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- ItemOpen AccessA case study exploring an occupational perspective of social inclusion among young adults dually afflicted with substance use disorder and HIV/AIDS in Zimbabwe(2021) Nhunzvi, Clement; Galvaan, Roshan; Langhaug, Lisa; Harding, RichardBackground: Curtailing adverse social determinants of health is pivotal to achieving the 2030 Agenda for Sustainable Development`s vision for a healthy and inclusive society. In Zimbabwe, fulfilling Vision 2030 may involve adopting socially inclusive approaches, particularly for young people dually afflicted with HIV and substance use disorders. However, social inclusion remains conceptually unclear and underutilized in relation to marginalized groups in low resource settings. This study sought to explore and understand how dually afflicted young adults with substance use disorders and HIV in Zimbabwe experienced and negotiated their social inclusion. Methods: This study utilised a qualitative instrumental case study design. Primary qualitative and quantitative data were collected to develop a thorough understanding of the case of an occupational perspective of social inclusion among dually afflicted young adults in Zimbabwe. The multiple methods used in this study included: i) narrative inquiry with five dually afflicted young adults; ii) in-depth interviews with five key informants; iii) document analysis of seven policies; and, iv) exploratory cross-sectional survey of social inclusion and associated factors (n=105). These multiple methods and sources contributed to the study`s trustworthiness. Multi-level case study analysis was applied as follows; 1st level: narrative analysis of each of the five young adults` stories, descriptive analysis of key informant interviews, document analysis and descriptive statistical analysis of the cross-sectional survey data. 2nd level: thematic case analysis drawing from all four data sources. 3rd level: theorised conceptual occupational constructs. Findings: Five narratives illustrated how using agency and having occupational choices were central to the young adults` experience and negotiation of social inclusion. The overarching Case theme was “Navigating an already troubled life: Striving for belonging and well-being”. This consists of three categories: 1) Dealing with a context of mixed realities, 2) Trying to adjust to new challenges and, 3) Life on the margins. These findings show how dually afflicted young adults in Zimbabwe respond and resist the influences of dominant discourses through dynamic and interconnected actions that shape their realities. Conclusion: The study describes and explains how dually afflicted young adults experienced and negotiated their social inclusion. The data affirms the role of agency and proposes a more critical view of occupational choice, activist occupational choice, in understanding social inclusion. As an emergent concept it is categorized by occupational choices, largely defying standard norms of engagement, and aims to break away from oppressive systems and problematic situations. Recognising the diverse manifestation of agency yields an appreciation for how occupations that are indigenous, collective, and resist oppression contributes to experiences of social inclusion.
- ItemOpen AccessA comparative analysis of the foreign tax credit system of South Africa, with specific reference to corporate taxpayers and technical service fees(2021) Allanson, Douglas; Roeleveld, JenniferThe growth in the worldwide services economy combined with an expansion by South African multinational enterprises into the African market has often resulted in increased instances of double taxation for South African corporate taxpayers, as a result of the fact that the majority of the jurisdictions in Africa apply a withholding tax on technical service income paid to nonresidents. The ability to claim relief for the juridical double taxation suffered as a result of the withholding tax applied is governed in South African tax legislation by section 6quat of the Act. This paper analyses section 6quat of the Act with particular reference to the relief available and unavailable to taxpayers for foreign taxes paid in relation to withholding taxes on technical service fee income, in treaty and non-treaty scenarios. The issue of continued double taxation, despite the relief mechanisms of section 6quat, resulting from source issues and the provision of services remotely from South Africa or differing interpretation on the application of Double Taxation Agreements by South Africa and the foreign jurisdictions for example, are also reviewed. South Africa's relief mechanisms are then compared to the relief mechanisms of 5 other jurisdictions (peer nations who export services) to determine if any of these jurisdictions have more advanced ideas for the reduction of juridical double taxation in the context of technical service fees. It is determined in the final analysis that South African taxpayers are not alone with regard to the problem of unrelieved double taxation despite the best efforts of local legislation to provide some form of relief. None of the jurisdictions reviewed have mechanisms in place that provide full relief whilst also protecting the tax base. A number of recommendations are given for ways that South Africa could possibly improve the situation and reduce instances of juridical double taxation. The most obvious being a wide treaty network, with up-to-date treaties, with as many jurisdictions as possible, with a technical services article.
- ItemOpen AccessA Comparison Between Break-Even Volatility and Deep Hedging For Option Pricing(2022) Claassen, Quintin; Mahomed, ObeidThe Black-Scholes (1973) closed-form option pricing approach is underpinned by numerous well-known assumptions (see (Taleb, 1997, pg.110-111) or (Wilmott, 1998, ch.19)), where much attention has been paid in particular to the assumption of constant volatility, which does not hold in practice (Yalincak, 2012). The standard in industry is to use various volatility estimation and parameterisation techniques when pricing to more closely recover the market-implied volatility skew. One such technique is to use Break-Even Volatility (BEV), the method of retrospectively solving for the volatility which sets the hedging profit and loss at option maturity to zero (conditional on a single, or set of, stock price paths). However, using BEV still means pricing using existing model frameworks (and using the assumptions which come with them). The new paradigm of Deep Hedging (DH) (as explored by Buehler et al. (2019)), ie. using deep neural networks to solve for optimal option prices (and the respective parameters needed to hedge these options at discrete time steps), has allowed the market-maker to go ‘modelfree', in the sense of being able to price without any prior assumptions about stock price dynamics (which are needed in the traditional closed-form pricing approach). Using simulated stock price data of various model dynamics, we first investigate whether DH is more successful than BEV in recovering the model implied volatility surface. We find both to perform reasonably well for time-homogeneous models, but DH struggles to recover correct results for time in-homogeneous models. Thereafter, we analyse the impact of incorporating risk-aversion for both approaches only for time-homogeneous models. We find both methods to produce pricing results inline with varying risk aversion levels. We note the simple architecture of our DHNN as a potential point of departure for more complex neural networks.
