Browsing by Subject "tax"

Now showing 1 - 20 of 23
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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 analysis of the tax treatment of home office expenditure sought by salaried employees
    (2024) Jacobs, Alicia; Roeleveld, Jennifer
    The South African Revenue Service (SARS) disallowed 60% of home office claims during the 2021 tax year. This is a consequence of the fact that the home office of these taxpayers did not meet the requirements of section 23(b) of the Income Tax Act No.58 of 1963 (IT Act). In this dissertation, various issues have been identified as to the problems taxpayers encountered and continue to encounter when making home office claims on their Personal Income Tax returns. The main issues identified with SARS disallowing the home office claims is resultant of these taxpayers not meeting the “regularly” and “exclusively” requirement. These specific requirements place these taxpayers in a position where they do not have a big enough dwelling-house or domestic premises or they just cannot afford to acquire one, in which they can dedicate a room/area in their living space for regular and exclusive use as a home office. They, therefore, will not meet the home office requirements for tax purposes and will not be able to enjoy a home office tax benefit. In support of the reasons why these taxpayers fail to qualify for a home office tax deduction, several case studies and examples have been provided to illustrate the problems of meeting the home office requirements under the current version of section 23(b). Based on the overall findings and analysis, the current tax treatment of home expenditure fails to practise the principles of a good and fair tax system for all its taxpayers. These tax principles are the foundation of tax reform in South Africa. It is therefore submitted that the provisions of section 23(b) be revaluated to make it fairer for taxpayers to claim home office expenditure regardless of their economic positions. In addition, the ongoing electrical outages in South Africa, the ever-changing working environment and technological advancements, have necessitated the need to work from home. This kind of work arrangement is increasing, and more taxpayers will be making home office claims in the future on their Personal Income Tax returns. An efficient way of dealing with the administrative burden of these taxpayers home office claims being disallowed by SARS as a result of not meeting the section 23(b) requirements, is for SARS to consider granting an allowance or a reimbursement allowance for business expenditure incurred in the course of employment. This method of dealing with a home office expenditure claim is a probable solution for South Africa and in turn will ease the administrative burden of SARS having to deal with numerous objections and appeals.
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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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    Attempting to limit the attribution of capital gains
    (2005) West, C; Roeleveld, J
    Paragraphs 68 to 72 of the Eighth Schedule to the Income Tax Act No. 58 of 1962 (‘the Act’) were inserted to perform the same function as that of section 7, namely to attribute income in cases in which the taxpayer has disposed of that source of income by means of donation, settlement or other disposition. Paragraph 73 of the Eighth Schedule to the Act was inserted to limit the total amount that is attributed to the donor in a year in which both income (in terms of section 7) and a capital gain (in terms of the attribution paragraphs 68 to 72) are to be attributed. The unclear construction of the section and, it is submitted, the inaccurate interpretation of this paragraph by the South African Revenue Services (‘SARS’) has made it difficult to interpret this paragraph. This article attempts to evaluate prevailing legal precedent and to apply such precedent to the paragraphs on attribution in order to arrive at an appropriate interpretation of paragraph 73. The approach adopted by SARS is also examined in the light of the above interpretation and application of prevailing legal precedent. Lastly, amendments to the legislation are proposed to clarify the legislation and to provide a structured approach in the consideration of the intention of the legislature.
