Browsing by Subject "finance"

Now showing 1 - 20 of 66
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    A 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, Jennifer
    Globally, 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.
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    A 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, Jennifer
    With 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.
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    An analysis of the digital services tax solutions presented in Africa and early-adopting developed countries to inform South Africa on the design features for taxing the digital economy
    (2025) Cupido, Sandy Deliah; Johnson, Tracy
    South Africa has announced plans to adopt the Organisation for Economic Co-operation and Development's (“OECD”) Two-Pillar Approach and is currently preparing for Pillar Two's implementation, as the design and consensus for the implementation of Pillar One is progressing at a slower pace. While both pillars originated from the need to address Base Erosion and Profit Shifting (“BEPS”) issues, it is Pillar One that is primarily focused on taxing digital economy, whereas Pillar Two is focused on implementing a global minimum corporate tax rate. Thus, Pillar Two's implementation may not satisfy South Africa's need to tax the digital economy and generate revenue from the supply of digital services, in the manner that Pillar One is intended to. During this time, while the future of Pillar One unfolds, South Africa may find it useful to pause and consider alternative approaches to taxing the digital economy. Digital services tax (“DST”) has emerged as the most prevalent unilateral approach to taxing the digital economy, especially among African countries. In light of the issues regarding the global consensus required to implement Pillar One and the time it will take to get the United Nations (“UN”) Framework Convention on International Tax Cooperation underway, an opportunity exists for South Africa to consider implementing a DST to tax the digital economy and benefit from the additional tax revenue to be generated in the interim. Given the existing complexities in the South African tax system, a DST presents a simpler and more manageable approach to introduce to the South African tax landscape for the purpose of taxing the digital economy. Since a DST would be introduced unilaterally by South Africa, its design features could be tailored to meet the country's specific needs for taxing digital services. Accordingly, the primary research objective of this dissertation is to identify and analyse the DST design features that South Africa could consider if a DST was to be implemented as an alternative approach to taxing the digital economy. The primary research objective is addressed by sub objectives that comprise of: discussing potential benefits and challenges of implementing DSTs, analysing the DSTs of early-adopting developed countries that were among the first to implement DSTs, by identifying key commonalities in the design features; analysing the DST legislation of the African countries that have implemented DSTs, by identifying and examining similarities and variations in the design features; and analysing the design features of the African Tax Administration Forum's (“ATAF”) Suggested Approach to Drafting Digital Services Tax Legislation (“ATAF's Suggested Approach”) with those of the African DSTs, to identify areas of alignment or deviation. ABSTRACT 4 The dissertation provides a comprehensive list of potential benefits and challenges of DSTs to assist South Africa in weighing up the positives and negatives of implementing a DST to tax the digital economy. From the further analyses performed, it is concluded among other findings, that similarities exist between the design features of the DST solutions as it pertains to the tax base, scope of digital services and minimum DST thresholds, while variations are identified in the design features regarding source rules and determining user participation. These shared trends are further interpreted to provide insights into how the DST design features could be considered by South Africa.
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    An evaluation of the recourse available to taxpayers where SARS does not adhere to the correct tax administrative procedures
    (2018) Herbert, Lauren Stacey; Foster, Martie
    There is a common perception among South African taxpayers and tax professionals that the South African Revenue Service (“SARS”) is “draconian” in its administrative actions and interactions with taxpayers and tax professionals, which infringes on taxpayers’ constitutional right to just administrative action. This dissertation aims to make taxpayers and tax professionals more aware of their right to just administrative action which entitles taxpayers to administrative action and interactions with SARS that are lawful, reasonable and procedurally fair. Furthermore, this dissertation investigates how taxpayers and tax professionals may go about defending such administrative rights, should SARS infringe upon it without just cause. A comparison is made between the recourse available to South African taxpayers and tax professionals who experience tax administrative disputes against SARS, against the recourse provided in a selection of foreign jurisdictions. This comparison is performed with a view to determine possible areas of improvement to the recourse provided in South Africa, as it pertains to administrative disputes against SARS. Recommendations to introduce a Taxpayers Bill of Rights or revise and improve on the current SARS Service Charter, is considered in Chapter 5 of this dissertation. This dissertation shows that while the introduction of the Tax Ombud in South Africa certainly enriched taxpayers’ constitutional right to just administrative action, the Tax Ombud’s limited authority, mandate and the non-binding effect of its recommendations on SARS, limits the effectiveness of the role of the Tax Ombud in South Africa. Recommendations to further the Tax Ombud’s authority and mandate are considered in Chapter 5 of this dissertation.