- ItemOpen AccessA critical analysis as to whether a company is entitled to carry forward assessed losses if such company has traded but has derived no income therefrom(2021) Coetzee, Izak Jacobus; Johnson, TracyThe Income Tax Act No 58 of 1962 provides for tax to be levied on an annual basis (i.e. income and expenditure are generally calculated and determined in respect of a single year of assessment). Section 20(1) makes provision for the possibility that the allowable deductions may exceed a taxpayer's income by allowing for the carrying forward of any balance of assessed loss to subsequent years of assessment. It therefore provides for taxpayers to utilise assessed losses determined in previous tax periods against the income derived in future tax periods. Our courts have decided that a company which does not trade during a specific year of assessment forfeits its right to carry forward its balance of assessed loss from the preceding year of assessment. What has been left undecided in our superior courts however (although has been considered in our Tax Courts), is whether a company would also forfeit its right to carry forward its balance of assessed loss in the event where such a company carried on a trade during the current year of assessment, but derived no income therefrom. The primary research question in this study is whether a company would be allowed to carry forward its balance of assessed loss determined at the end of its previous year of assessment to its current year of assessment, in circumstances where it derived no ‘income' from its trading activities during the current year of assessment. This study also considers, as a secondary research question, whether the recent proposals made by Treasury in terms of the Budget Speech held on 26 February 2020, would have an impact on the primary research question. In order to address the primary and secondary research questions, this study considers the wording of section 20 in the light of the guidance on interpreting fiscal statutes as provided by our courts. The study also considers the views expressed in our courts in relation to section 20(1) as well as the relevant commentary on these views. Furthermore, the study considers SARS' view on section 20 as well as whether the recent proposals made by Treasury have an impact on the carrying forward of a company's balance of assessed loss. It is concluded that in terms of the recent proposal made by Treasury, a company whose trading activities result in a loss should be unaffected by the proposed amendments, although this can only be confirmed once the proposed legislation in this regard has been made available. It is further concluded that a superior court has not yet interpreted section 20(1) in terms of the current approach to the interpretation of statutes, and it is submitted that a superior court may come to the conclusion that a company would be allowed to carry forward its balance of assessed loss determined at the end of its previous year of assessment to its current year of assessment, even though it had derived no income from its trading activities during its current year of assessment.
- ItemOpen AccessA critical analysis of fiscal stability agreements as offered in the tenth schedule of the income tax act for energy companies in South Africa in light of recent oil and gas finds in South Africa(2021) Melapi, Babalwa Melapi; West, Craig; Futter, AlisonSouth Africa remains reliant on a number of countries to sustain its energy requirements. The acute shortage and unreliable supply of electricity, requires that South Africa consider other energy sources, more specifically, that it considers the use of oil and gas as an alternative or complementary energy source to the main energy sources currently used in the country. The recent announcement of oil and gas discoveries in South Africa could see less reliance on other countries for the importation of crude oil and petroleum products. Despite newly discovered oil and gas resources in South Africa, the country will continue to remain reliant on the industry's international investors since South Africa does not have the requisite expertise, skill and capital to operate efficiently in this industry. The shortage of capital to further develop the industry means that the country will need to continue to compete with other emerging markets to secure international investment. One such way of being an attractive investment destination has been touted through the offering of a tax regime with incentives which, more importantly, provides certainty and stability (Mausling, 2017: iv). South Africa introduced the Tenth Schedule to the Income Tax Act No.58 of 1962 (“Income Tax Act”) which aims to provide incentives that stimulate industrial and economic growth in the oil and gas industry. Against the backdrop of recent oil and gas finds, the Minister of Finance announced in the 2019 Budget Speech that changes to the Tenth Schedule would be considered. This has brought about the need to consider the role of fiscal stability agreements (“FSA”). Under the Tenth Schedule, South Africa offers FSAs which allows for the “freezing” of the Income tax provisions when the FSA was signed i.e. even if there is a new tax regime, the investor may elect to continue to use the old tax regime. Firstly, this dissertation considers whether there is a need for FSAs. To achieve this aim, the dissertation considers the reasons for fiscal instability and considers these within the South African context. These reasons are used to substantiate whether there is a need for FSA's as a remedy for fiscal instability. The current incentives offered by the Tenth Schedules are examined in order to determine the reasons as to why oil and gas companies would find FSAs advantageous. Secondly, the dissertation examines the types of FSAs typically offered, including freezing clauses (currently used in the FSA offered by South Africa), economic balancing clauses and, finally, hybrid clauses. In critically reviewing these different clauses, the most preferred clause is suggested. A further review of this preferred clause is enhanced through the consideration of the types of FSAs offered by comparable countries. Ghana and Mozambique have been identified and selected for comparison for the purposes of this study. The paper further considers aspects of the FSA such as the legality and legal effectiveness of FSAs. Such issues are critical in light of the challenges that have been identified in the use of FSAs, particularly that such instruments limit the State's sovereignty. Furthermore, the costs associated with FSAs are considered. Lastly, the remedies available should the state elect not to adhere to a FSA once in force are considered. The findings of the study suggest that there remains a need for FSAs in South Africa. However, the findings indicate a need to change the current fiscal stability clause into an economic balancing clause, in particular a negotiated economic balancing clause.