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    Attitudes of stakeholders towards web-based disclosure: empirical evidence from an emerging economy
    (2018) Bekoe, Rita Amoah; Uliana, Enrico
    Empirical studies on web-based reporting have usually been examined from a company’s perspective. However, this study provides some evidence on web-based reporting from users’ perspective. The study relied on the Technology Acceptance Model (TAM) and the Innovation Diffusion Theory (IDT) to examine the attitudes of users towards the use of online accounting information and investigate the dominant factors that influence such attitudes. A survey method of research was adopted and a set of questionnaires were designed and administered to different stakeholder groups on the Ghana Stock Exchange (GSE). Out of 435 questionnaires administered, 175 were returned of which 171 were used in the study. The data was analyzed using the Structural Equation Modeling technique (the partial least squares approach). Results of the study suggest that stakeholders generally have a positive attitude towards web-based reporting. Thus, the majority of the respondents consider web-based reporting to be a useful medium for the dissemination of accounting information. The study also demonstrates that attitude is an important determinant of stakeholders’ use of the web-based report. Moreover, stakeholders’ perceptions of the usefulness, ease of use, social network pressures and compatibility of the web-based reporting have a positive influence on attitude towards web-based report. This study makes some important contributions to the financial reporting literature. The study develops a framework that provides insight into users’ attitudes towards web-based reporting, the determinants of such attitudes and their influence on the use of web-based reports. The findings of this study also provide some insightful implications for stakeholders in the corporate web reporting environment by demonstrating amongst others that businesses providing online accounting information should place more emphasis on the quality of the information provided, by ensuring that it is timely, reliable and transparent.
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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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    Have the OECD Transfer Pricing Guidelines influenced the development of domestic legislation for transfer pricing and the outcome of court decisions in selected African states?
    (2025) Ismail, Mohamed Waseem; West, Craig
    The Organisation for Economic Cooperation and Development (OECD) Transfer Pricing Guidelines (TPG) is a soft law instrument that acts as a guide to many multinational entities (MNE) in applying the arm's length principle (ALP). Amongst OECD member states, the OECD TPG is a relevant instrument to provide guidance to MNEs and Tax Administrations on how to apply the ALP. In transfer pricing legal disputes, international court judgments discussing the ALP touch on the influence of the OECD TPG. Every case may vary depending on the circumstances in each case and the time the ALP was enacted as part of hard law. This paper aims to answer the question, “Have the OECD TPG influenced the development of domestic legislation for transfer pricing and the outcome of court decisions in selected African states?” A sample of literature was reviewed to understand the use of the OECD TPG as a soft law instrument within the international law landscape. Thereafter, a sample of international TP case law that references the OECD TPG was inspected to understand and analyse the stance of the OECD TPG. A systematic review was conducted on a sample of international transfer pricing court judgments to determine the weighting that the OECD TPG acts as a soft law instrument in the international tax community. A sample of African TP disputes in Ghana, Kenya, Malawi, Nigeria, South Africa, Tanzania, Uganda, Zambia and Zimbabwe was inspected to understand the status of the OECD TPG by the courts and the subsequent developments within the domestic tax legislation since the court judgment to determine whether the OECD TPG had any influence in shaping its domestic tax legislation. Through this analysis, the author attempted to understand the influential status of the OECD TPG within an African regional context despite many African countries not holding a member status with the OECD and some African countries holding observer status or act as key partners with the OECD. Where the domestic TP tax legislation lacks guidance on the application of the ALP, the OECD TPG does hold a higher status in most OECD member countries. The status of the OECD TPG varies across different jurisdictions in the sample of countries selected. It should be noted that the case law inspected is not exhaustive of the court decisions discussing the ALP for all African countries. The OECD TPG status within Africa started as a soft law instrument, but over time, it has proven to be a focal area in developing TP regulations and the domestic TP tax legislative frameworks in Africa.