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    Disposals of fixed property: timing of accrual and practical issues arising for provisional taxpayers
    (2019) Barberton, Paul; Johnson, Tracy
    When fixed property is disposed of the proceeds are generally received anywhere from three months to a year after the transaction is required to be recognised for income tax purposes. A provisional taxpayer could therefore be required to declare and pay tax prior to the receipt of these proceeds and therefore fund such tax from sources other than the transaction in question. The practical problem resulting from the time of accrual, and the due date of the tax payable in respect of such accrual, occurring prior to the receipt of the proceeds does not appear to have been addressed in the legislation. It is submitted that accrual date could be more closely linked to the date of transfer and receipt of the proceeds to mitigate this issue. The timing of such accruals is examined in the light of the conveyancing process, the relevant sections of the Income Tax Act, other taxes relevant in respect of disposals of fixed property, appropriate case law and accounting and SARS practices, in order to ascertain whether amendments to the Income Tax Act are justifiable. Particular attention is given to s 24(1) (“Credit agreements and debtors allowance”) following the ITC 14005 judgement which deemed the accrual to be the date of the agreement whether or not a credit agreement is extant. It is submitted that by making a few changes to the legislation, the risk of inequitable cash flow positions (and potential penalties) could be greatly reduced. While a closer alignment of tax accrual with cash receipt may have a material positive effect on taxpayers’ cash flows, the effect for SARS is arguably minimal.
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    Enhancing students' learning through practical knowledge taught by industry professionals
    (Clute Institute, 2013) Rajaratnam, Kanshukan; Campbell, Anita
    A topic of interest in teaching business courses is incorporating the practical aspect of the subject matter into teaching as this helps to bridge theory and real-world practice. Research indicates that students gain a deeper understanding of material when theory is contextualized through real-life practical examples. However, given the traditional career-path of academics in finance in countries such as South Africa, a significant proportion of finance lecturers have little or no relevant practical experience in the subject matter. In this paper, we discuss a strategy implemented in finance courses at sophomore and senior levels in order to link theory and practice. Guest speakers were invited from industry to contextualize the topics for the students. Students' perceptions on the benefit they derived from the speakers were deduced from statistical analyses of student evaluations. The results indicate that the experience was positive and aided in their understanding of the subject.
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    Gaussian process regression approach to pricing multi-asset American options
    (2022) Mokone, Christoffel Maboe; Ouwehand, Peter
    This dissertation explores the problem of pricing American options in high dimensions using machine learning. In particular, the Gaussian Process Regression Monte Carlo (GPR-MC) algorithm developed by Goudenege et al (2019). is explored, and ` its performance, i.e., its accuracy and efficiency, is benchmarked against the Least Squares Regression Method (LSM) developed by Carriere (1996) and popularised by Longstaff and Schwartz (2001). In this dissertation, American options are approximated by Bermudan options due to limited computing power. To test the performance of GPR-MC, an American geometric mean basket put option, an American arithmetic mean basket put option and an American maximum call option are priced under the multi-asset Black-Scholes and Heston models, using both GPRMC and LSM. The algorithms are run a 100 times to obtain mean option values, 95% confidence intervals about the means, and average computational times. Numerical results show that the efficiency of GPR-MC is independent of the number of underlying assets, in contrast to the LSM method which is not. At 10 underlying assets, GPR-MC is shown to be more efficient than LSM. Moreover, GPR-MC is reasonably accurate, producing relative errors that are within reasonable bounds.