- ItemOpen AccessA critical analysis of South Africa’s domestic nexus requirements for the taxation of cross-border services(2019) Dunjane, Kate; Roeleveld, JenniferThe taxation of cross-border services has for a long time been a contentious topic of discussion across the international tax arena. The controversy of this debate stems predominantly as a result of the long held notion of the permanent establishment as a nexus requirement for source taxation; in a world where global trade, especially in services, can be significantly conducted without the need to establish a prolonged physical presence in the state of source. This is aided by digital technologies and advancements in telecommunications that enable business activities to be carried on remotely. Thus, significant economic activity can take place in a state without meeting the minimum taxable presence required to justify source-based taxation. The problem is that with cross-border transactions between developed and developing countries, where the developing country is typically a capital-importer of services, that developing country will never have the jurisdiction to tax active service-based business income, since the threshold relied on is high, relative to how global trade is conducted today, as it is predominantly dependent on satisfying a physical presence requirement. This study examines the nexus requirements contained in South Africa’s domestic legislation for the taxation of service fee income earned by non-residents. The analysis highlights how the threshold relied on to justify source-based taxation in South Africa is high, since it requires the physical presence of the service provider within the Republic. The study further highlights how South Africa’s policy choice in this regard is akin to a residence-based taxation system, by drawing parallels with the OECD model, which is renowned for its suitability to net capitalexporting and developed economies. Alternative proxies used to tax cross-border services, as noted in the United Nation’s Article 12A, the SADC Model Treaty and the domestic legislation of some BRICS member states, are introduced to the study as comparatives. The general finding hereon is that these alternative nexus requirements are predominantly akin to a policy choice slanted towards source-based taxation, contrasted by the residence-based approach evident in South Arica’s policy choice. Furthermore, the study conducts an analysis of the development of the taxation system in South Africa. The analysis reveals that South Africa’s policy choice to tax active income was largely influenced by the desire to ensure that South African tax laws were internationally compatible at the time when the South African economy was reintegrated with the global economy, postdemocratisation of the Republic. This led to the introduction of the permanent establishment 6 concept into South African domestic law, notwithstanding the knowledge of a not too distant future, where global trade would be conducted via digital technologies and telecommunications, which would render the requirement for physical presence to conduct trade obsolete. The objective of the study is to provide policy recommendations that support a gravitational pull towards more of a territorial-based taxation system. The impact thereof is envisaged to contribute to the strengthening of South Africa’s domestic source rules; the broadening of South Africa’s tax base and the enhancement of the competitiveness of South Africa’s economy.
- ItemOpen AccessA critical analysis of the legality of retroactive fiscal legislation and the remedies available to taxpayers(2021) De Villiers, Christoff De Wet; Johnson, Tracy‘Uncertain law also penalizes those anxious to obey it and eventually creates contempt for the law. Uncertain law will thus erode the confidence of taxpayers in the system and their willingness to support and comply with the system.' Retroactive fiscal legislation leaves taxpayers with little to no tax certainty, with only about two months of transactional certainty each tax year not subject to any potential retroactive draft fiscal legislation - from when the amendment act from the prior legislative amendment cycle is promulgated until the Budget Speech which sets in motion the new legislative amendment cycle. Arguably, economic activity and tax morality could increase should more certainty exist as to what types of retroactive fiscal legislation are permissible, in which circumstances it is permitted and the remedies available to taxpayers in cases where such legislation adversely affects their vested rights. This research aims to consider the legality of retroactive fiscal legislation to provide much-needed tax certainty. This will be done by analysing the rules under the common law, statute law (being the Interpretation Act) and the Constitution. The conclusion reached under the common law is that regarding fully completed transactions, the presumption against retroactivity will provide an effective remedy to taxpayers should the retroactive legislation not explicitly provide that it will apply to completed transactions. Under statute law, the treatment of statues which are subject to commencement provision are dealt with similarly under the Interpretation Act and the proposed Interpretation of Legislation Bill, in that neither contains an outright prohibition on retroactive legislation. Under the Constitution, a challenge based on either the rule of law or the doctrine of separation of powers will most likely not be successful. A challenge in terms of section 25 of the Constitution would be the constitutional remedy most likely to succeed. A challenge under section 25 of the Constitution requires a two-stage test: Firstly, it needs to be determined if the deprivation of property was arbitrary for purposes of section 25 of the Constitution. Secondly, it needs to be determined if section 25 of the Constitution's limitation is justifiable under section 36 of the Constitution. The deprivation of property will be arbitrary if sufficient reasons are not provided. If found to be arbitrary, then the judiciary must declare such legislation unconstitutional without the need to consider section 36 of the Constitution. Should an assessment under section 36 of the Constitution be required, the competing values need to be measured against each other and an assessment made based on proportionality. Section 36(1)(e) of the Constitution suggests that prospective legislation is preferred to retroactive legislation, and that means less restrictive than retroactive fiscal legislation should be relied on if they exist. Based on the analysis in this paper, it is respectfully submitted that the taxpayers in Pienaar Brothers should have had an effective remedy in terms of section 25 of the Constitution, read with section 36(1)(e) of the Constitution, as less restrictive means were available to the Commissioner in the form of the general anti-avoidance rules. The retroactive amendments were also not of general application and the taxpayers did not receive adequate warning. Irrespective of a successful constitutional challenge, the taxpayers in Pienaar Brothers also had a remedy available to them under the common law presumption against retroactivity (as applied to the completed transaction). The retroactive amendments negatively impacted their vested rights without specifically stating that it would apply to completed transactions. It is unfortunate that the matter was not taken on appeal, as judicial precedent is much needed on the topic of retroactive fiscal legislation and completed transactions.
