dissertation then examines the current section 23M of the Act and the reason for its introduction and design. While the section assists with certain situations which may result in excessive interest deductions, the following items create some contention, namely; the section is only applicable to connected party debt and not third party debt, concept of ‘subject to tax', and the section provides no clarity regarding the time limitation of the carry forward of unused interest capacity. This dissertation also considers the guidance provided by the abovementioned international bodies. The overarching outcomes of the work performed by these bodies are that a limit of some sort is to be placed on interest deductions in order circumvent excessive interest deductions and, in turn, protect the fiscus. As indicated, the specific aim of this dissertation is to consider whether a 30% of earnings limit in South Africa will align with the guidance provided by the mentioned international bodies. Based on the research conducted, this dissertation finds that, from an overall perspective, the newly promulgated interest limitation rules in section 23M of the Act does conform to the guidance provided by these international bodies, especially the OECD and ATAF.
  • Thumbnail Image
    Item
    Open Access
    An analysis of South African Revenue Service powers to request relevant material as it pertains to the so-called ‘lifestyle questionnaire’.
    (2019) Mayezana, Mbuyiseli; Tickle, Deborah
    This study focuses on the South African Revenue Service’s (SARS) powers to request “relevant material” as it pertains to the so called ‘lifestyle questionnaire”. It also deals with taxpayer’s rights in terms of the Tax Administration Act No. 28 of 2011 (TAA) and the Constitution of the Republic of South Africa, 1996 (the Constitution). Furthermore, the definition of “relevant material’ was discussed in order to establish whether or not a “lifestyle questionnaire” falls within the broad definition of “relevant material” as defined in the TAA and whether or not it infringes upon the taxpayer’s fundamental rights contained in the Bill of Rights. The taxpayer’s remedies were also examined. The South African Revenue Act No. 34 of 1997 (SARS Act) provides that SARS must ensure efficiency and effectiveness of collection of all revenue. SARS must perform this function in the most cost efficient manner and in accordance with the values and principles mentioned in section 195 of the Constitution. SARS administers various pieces of legislation including the (TAA). The TAA was promulgated on 4th July 2012, came into effect on 1 October 2012 and incorporated into once piece of legislation certain administrative sections generic to all tax Acts excluding the Customs and Excise Act. Both SARS and taxpayers must adhere to the Constitution of the Republic which is the supreme law of the country. Any law or conduct inconsistent with the Constitution is invalid. The Constitution consists of the Bill of Rights, a cornerstone of the South African democracy. SARS is an organ of state and therefore must respect, protect and promote the rights contained in the Bill of Rights. Since the introduction of the TAA, taxpayers feel that SARS’ powers have been enhanced. Section 46 of the TAA empowers SARS to request relevant material in various ways for the purpose of administration of a Tax Act, one of which could be by way of issuing a “lifestyle questionnaire” to taxpayers. A Lifestyle questionnaire requires details of the taxpayer’s assets and liabilities, income and expenses for the current and future tax years. Taxpayers often feel that this document is not specific but wide, because they are obliged to reveal everything to the SARS officials. This study reveals that the information requested though the “lifestyle questionnaire” is “in the opinion of SARS foreseeably relevant” for the administration of a tax Act. It therefore, falls within the definition of relevant material. Taxpayers may not without just cause refuse to complete and file the lifestyle questionnaire when requested to do so. It was further established that the Constitutional rights in the Bill of Rights are not absolute. Taxpayers who wish to challenge SARS’ decision to issue a lifestyle questionnaire need to be aware of their rights and the limitations thereof. In addition, this dissertation has revealed that a decision taken by SARS to issue a lifestyle questionnaire is an initial stage, the responses to which could trigger an investigation or audit and that the taxpayer’s Constitutional rights are not adversely affected by such a request. Therefore, taxpayers might encounter difficulty in successfully challenging SARS on judicial review by The High Court. The most suitable, cost effective and expeditious remedy that may be explored by any aggrieved taxpayer is that of the office of the Tax Ombudsman. The mandate of the Tax Ombud is to review and address any complaint by a taxpayer regarding a service or a procedural or administrative matter arising from the application of a tax Act
  • Thumbnail Image
    Item
    Open Access
    An investigative discussion on the feasibility of an annual wealth tax in South Africa: are South African taxpayers ready for a wealth tax?