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    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.
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    Hedging volatility: different perspectives compared
    (2020) Ogg, Richard; Ouwehand, Peter
    The accuracy of the Black and Scholes (1973) delta and vega neutral portfolio for a vanilla option was compared to a benchmark set by the Heston (1993) model in a stochastic volatility environment. The Black-Scholes portfolio was implemented using a fixed volatility and by implying volatility from the market. Additionally, a portfolio based on the Dupire (1994) local volatility model was also compared. It was found that a portfolio consisting of two short maturity options with matching maturities was best hedged by the Black-Scholes model when using implied volatility. This result was not maintained when the two options had mismatching maturities as the proportional differences in the vegas no longer cancelled. Further examination was completed on the type of financial instruments used to hedge volatility, comparing portfolios that consisted of an additional option and a variance swap to offset any vega. It was found that both hedged the option well, with similar accuracies.
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    Identifying jumps in financial time series: a comparative study of jump detection tests
    (2022) Eisenstein, Kaylah; Ouwehand, Peter
    There is consensus in the financial literature that traded asset prices may be subject to rare, but sudden movements, resulting in asset price discontinuities, known as jumps. It is therefore important to not only incorporate jumps into diffusion models but also to disentangle the diffusion component, which can be hedged, from the jump component, which typically cannot. Consequently, there is a need to identify jumps in financial time series. A number of non-parametric finite activity jump detection tests have been proposed by various scholars. In this dissertation, a comparative study amongst these jump detection tests is conducted. A Monte Carlo simulation is performed using a variety of data generating processes, model parameter values and sampling frequencies. The Matthews correlation coefficient and bookmaker informedness are used to compare the absolute and relative performances of the jump detection tests. In particular, the multi-power variation tests of BarndorffNielsen and Shepard (2004, 2006) and Andersen et al. (2004), the minimum and median variance tests of Andersen et al. (2009), the threshold multi-power variation test of Corsi et al. (2010), the instantaneous volatility test of Lee and Mykland (2008), the swap variance tests of Jiang and Oomen (2008) and combinations thereof are considered in the study. Generally, the absolute performances of the Lee and Mykland test are consistently strong. Consequently, it emerges as the most accurate jump detection test in most scenarios. However, when asset prices with stochastic volatility experience particularly high levels of volatility, the Lee and Mykland test experiences an inability to adequately disentangle the diffusion and jump components. The swap variance tests consistently emerge as the worst performing jump detection tests. Nevertheless, a combination of either the minimum variance and ratio swap variance tests, or the median variance and ratio swap variance tests perform notably well across the different scenarios, particularly when the volatility is high.
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    Implementing short-rate models with jumps at deterministic times
    (2022) Shibduth, Darvesh Yogandar; Backwell, Alex
    Macroeconomic announcements have a direct impact on short-term interest rates during a financial year. However, this is not directly reflected in the continuous-time interest rate models. In this paper, we work with short-rate models which include the possibility of jumps at deterministic times. An application of the finite-difference method enables the pricing of bonds and bond options in these short-rate models with different types of jump distributions. A closed-form solution for bond prices, when the jumps are normally distributed, is available in the literature, but not for other jump distributions. The Monte Carlo method is used to compare the finite-difference calculations for these cases. An illustration of varying important model parameters is provided in which we observe that an increase in option prices could result from an increase in the jump variances and/or volatility parameters.
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    Innovative Finance Week 1 Video 1 - Why we innovate
    (2019) Patton, Aunnie
    This video focuses on the purpose of innovation. We look at some reasons why innovation is important in making application for funding for Entrepreneurs. We also look at the the key issues that arise from current financial business models by looking at the current pyramid model. This is video 1/11 in week 1 of the Innovative Finance: Hacking Finance to change the World course.