- ItemOpen AccessA critical analysis of the recent change to the unilateral foreign employment income tax exemption in South Africa and its cross-border interaction(2021) Africa, Lee-Ann; Roeleveld, JenniferSouth Africa is at the forefront of implementing the Multilateral Convention to Implement Tax Treaty Related Measures of the OECD to prevent base erosion and profit shifting (MLI), the Base Erosion and Profit Shifting Project (BEPS) recommendations and the tackling of double non-taxation. In 2017, the National Treasury announced that the tax exemption for South African expatriates would be changing. The section would be amended so that foreign employment income would no longer be fully exempt in the hands of a resident. The section 10(1)(o)(ii) exemption in its original form was the relief mechanism for residents to prevent the possibility of double taxation on the employment income derived from working outside the republic. This being when South Africa converted from a source based to a residence-based tax system on 1 March 2001, and all South African residents became subject to tax on their world-wide income. Residents working abroad were at the risk of being subject to taxation on their employment income derived in two or more jurisdictions. Residents making use of the full tax exemption in terms of Section 10(1)(o)(ii) of the Income Tax Act and rendering services in countries where no employment tax was imposed or imposed at significantly low rates has therefore resulted in double non taxation. In 2017, South Africa's National Treasury published the Draft Taxation Laws Amendment Bill, initially repealing the foreign employment income exemption entirely. However, as a result of strong criticism in the form of public commentary, National Treasury proposed and later enacted an alternative amendment by reverting to the partial repeal of the foreign employment income exemption in the form of an ‘exemption threshold'. As per the enactment of the Taxation Laws Amendment, Act, No.17 of 2017 which has revised the Income Tax Act No.58 of 1962 (IT Act), specifically with reference to the wording of section 10(1)(o)(ii) to allow for R1 million of foreign remuneration to be exempt from tax in South Africa if the individual is outside of the Republic for a stipulated number of days. The legislative amendment came into effect on 1 March 2020 and states that South African tax residents abroad will be required to pay tax up to 45% on their foreign employment income, where it exceeds the R1million threshold. With the recent budget speech in 2020, the specific tax exemption has been increased to R1.25 million. This ‘exemption threshold' primarily aims to target high net worth individuals and thus still provide the relief to middle and lower income earners. The effect of the amendment would be that all residents working outside of the Republic and who derive foreign employment income in excess of R1.25million and who have previously enjoyed the benefit of the section 10(1)(o)(ii) exemption will now be subject to taxation and possibly double taxation and would need to seek relief elsewhere if necessary. In this minor dissertation we have considered the effect of the Section 10(1)(o)(ii) amendment and what this will mean for the individual working abroad in relation to domestic tax legislation and any double tax treaties (DTC's) in place. A key finding arising from the research in the minor dissertation is that many South African's have hastily made a decision to formally emigrate through the South African Reserve Bank (SARB) procedures in an effort not to pay income tax in South Africa on foreign remuneration earned overseas. However, in considering alternate mechanisms, such as applying the rebate afforded in section 6quat of the IT Act or applying a DTC if in place, may be a simpler and more cost-effective solution instead of taking a more drastic decision to emigrate. Further, the fact that an individual potentially could be subject to tax on the full remuneration if they make the decision to formally emigrate as opposed to maintaining South African residency and only paying tax on the excess remuneration above the threshold should be considered in any future tax planning.
- ItemOpen AccessA critical analysis of the taxation of cross-border service fees in South Africa: Motivation for the reinstatement of the withholding tax on service fees(2018) Xulu, Mbali; Foster, MartieSouth Africa has seen a growth in cross-border services in the last decade. This comes as no surprise since, as early as 2010, the global service sector accounted for approximately 70% of the world’s Gross Domestic Product. Given the magnitude of the service sector, it is imperative that South Africa implements laws that seek to tax service fees in an efficient, effective and equitable manner. South Africa’s Minister of Finance and the Davis Tax Committee are amongst the key government stakeholders who have expressed concern regarding the threat that South Africa faces to the erosion of its tax base as a result of outward cross-border service fees. The tax base erosion typically occurs when a non-resident derives a service fee from South Africa which is not taxed in South Africa, whilst the resident payor is allowed to claim a deduction. As a means of addressing the above threat, South Africa introduced the withholding tax on service fees regime. This withholding tax was intended to apply on service fees derived by a non-resident from a source in South Africa. However, as the application of this withholding tax was subject to the application of the relevant double tax treaties, South Africa’s right to impose this withholding tax was in most cases limited. The withholding tax on service fees regime was therefore repealed. With the withdrawal of the withholding tax on service fees, South Africa can only tax service fees to the extent that they are derived by a non-resident from a source in South Africa and attributable to the non-resident’s permanent establishment situated in South Africa. In terms of the Organisation for Economic Co-operation and Development Model Tax Convention ('OECD MTC’), a permanent establishment is defined as essentially comprising of a fixed place of business whilst, under the United Nations Model Tax Convention9 ('UN MTC’), this definition is extended to include the provision of services by a non-resident who is at least present in South Africa for more than 183 days in any 12-month period rendering services in connection with the same or connected project. Globalisation and electronic commerce has made the remote provision of services possible. It has therefore become relatively easy for a non-resident business to render services in South Africa without the presence of a fixed place of business or without being present in South Africa for substantial periods and thereby avoid being subjected to income tax in South Africa on the service income derived. In light of the above, this dissertation argues that the permanent establishment threshold is no longer appropriate for the taxation of services. Specifically, it is contended that the permanent establishment threshold is excessively high and as a result contributes towards the erosion of the source state’s tax base. Various options for addressing this concern are then explored and a recommendation is made that South Africa should negotiate for the inclusion of the technical fee article in its double tax treaties and re-instate the withholding tax on service fees regime.