    (2020) Mili, Simphiwe; Tickle, Deborah
    In 2018 the Davis Tax Committee was tasked with the responsibility of investigating the feasibility of introducing an annual wealth tax in South Africa. This wealth tax would serve as a replacement for the existing wealth taxes that are Estate Duty, Donations Tax, Security Transfer Tax and Transfer Duty. There has since been great debate around this topic and the aim of this dissertation is to collate all the literature that has been researched on the wealth tax both nationally and internationally to conclude as to whether or not a wealth tax will be suitable for South Africa currently The two main reasons behind the proposal of a wealth tax are firstly, to increase tax contributions to the South African revenue. Secondly, it is as a measure of redress given that South Africa has great disparities in wealth with the wealth Gini coefficient currently reported to be 0.9. The wealth tax has not only been a contentious topic in South Africa, but has been debated globally. The OECD reported that initially 12 countries had implemented an annual wealth tax and now only 4 still have the tax operating in their economies. This dissertation focuses on lessons that can be learnt from international countries by conducting a country review on France, Germany and India. India is the only other BRICS country that had previously implemented the annual wealth tax and has since abolished it in 2015. Furthermore, it is important for the introduction of any tax in an economy to align with the principles of a good tax system. Adam Smith set out the canons of a good tax system such as simplicity, efficiency and equity and this dissertation assesses whether the wealth tax aligns with these ideals and investigates whether it would be fair to implement this tax as per the principles of vertical and horizontal equity. As mentioned above, South Africa already has existing wealth taxes. This study therefore interrogates whether the annual wealth tax is necessary since there are already wealth taxes that exist and whether these existing taxes on wealth meet the intended ideals of the wealth tax. There are advantages and disadvantages associated with the implementation of this tax. It was therefore important for this dissertation to juxtapose these. The dissertation concludes that the disadvantages outweigh the advantages of implementing a wealth tax in South Africa at the moment. The introduction of a wealth tax would therefore not be feasible in South Africa at the moment.
  • Thumbnail Image
    Item
    Open Access
    Assessment of the purpose of South Africa's controlled foreign company rules
    (2020) Holliday, Terry-Sue; Tickle, Deborah
    Controlled foreign company (CFC) rules are anti-avoidance provisions designed to deter taxpayers from shifting their capital (and resultant income) to low-tax jurisdictions. Adoption of these rules in South Africa coincided with the relaxation of exchange control laws which opened up borders to inward and outward capital flows. South Africa's CFC regime has been amended over the years to become one of the most sophisticated amongst the G20 and aligned with the Organisation for Economic Co-operation and Development's (OECD) Action 3 recommendations (per the OECD's Base Erosion and Profit Shifting Action Project). Abusive profit-shifting tactics committed by multinational enterprises (MNEs) have caused the OECD to recommend that CFC rules be strengthened globally to combat this behaviour. However, in the United States and the United Kingdom, recent reforms appear to have weakened these countries' CFC (or CFC-equivalent) legislation, countering the OECD's recommendations. Such manoeuvres improve the profitability of these nations' MNEs by allowing their tax bills to remain lower than their international competitors'. As such, there is a danger of starting a race to the corporate tax-rate bottom where developing nations will be the losers, considering their greater reliance on corporate tax revenues than their developed counterparts. India and Brazil, both developing nations and BRICS members like South Africa, also aren't prioritising the strengthening of their CFC regulations – their focus is rather on improving transfer pricing (TP) legislation and enforcement to combat the damaging effects MNEs' avoidance practices are having on tax revenue collections in those countries. The existence of South Africa's advanced CFC legislation amongst a global trend of a weakening in, or the non-adoption of, CFC rules may hinder the competitiveness of South African MNEs. The current CFC regime could thus serve the purpose of stifling growth and foreign direct investment, instead of only deterring profitshifting behaviour. TP legislation targeted at MNEs (the biggest profit-shifting culprits) may yield the most effective anti-avoidance results. South Africa's recently enhanced TP reporting requirements are key to solving the offshore profit-shifting puzzle, as these reports will reveal information about an MNE's global operations and resultant profit-shifting activities. In addition, the revision to the TP arm's length principle to align compensation and value creation, will see profit-shifting MNEs bear the tax they were trying to avoid. It appears that the anti-avoidance purpose embodied within CFC regulations overlaps with the anti-avoidance mechanisms that these enhanced TP rules are designed to achieve. Thus, in a South African context, the most efficient way to curb tax avoidance may be to rely on TP, rather than CFC, legislation. As such, it is recommended that South Africa's CFC regulations be repealed.