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    Innovative Finance Week 1 Video 10 - Choosing an issue area
    (2019) Phiri, Lelemba; Giese, Sonja; Okbaselasie, Merhawi; Naledi, Tracey
    This video introduces the representaives from the case astudies. We are introduced to the different areas that the organizations focus on, which include financial inclusion, housing, education, and healthcare. we are also introduced to the perspective of the private investment group that focuses on impact investing. This is video 10/11 in week 1 of the Innovative Finance: Hacking Finance to change the World course.
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    Innovative Finance Week 1 Video 11 - Thinking about your issue area
    (2019) Patton, Aunnie
    This video summarises the main points on why we need to innovate in financing for social impact, We also mention that we went through the themes of impact in the case studies. We also provide a guide that goes into this week's assignment to talk about an issue. This is video 11/11 in week 1 of the Innovative Finance: Hacking Finance to change the World course.
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    Innovative Finance Week 1 Video 2 - Impact of access to housing
    (2019) Patton, Aunnie
    This video focuses on the thematic areas that are used in innovative finance. We make a reference of the Sustainable development Goals (SDG's). We also mention that that all the theme areas should at least cover the SDG 1, 2, 8, 10 and 12. With some directly specific to some SDG’s, we show that rapid urbanization poses challenges in the future of cities with 30% of the global urban population living in slum-like conditions in 2014. This is video 2/11 in week 1 of the Innovative Finance: Hacking Finance to change the World course.
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    Innovative Finance Week 1 Video 3 - Impact financial inclusion
    (2019) Ngoepe, Tsakane
    This video focuses on the area of financial inclusion. We highlight that over 2 billion people do not use formal financial services. We mention that financial inclusion means people are able to have tools and services that enables them to make sound financial decisions that meet their needs, We highlight the barriers of financial inclusion to include cost, distance to financial service provider and the lack of necessary documents. This is video 3/11 in week 1 of the Innovative Finance: Hacking Finance to change the World course.
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    Innovative Finance Week 1 Video 4 - Impact water, sanitation and hygiene
    (2019) Patton, Aunnie
    This video we focus on access to clean water. We highlight the issues of water as rare commodity that is one of the least valued in terms of investment. We show that the lack of investment in clean drinking water and sanitation is root to many health issues in countries that also cause economic challenges. We also highlight that the current global market for water is estimated at $360 billion, with an annual growth rate of 4-5%. This is video 4/11 in week 1 of the Innovative Finance: Hacking Finance to change the World course.
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    Innovative Finance Week 1 Video 5 - Impact healthcare
    (2019) Ngoepe, Tsakane
    In this video we focus on the issues concerning the health sector. We highlight that unlike the rest of the world, many countries in emerging markets continue to suffer many communicable diseases, which in turn reduces the life excpectancy of their population. we highligh that the gap in financing health outcomes gives an opportunity fr private investment to meet the world's healthcare needs. This is video 5/11 in week 1 of the Innovative Finance: Hacking Finance to change the World course.
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    Innovative Finance Week 1 Video 6 - Impact energy
    (2019) Patton, Aunnie
    This video focuses on the impact of energy in countries. We highlight the need for energy in order to achieve high development. We also show that 1.2 billion people in the world do not have access to electricity, with Sub-Saharan Africa accounting for half of that population. We also highlight that there iis a high potential of investing in renewable energy in those regions as they have a capacity to generate 11 terawtt of renewable energy This is video 6/11 in week 1 of the Innovative Finance: Hacking Finance to change the World course.
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    Innovative Finance Week 1 Video 7 - Impact education
    (2019) Ngoepe, Tsakane
    This video focuses on the opportunity that comes from investing in education. We show that education is an investment that can reduce poverty and eliminate gender inequality. We also highlight that there is still a high number of children that are out of school, with Sub-Saharan Africa and Southern Asia accounting for over 70% of the global out of school population. We show that the private sector has an opportunity to strengthen the capacity in the education sector. This is video 7/11 in week 1 of the Innovative Finance: Hacking Finance to change the World course.