- ItemOpen AccessA critical analysis of the taxation of income arising to contractors in relation to the execution of engineering, procurement, construction and installation (‘EPCI') contracts in the oil and gas sector(2020) Smith, Shirlynn; Roeleveld, JenniferGlobally, the past two years have been successful years in oil and gas exploration with discoveries almost doubling those made in 2017.1 Notwithstanding Africa's endowment in vast natural resources, including substantial oil and gas reserves, one of the most dramatic finds in Africa has been Mozambique's natural gas developments. Mozambique is set to become one of the largest and most dominant natural gas finds in the world. These developments have attracted the attention from countries around the world, the UAE, in particular, taking the lead. Engineering, procurement, construction and installation (“EPCI”) contracts, are a common form of contract in the oil and gas sector, which is used to undertake large scale oil and gas projects. The nature of these contracts consists of significant local (in-country work) and foreign (out-of-country work) elements. Due to the complex nature of EPCI contracts, one of the major areas of dispute in the taxation environment are the uncertainties around the taxation of profits arising to contractors under these contracts. The taxpayer and the Revenue Authorities have different views as to where the income arising from EPCI contracts is to be taxed. The taxpayer takes the stand that only such income from the project as is relatable to activities in the host state, should be taxed in the host state. The Revenue Authorities contend that EPCI contracts are to be considered as one and indivisible, and hence the entire income from the contract is liable to be taxed in the host state. Based on an examination of recent judgments passed by the Authority of Advanced Rulings (“AAR”) and various Tax Courts, currently, there seems to be no certainty regarding the taxation of income arising to contractors under an EPCI contract and this has in turn resulted in a number of contractors having to pay excessive taxes. This dissertation seeks to analyse the tax treatment of income arising to contractors, from supplies and services under an EPCI contract in the context of the oil and gas sector entered into between Mozambique and the United Arab Emirates (“UAE”), in Mozambique. The purpose of this analysis is to determine how these profits should be taxed, in light of the Mozambique-UAE Treaty2 and Mozambican domestic legislation. In other words, the question that this dissertation seeks to answer is, whether profits arising from an EPCI contract in the oil and gas sector, should be taxed as a whole in Mozambique, or per the various components of the EPCI contract. 1 Fuel for thought, Africa oil and gas review, 2019, Current developments and a look into the future, www.pwc.co.za/oil-gas review [November 2019]. 2 Convention between the Republic of Mozambique and the Government of the United Arab Emirates for the Avoidance of Double Taxation with respect to Taxes on Income and Capital (2003). The key finding arising from the research presented in this dissertation is that although an EPCI contract is entered into in Mozambique (consisting of both offshore and onshore elements), this would not make the entire income from that contract to be taxable in Mozambique. Importantly, only such part of the income as is attributable to the operations carried out in Mozambique can be taxed in Mozambique. Following the analysis, as described above, this dissertation finally endeavors to provide recommendations on how contractors should approach and structure EPCI arrangements in order to create the best possible situation for themselves within the limits of what the law allows, and to reduce potential tax litigation. This can serve to inform other developing countries who have oil and gas operations.
- ItemOpen AccessA critical analysis of whether BEPS Action 1 resolves issues of source taxation(2022) van Der Westhuizen, Werner; West, CraigThe digital economy and the challenges it poses to the international tax arena is a swiftly developing area. This dissertation considers the suggestions released by the OECD Pillar 1 dated January 2020 and the UN Article 12B released in August 2020. The digital economy has evolved significantly over the last years and has changed how business operates. Digital enterprises can conduct business across borders without creating a physical presence using information and communication technology. As a result of the increased use of technology in business processes, it has been opined that the digital economy is becoming the economy.1 The challenges posed by the digital economy relate to the ease with which enterprises can conduct business in a jurisdiction without any presence. International tax rules currently require a level of presence in a country before taxes on the business profits can be levied in that jurisdiction. There has been a significant international focus by governments and media on digital enterprises. This is due to the perception that digital companies are under-taxed and that there is a misalignment between where the value is created and where the digital enterprise is subject to tax.2 The OECD/G20 Base Erosion and Profit Shifting project (BEPS) is looking at restoring confidence in the international tax system by taxing profits where value is created. Value creation will therefore be an essential part of the BEPS initiative.3 There are different views regarding the changes to be implemented that are suggested by the OECD Task Force on the Digital Economy (TFDE). One aspect is clear, the changes will have a significant impact on the international tax system for digital enterprises. The dissertation will explore the theories that justify taxation at source. For a tax-compliant culture to exist, it is vital that taxes raised are just.4 It will be shown that the theories that justify taxation at source are relevant to the digital economy and will ensure just taxation at source. To get a clear understanding of source, the concept of source and the current concept under the international tax law, will be discussed. The characteristics of the digital economy and its ability to conclude business in a state without creating a physical presence will be discussed. It will be shown that the characteristics are not new but merely exacerbated by the digital economy. Since the current source concept under international tax law requires a physical presence, the proposals by the OECD Pillar 1 and the UN article 12B will be evaluated. It will be essential to establish whether these proposals address the issues raised by source taxation and the requirement of a physical presence under the Permanent establishment threshold. It is found that the proposals do not address the source issues and are also not based on sound tax policy. The proposal will be at odds with various tax policy principles such as neutrality, equity, and simplicity. The proposals are overly complicated, and valid concerns were raised that countries might receive little or no tax.5 The changes made by BEPS action 1 pillar 2, action 3 (strengthening the CFC rule), 7 (preventing the artificial avoidance of permanent establishment), 8 to 10 (transfer pricing in line with value creation), and 13 (Country by Country Reporting) would largely address the double non-taxation of the digital economy. However; it is also recommended that the changes suggested by the TFDE should not be implemented at this stage, as not enough time has passed since the implementation of BEPS to evaluate the impact clearly.