  • Thumbnail Image
    Item
    Open Access
    Dividend payments from employee share scheme trusts
    (2017) Lock, Nicholas; Tickle, Deborah; Roeleveld, Jennifer
    In the past, there has been confusion regarding the taxation of dividends received from employee share scheme trusts. Conflicting interpretations of the definitions in section 8C and certain provisions of 10(1)(k) of the Income Tax Act No. 58 of 1962 (ITA) have caused administrators of these schemes to treat the taxation of dividends in various ways. Section 10(1)(k)(i)(ii) was introduced in the Taxation Laws Amendment Act (TLAA) of 2013 to address the situation where employers are disguising salaries and bonuses as dividend payments to members of employee share scheme trusts. The intention behind this new section 10(1)(k)(i)(ii) is quite clear but it is not entirely certain whether it is having the desired effect as there is still uncertainty around the treatment of dividends from unrestricted equity instruments. The Davis Tax Committee (DTC) published recommendations on the taxation of trusts in its first interim report on estate duty. These recommendations could further complicate matters and have significant tax implications for all the parties involved in these employee share scheme trusts. To try and understand the uncertainty around these dividend payments an analysis was conducted on section 10(1)(k)(i)(dd) and 10(1)(k)(i)(ii) of the ITA. It was also necessary to look at the different types of employee share schemes that are available and also the nature of dividends, dividends withholding tax (DWT) and capital gains tax (CGT). Section 8C and the definitions therein were also analysed to understand the taxation of taxpayers on vesting of equity instruments. A brief look at the treatment of dividend payments from United Kingdom employee share scheme trusts also provided some useful context from an international perspective. Two case studies were conducted to analyse the overall tax effect based on the current tax legislation and also taking into consideration the recommendations made by the first DTC Report.
  • Thumbnail Image
    Item
    Open Access
    Group taxation of tightly-held qualifying groups in South Africa
    (2019) Adams, Razeen; Tickle, Deborah; Roeleveld, Jennifer
    Currently, companies are taxed on an individual basis in South Africa and there is no provision for the offsetting of profits and losses of different companies within a tax group. Admittedly, businesses have the option to operate under a single divisionalised entity whereby they are able to enjoy offsetting profit and losses of trades of different divisions within such an entity. There are however, strong business reasons as to why businesses split themselves into separate legal entities. The most noteworthy benefit being the ability to manage business risk through limited liability provisions contained in corporate legislation. Arguments have been put forward to the effect that groups, although legally separated through different corporate entities, operate in much the same way as a divisionalised single entity business does. The current tax treatment, which taxes entities of a group on their individual taxable incomes, is therefore argued to not provide a true assessment of the group’s tax position. Arguments in the Margo Commission of Inquiry report have even gone as far as saying that it seems unfair to tax profitable entities in a group while the overall taxable income of the group may be negative. With the above in mind, the question of whether a group tax system would be suitable for implementation in South Africa is brought to the table. As will be seen in this dissertation, there are strong opinions on either side of determining whether a group tax system would be appropriate for South Africa. Opinions in favour of a group tax system view the system as a potential tool to encourage business through more favourable tax conditions thereby encouraging growth and development of the economy. Drawbacks of the system include the perceived loss to the fiscus as tax relief is provided while concerns have also been raised relating to the current ability of the South African Revenue Service (SARS) to cope with the implementation of such a change to legislation. The author of this dissertation acknowledges the need for South Africa to maximise its revenue collection to meet its budgetary obligations. However, at the same time, the author is of the view that government should look to creating environments in which smaller businesses may develop and grow, potentially increasing revenue collection in the long run in any event. For these reasons, the author has taken a conservative approach to explore the idea of providing for a group tax system for tightly‐ held tax groups with a limited turnover. This could potentially have the effect of developing small businesses while limiting the exposure of the fiscus to a revenue collection reduction. Loosely defined, tightly‐held groups of companies refer to groups where there is a close relation between shareholders of the group. Further to this, the author highlights the challenges that small businesses face in moving towards a group structure to derive the benefits that have been identified in this