- ItemOpen AccessA critical analysis of whether the current legislated exit tax provisions of South Africa are proportional to the legitimate purpose of those provisions(2018) Botha, Leandi; West, CraigWhen a South African taxpayer transfers his/her residence to another tax jurisdiction, exit tax is levied on certain accrued gains on the basis that a termination of residency results in a deemed disposal. This creates a fiction that the taxpayer disposes of his/her assets even though there was no change in ownership. It is likely that the levying of exit will create a cash flow disadvantage for the taxpayer, because there is a cash outflow, but no cash inflow. Moreover, the South African exit tax provisions require that exit tax is paid immediately upon emigration. The “immediate recovery” method of exit tax has raised a number of questions regarding the proportionality vis-à-vis the legitimate purpose of exit tax. Derived from Adam Smith’s first maxim, a tax is considered to be proportional to its purpose if the content and form of the tax does not go beyond what is required to attain the purpose of the tax. This principle is commonly known as the principle of proportionality. Proportionality is also one of the fundamental principles in the European Union ('EU’) and has featured in a number of European court cases concerning exit tax. This minor dissertation seeks to analyse the current legislated exit tax provisions for South Africa and evaluates whether these provisions are proportional to the purpose of exit tax or goes beyond what is necessary to achieve its purpose. The key findings arising from the research presented in this minor dissertation is that an exit tax regime which require an emigrating individual to immediately pay exit tax upon departure may restrict the mobility of that individual and prevent him/her from relocating to another tax jurisdiction. This dissertation found that such a restriction is not proportional to the purpose of exit tax. The mere imposition of exit tax may be justifiable and that it is not so much the principle of levying exit tax that cause concern, but more the timing and method of the application of exit tax. In South Africa, exit tax is due immediately upon departure. In line with the key findings in this dissertation, the current legislated exit tax provisions for South Africa is not proportional to the purpose of such provisions. Other countries have already addressed this issue by implementing alternative measures to levy and collect exit tax which is less burdensome for the taxpayer and therefore considered to be proportional to the purpose of exit tax. One such method is the deferral of exit tax until the point of actual realisation of the accrued gains. Following the analysis as described above, this dissertation finally evaluates the effectiveness of the current legal framework for information exchange and assistance in tax collection in a South African context in order to determine whether the adoption of a method whereby exit tax is deferred and collected upon actual disposal of the asset, is viable in South Africa. This evaluation found that South Africa already have the appropriate legal mechanisms in place in order to collect exit tax debt from a former resident.
- ItemOpen AccessA Global Solution On Taxing The Digital Economy: "Does Article 12B of the UN MC adequately solve the problems encountered by the adopted unilateral measures (DSTs) to taxing the Digital Economy?"(2023) Mayebe, Francis; Roeleveld, JenniferThe rapid growth of the digital economy has created significant tax challenges, particularly for developing countries. As identified in this dissertation, the current tax framework is inadequate in solving the tax challenges as non-resident digital entities can generate income in a market/source jurisdiction without the need of having any physical presence. The OECD and the UN have been relentlessly searching for solutions to address the challenges of the digital economy. On the other hand, many states have not been patient enough to wait for a solution but have resorted to implementing unilateral measures in the form of Digital Services Taxes (DSTs) and equalisation levies. As it can be already noted from recent trends in international tax policy and seems, as well as the unilateral actions taken in the European Union (EU), that the permanent establishment nexus requirement to assume taxing rights is ill-suited to deal with certain complexities that can be ascertained from the core of the digital economy. It is clearly evident from the nature of the digital economy that an enterprise may attain a significant level of economic benefits in a foreign jurisdiction without having the physical factors embedded in the PE Principle. In this instance, it is widely seen that the digital enterprise or through the use of digital means, an enterprise without physical presence in the market jurisdiction may be entitled to a wide range of public benefits in that state which may include legal protection. In support of this argument, the EU has taken a view that a wide gap indeed exists between economic presence and physical presence in light of the increasing levels of technological advancement and increased globalization. It is certain from this view by the EU that one has seen an increase in unilateral measures to tax the digital economy amongst EU states through the introduction of the DST. The DST introduced in the EU states is targeted at taxing gross revenue in three instances: firstly, in instances where adverts are placed on the website, software or apps; secondly, where a digital platform allows users to find and interact with each other in a way that allows or facilitates the supply of goods and services; lastly, where data is collected by digital means and subsequently used to generate revenue. It is evident from the above that the measures adopted are narrowly focused on digital services that are reliant on user value creation. The United Nations made a shift away from an intense physical presence requirement by first introducing Article 12A into its Model Tax Treaty which allowed states to tax fees paid for technical services irrespective of physical presence in the source country. In a recent case, the US Supreme Court made an interesting finding in South Dakota v Wayfair, were it held that all states have a right to impose taxes on supplies made to their residents by non-residents irrespective of the lack of physical presence by the supplier in that instance. It is in this light clear that the introduction of Article 12B by the United Nations is a drive towards the right direction in solving the issue of taxing the digital economy. Article 12B which is focused on taxing Automated Digital Services (ADS) seeks to provide a way in which market jurisdictions can benefit from taxing entities participating in their markets without much physical presence. It gives an opportunity to avoid double taxation resulting from unilateral measures discussed above and by using a system of withholding taxes, it could potentially increase compliance and reduce disputes around interpretation. However, Article 12B also poses a few concerns in its application such as containing a ring-fencing proposal, the uncertainty of the concept of payer and the use of the gross income as a fundamental basis for calculations. It is certainly clear that it has weaknesses and strengths, and it is upon this basis that l will be exploring its application further in the relevant chapters.