dissertation. With that in mind, the author has looked to encouraging group formation in small businesses by attempting to relieve some of the challenges that small businesses encounter in trying to establish a group structure. Through this dissertation, the author proposes a group tax system whereby only tightly‐held qualifying groups will be allowed to participate. The proposal contained within the dissertation has been drafted after assessing the findings of the preceding chapters as well as adapting some of the implementation provisions provided by the United Kingdom (UK) and the United States of America (USA) tax legislation. This ability to produce a suitable proposal for implementation in South Africa will be a step towards concluding on whether South African tax legislators should be looking to implement a group tax system whereby tightly‐held groups of companies will be the initial qualifying audience. The conclusion drawn through the research conducted is that steps should be taken towards the implementation of group tax for tightly‐held groups of companies. A stumbling block, however, as identified in the interim Nugent Commission report, is the current state that SARS finds itself in. It would seem reckless to recommend the instatement of a provision of this stature while SARS is in its current state. It is thus concluded, that movement towards a group tax system for tightly‐held groups of companies should be delayed until such time that SARS has re‐established itself as a proficient organ of the state.
  • Thumbnail Image
    Item
    Open Access
    Practical issues relating to the taxation of Real Estate Investment Trusts ("REITs") in South Africa.
    (2013) Ungerer, Maryke; Tickle, Deborah
    In this dissertation, the author focuses on the practical tax issues relating to the recently adopted South African Real Estate Investment Trust tax dispensation, by discussing international principles of Real Estate Investment Trust taxation and two foreign regimes, i.e. the US and UK Real Estate Investment Trust regimes which, it is understood, were used as a basis for the South African legislation. In addition, the dissertation discusses the details of the South African property investment vehicles regime pre- 1 April 2013, and the new Real Estate Investment Trust tax regime applicable from 1 April 2013. Furthermore, it looks at suggestions and possible improvement to the taxation of Real Estate Investment Trusts in South Africa and whether the proposed amendments released by National Treasury, on 4 July 2013, satisfactorily address the issues raised in this dissertation.
  • Thumbnail Image
    Item
    Open Access
    The tax consequences of the transfer of technical reserves between short-term insurers as part of a portfolio transfer
    (2020) Griessel, Jolandi; Tickle, Deborah
    This dissertation focusses on the tax implications of a portfolio transfer between short-term insurers. The commercial purpose of a portfolio transfer is for one insurer (‘transferee') to effectively take over the insurance policies of another insurer (‘transferor'), with no negative impact on the interest of the policy holders. In order to effect a portfolio transfer, the technical reserves recognised by the transferor in its Annual Financial Statements (‘AFS') are transferred to the transferee along with the working capital backing these reserves. The working capital is essentially an amount of cash and other liquid assets equal to the net technical reserve value. The research question that is addressed by this dissertation is: Does the current income tax legislation sufficiently address the tax consequences of the transfer of technical reserves and working capital between short-term insurers as part of a portfolio transfer to yield a fair and reasonable result from a tax perspective? In addressing the research question the dissertation analyses the nature of technical reserves from an accounting and regulatory perspective and considers the tax treatment thereof under the provisions of section 28 of the Income Tax Act No. 58 of 1962 (‘IT Act'), which deals with the taxation of short-term insurance business. It considers the tax implications of a portfolio transfer of technical reserves from both the perspective of the transferor and the transferee and considers international practise in this regard. This dissertation concludes that although the working capital will be included in the taxable income of the transferee (purchaser) there will not necessarily be a deduction from taxable income available for the transferor (seller). The transfer of technical reserves and working capital does not result in a profit or loss for either the transferor or the transferee and consequently such a transfer would be expected to be tax neutral. The tax treatment is therefore not in line with the commercial purpose of a portfolio transfer. Amendments to section 28 are thus required to specifically confirm that a deduction of the working capital will be available for the transferor (seller) and that the amount be included in the income of the transferee (purchaser) as this will create certainty and avoid inconsistent results from a tax policy perspective, especially given the significant values involved in these transactions.