- ItemOpen AccessA lifeline for Small Business in South Africa: An evaluation of section 12J, Venture Capital Incentives(2020) Mynhardt, Tertius Mader; Tickle, Deborah; West, CraigThis 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.
- ItemOpen AccessA 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, DeborahBase 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.
- ItemOpen AccessA simulation-based approach to assessing the relationship between mutual fund size and performance(2020) Molyneux, Matthew; Rajaratnam, KanshukanThis study examines how mutual fund size affects performance. Academic literature on this topic is extensive but has yielded conflicting results. Some studies find a distinct relationship between fund size and risk-adjusted returns while others do not; some studies also posit that an optimal fund size exists where risk-adjusted returns are maximised. The size of equity mutual funds in South Africa and the market dynamics of the Johannesburg Stock Exchange provide an interesting context within which to analyse the relationship between size and performance. In this study, hypothetical portfolios are created, and an allocation procedure is used to distribute capital to these hypothetical portfolios. The allocation procedure distributes capital to the portfolio stocks by controlling for each stock's yearly volume traded. This method works to distribute capital up until a certain fund size; beyond that size, the hypothetical portfolio might no longer be fully invested in the random portfolio. To control for this, the simulation model engages in a routine to discard the stock with the lowest volume-traded level from the portfolio and reselect another stock from the investable universe with a higher volume-traded level. This process is repeated until the portfolio is fully invested. Stock selection and investment dates are randomised and variance reduction techniques are used to improve the efficiency of the simulation, and 10 000 simulation runs are performed. The results of the simulation found a non-monotonic relationship between mutual fund size and performance over a one-year holding period, consistent with some research internationally and in South Africa. Over a two- and three-year holding period, mutual fund size and returns, however, seem to be negatively correlated. Over the three holding periods, the study suggests that the optimal equity mutual fund size in South Africa is approximately ZAR 2bn. Portfolios with assets under management greater than ZAR 2bn see their returns decrease noticeably as fund size continues to increase. These findings are supported by comparing simulated returns to actual benchmark returns over the same random periods. The results of this study suggest that mutual funds should be aware that consistent increases in assets under management could negatively affect performance and that all funds should ensure that total assets under management do not exceed ZAR 2bn.
- ItemOpen AccessA South African perspective: Do excise duties imposed on tobacco products drive the illicit trade in tobacco products?(2024) Matlala, Tshegofatso; Roeleveld, JenniferThe use of tobacco products is said to be the second leading cause of preventable deaths and disability in the world, accounting for approximately eight million deaths around the world annually, with about one million deaths as a result of exposure to secondhand smoke. South Africa and many other countries have recognized the need for tobacco control measures and have adopted strategies and policies to combat the use of tobacco products. According to the World Health Organization (WHO), the imposition of excise duties on tobacco products is considered one of the most effective tobacco control measures. South Africa imposes an excise duty on tobacco products that are intended to be consumed within South Africa. The South African Government has been consistently increasing excise duties on tobacco products from the early 1900s. The consistent increase in the excise duties on tobacco products over the years has resulted in a significant decrease in the consumption of cigarettes in South Africa. From as far back as 1997, the tobacco industry in South Africa has argued against the increase of excise duties on tobacco products, claiming that it would result in an increase in the illicit trade in tobacco products. The illicit trade in tobacco products is on the rise and the tobacco industry has attributed this increase to the continual increase of excise duties on tobacco products. In this regard, the tobacco industry made a submission to the Standing Committee on Finance wherein it requested that the South African government cease the increase of excise duties for a period of three years in order to address the issue of illicit trade. The purpose of this dissertation is to consider whether the claims made by the tobacco industry are true and to consider what drives the illicit trade in tobacco products in South Africa. To this end, an analysis of the way in which tobacco products are taxed; the characteristics and consequences of the illicit trade in tobacco products; and the drivers of the illicit trade in tobacco products was performed. The experience of Brazil and Georgia were considered alongside the WHO Framework Convention on Tobacco Control (WHO FCTC). Article 6 of the WHO FCTC provides price and tax measures which are to be implemented to reduce the demand for tobacco products, while Article 15 provides measures to address the illicit trade in tobacco products. This dissertation finds that the illicit trade in tobacco products is not solely driven by tax and price differential, but by a combination of varying factors including weak tax administration, weak border control, corruption, as well as tax and price differentials. More specifically from a South African perspective, this dissertation finds that the growth in the illicit trade in tobacco products in recent years has been as a result of weak administration and the disbanding of the High-Risk Investigation Unit (HRIU) in 2014.