  • Thumbnail Image
    Item
    Open Access
    The taxation of trusts in South Africa: Critical analysis of Section 7C
    (2018) Bain, Craig; Tickle, Deborah; Roeleveld, Jennifer
    The purpose of this dissertation was to critically analyse the recently introduced section 7C of the Income Tax Act, 58 of 1962 (ITA) with the aim of determining whether section 7C achieved its stated objective. Although aimed at tax abuse through the use of trusts, the section is a further limitation on trusts, a vehicle that has been affected by numerous legislative amendments over the past couple of decades. The introduction of section 7C of the ITA is directly in line with the existing section 7 as well as international trends including the Base Erosion and Profit Shifting (BEPS) final reports. As globalisation accelerates and data becomes more readily available to both developed and developing economies the transparency of structures will become more evident and the previously utilised loopholes will close. Additionally, the current economic downturn in South Africa (SA), and globally, is likely to result in more aggressive revenue authorities. Taxpayers will have to ensure that they receive appropriate advice and that tax is considered at the outset of structure development opposed to being an afterthought following the commercial agendas. Further, there is currently room for the application of sections 7C, 7(5) and 7(8) simultaneously in specific circumstances which may result in the application of both donations and income tax. The question remains as to whether the application of these section is fair and/or correct. I think it is probably difficult to argue that it is not at this stage. Finally, it is submitted that the question raised by this dissertation – does section 7C of the ITA achieve its stated objective (the prevention of tax evasion through interest free loans) has been answered in the affirmative.
  • Thumbnail Image
    Item
    Open Access
    What causes reduced tax morality and how can it be improved?
    (2021) Nteleza, Tinna Snenjongo; Tickle, Deborah
    There has been a notable decline in the tax morality of South African taxpayers over the years. Tax morality is a term defined as the willingness of individuals to pay tax and comply with tax laws1 . The concerns over the decline in tax morality were raised by the National Treasury when discussing the widening tax gap between the budgeted tax revenue collections and the actual revenue collected (in the 2017 Budget Speech)2 . The importance of tax morality in South Africa cannot be overstated, the very success of South Africa's democracy is dependent on the very functioning of the fiscal citizenship principle, that means the state and the taxpayers must be committed to the operation of the democracy through the social contract, ie the taxpayers must be willing to pay their taxes and the government must provide the services due to the taxpayer, such as healthcare, education services and efficient infrastructure. In the evaluation of South Africa's tax morality, the tax revenue collection process and methodology must be reviewed. For personal income tax, with the exception of PAYE, taxpayers must declare their income earned in order for the income to be assessed. It is for this reason that tax morality should be regularly reviewed, to ensure that taxpayers are motivated to pay the right amount of tax and are compliant with tax laws. Where this is not the case, symptoms of broken fiscal citizenship can include aggressive tax avoidance, base erosion and profit shifting and tax evasion, to an extent that legislation needs to be constantly reviewed in order to protect the South African tax base. To review the tax morality of the Republic, revenue collection statistics such as tax buoyancy are reviewed, revealing that after the 2008/9 global financial crisis, the revenue collection statistics remained buoyant until the 2017/18 period during which time it decreased to 0.91 indicating a threat to the long-term sustainability of the fiscal policy. The tax revenue collections when compared to GDP statistics also signal concern, and when taking into account the rate at which high networth individuals are leaving the country and their reasons, it is clear that the South African government should be applying more focus and resources in improving tax morality. In order to recommend focus areas to improve tax morality, a review of research performed by the OECD globally into the tax morale of individuals and businesses around the world is used. The research focuses on factors influencing tax morale, which is a good indicator of what motivates taxpayers to participate in, and comply with a tax system. An overarching theme for individuals from the identified factors is the perspective of the government taxpayers have. It is this perspective that has been found in the study to influence whether individual taxpayers around the world comply with and participate in the tax laws of the country. For businesses, the most dominant factor appears to be tax certainty and while this is information derived from a general survey and on a limited population, it provides a general overview or a starting point in the improvement of tax morality. With the factors identified, an evaluation of how they impact the South African population and to what extent the findings may be true for the Republic are investigated. The socioeconomic and institutional factors identified in the global study are relatable in the South African context and the results from the survey show parallels between the global population and the South