- ItemOpen AccessA study of the relative performance of South African unit trust fund managers utilizing the portfolio change measure technique(1995) Garvin, Trevor; High, HughUnit trust funds are one of the fastest growing areas of the financial sector in South Africa today. There are currently over 1 million unit trust fund investors, with their associated management companies controlling over R20 billion in funds. The growing importance of the unit trust fund industry means that, increasingly, both investors in these funds, and those who judge the performance of fund managers, have heightened incentives to ensure portfolio performance is accurately measured. More specifically, there is a growing need · to measure the performance of the individual fund managers themselves, thus enabling the directors of the fund management companies to suitably reward successful portfolio managers, whilst penalizing those who are less successful. A great deal of research has been done on this topic both in South Africa and worldwide; however most of the studies have made use of Betas and 'benchmark' portfolios, both of which have many inherent flaws. This thesis examines the performance of unit trust fund managers using a 'benchmarlt free measurement technique, thus enabling one to avoid the measurement problems previously encountered. Chapter I gives a brief outline on the South African unit trust fund industry. In Chapter 2 the author looks specifically at the controversies which underlie the measurement of risk, and those surrounding risk-adjusted performance measurement. The flaws in previous studies are noted. Chapter 3 traces the development of the Performance Change methodology which is the method used in this dissertation. Chapter 4 describes the Performance Change methodology as applied to South African data; with the results from the tests presented in Chapter 5. Final conclusions and proposals for future research are put forward in the concluding Chapter 6. The author has shown conclusively that when utilizing the Portfolio Change Measure, unit trust managers in general are not able to consistently outperform the market. The author's findings suggest that trust fund managers do not achieve any significant level of additional return for the particular funds under their control. The Portfolio Change Measure has two further particularly important uses: (1) it can act as an additional management tool to aid the directors of unit trust fund management companies in measuring how efficiently portfolio managers are managing their funds; ·and, (2) it enables investors to make a more 'informed' investment decision because the comparative performance of unit trust funds is better analysed.
- ItemOpen AccessA technical analysis of the difference in treatment of technical fees in relation to the receipt of management fees by a resident of South Africa, sourced from Botswana and Zambia, including the impact of domestic and treaty relief(2019) Begg, Nazreen; Roeleveld, JenniferWith international developments there has over the past few years been an increase in the provision of cross border services. By nature, services are often intangible and can in most cases be provided remotely. As such, an individual or enterprise providing personal services can substantially be involved in another state’s economy without establishing a permanent establishment or fixed base. This phenomenon proved problematic, especially in developing countries who are large importers of services, in that the country paying for the services would not be in a position to tax these activities however would, in terms of application of their domestic laws, be required to provide a deduction in relation to the payment for services where it relates to legitimate costs incurred in the production of income. In light of this, and in an attempt to protect their tax base, it is found that majority of developing countries would incorporate in domestic law a tax on technical services paid to nonresidents. This is usually in the form of a withholding tax. This practice was undesirable for both taxpayers and tax authorities in that it resulted in unrelieved double taxation or double non-taxation which in turn causes difficult disputes whilst consuming scarce resources. In light of this, a new Article 12A- Fees on technical services had been drafted into the 2017 United Nation Double Taxation Convention between Developed and Developing Countries (the “UN Model”). This article provides a Source State to tax certain technical services defined as “any payment in consideration for any service of a managerial, technical or consultancy nature, at a rate agreed between the two States, on a gross basis”. By performing qualitative research, based on a simplistic scenario for management fees, it is found that the inclusion in a treaty of an article similar to Article 12A makes the application of treaty relief easier and neutralises the tax effect for a South African resident. However, where no distributive rules to technical services (in particular management fees) apply in a treaty it may become burdensome to prove that treaty relief should apply in a case where double taxation occurs. Based on the results of the research (due to the economic impact it may have on South Africa), it is recommended that South African treaties with other developing countries which levy a withholding tax on management fees, should be updated by protocol or renegotiation of the treaty to include a similar article to the new Article 12A in the UN Model.
- ItemOpen AccessA time-series and cross-sectional momentum strategy: Dual momentum applied from a South African perspective(2022) Fuchsloch, Michael; van Rensburg, PaulFama and French (2008, p.1654) referred to momentum as a “premier market anomaly”. The momentum effect has been nearly universally observed across all asset classes globally (Asness, et al., 2013). This research paper further explores momentum and replicates the dual momentum strategy proposed by Antonacci (2014) within a South African context. Dual momentum combines time-series and cross-sectional momentum in pursuit of enhanced risk adjusted returns. The strategy is constructed using tradeable indices in order to minimise transaction costs. This study investigates the dual momentum strategy applied to the JSE Top 40 index. The strategy also includes two indexes which stay constant, the MSCI ACWI index for offshore exposure and the STeFI index which serves as an alternative proxy investment and acts as a safe haven during economic downturn. In addition, this study investigates two variations of the core strategy which include shortening the look-back period and lowering the strategy's threshold. Furthermore, and supplementary to the core strategy, dual momentum is applied to several South African sector indexes. Followed by a second supplementary section where dual momentum is applied to a pool of indexes where only the top performing index is used over a specific period in time. The results of the performance analysis of the dual momentum strategy over the sample period illustrates the strategy's ability to generate superior risk adjusted returns, lower standard deviations, lower maximum drawdowns, and yields significant positive alpha. Thus, the core dual momentum strategy and focal point of this study, validates the strategy within a South African context. However, the results of the variations and both supplementary sections display a vast range in underperformance. This highlights the dual momentum strategy's inability to adequately cope with high volatility. During periods of high volatility, the strategy tends to struggle which is also the case with the core strategy and most other momentum strategies. Therefore, the two variations and supplementary strategies do not manage to improve the core dual momentum strategy.