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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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    Interest limitation and thin capitalisation rules: an analysis of global practices and learnings for South Africa
    (2024) Southgate, Ebrahim; Johnson, Tracy
    South Africa loses approximately R7 billion a year due to profit shifting by multinational corporations amounting to about 4% of the total corporate income tax receipts. It is estimated that 98% of this tax loss can be directly attributed to the profit shifting schemes of the largest 10% of multinational enterprises. The term ‘profit shifting' refers to the transferring or shifting of profits within a multinational group of companies from a firm in a higher‐tax‐rate country to an associated company in a lower‐tax‐rate country. It can be legitimate to some degree, however this practice by multinationals is increasingly becoming a challenge for tax authorities and governments worldwide. These challenges are particularly difficult for developing countries such as South Africa as the country is more reliant on corporate tax revenues compared to more economically developed countries. The risk of South Africa's tax base eroding due to profit shifting is thus vitally important to address. It is becoming increasingly important for the South African government to protect its tax base from aggressive tax planning along with attempting to alleviate the burden on taxpayers from the administrative costs of complying with the OECD arm's length approach. Therefore, this dissertation undertook a review of South Africa's current and historic fiscal policies to address base erosion and profit shifting through excessive interest deductions. The research conducted aims to consider how various countries across the world have implemented measuresto address excessive interest deductionsso that South Africa may benefit from their lessons learnt. The review has revealed the various methods that countries have applied to address the risk of excessive interest deductions. Many countries implement interest limitation rules that largely align to the OECD BEPS Action 4 recommendations on excessive interest payments. Some countries implement thin capitalisation rules based on fixed financial statement ratios to curb excessive interest. Other countries have followed a combined approach using the OECD BEPS 4 method and thin capitalisation rules. Certain countries also use other tax safe harbours such as circulating an approved arm's length interest rate for cross‐border finance arrangements to encourage compliance and manage excessive interest payments. It was noted that where countries implemented rules in line with BEPS Action 4, the rules were tailored to suit their unique economic and fiscal needs. These distinctive deviations are highlighted within this dissertation. It was also evident that thin capitalisation safe harbour rules continued to be a key element of interest limitation rules as a means to reduce the compliance burden for low‐risk entities. The research reflectsthat a re‐introduction of thin capitalisation safe harbour rules, to address ever‐increasing complexity in the relevant areas of our income tax legislation, would not be contrary to common practice in a number of countries. Drawing on the findings from the research and analysis conducted, it is recommended that the interest limitation rules in South African should be developed further and improved upon. As an example, these developments might include the reintroduction of thin capitalisation safe harbourrules,stronger alignment ofsection 23M of the Act to the best practice guidelines within BEPS Action Plan 4 or the circulation of government approved arm's length interest rates for cross‐border debt financing transactions between connected persons or associated enterprises.
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    Interest limitation and thin capitalisation rules: an analysis of global practices and learnings for South Africa
    (2024) Southgate, Ebrahim; Johnson, Tracy
    South Africa loses approximately R7 billion a year due to profit shifting by multinational corporations amounting to about 4% of the total corporate income tax receipts. It is estimated that 98% of this tax loss can be directly attributed to the profit shifting schemes of the largest 10% of multinational enterprises. The term ‘profit shifting' refers to the transferring or shifting of profits within a multinational group of companies from a firm in a higher‐tax‐rate country to an associated company in a lower‐tax‐rate country. It can be legitimate to some degree, however this practice by multinationals is increasingly becoming a challenge for tax authorities and governments worldwide. These challenges are particularly difficult for developing countries such as South Africa as the country is more reliant on corporate tax revenues compared to more economically developed countries. The risk of South Africa's tax base eroding due to profit shifting is thus vitally important to address. It is becoming increasingly important for the South African government to protect its tax base from aggressive tax planning along with attempting to alleviate the burden on taxpayers from the administrative costs of complying with the OECD arm's length approach. Therefore, this dissertation undertook a review of South Africa's current and historic fiscal policies to address base erosion and profit shifting through excessive interest deductions. The research conducted aims to consider how various countries across the world have implemented measuresto address excessive interest deductionsso that South Africa may benefit from their lessons learnt. The review has revealed the various methods that countries have applied to address the risk of excessive interest deductions. Many countries implement interest limitation rules that largely align to the OECD BEPS Action 4 recommendations on excessive interest payments. Some countries implement thin capitalisation rules based on fixed financial statement ratios to curb excessive interest. Other countries have followed a combined approach using the OECD BEPS 4 method and thin capitalisation rules. Certain countries also use other tax safe harbours such as circulating an approved arm's length interest rate for cross‐border finance arrangements to encourage compliance and manage excessive interest payments. It was noted that where countries implemented rules in line with BEPS Action 4, the rules were tailored to suit their unique economic and fiscal needs. These distinctive deviations are highlighted within this dissertation. It was also evident that thin capitalisation safe harbour rules continued to be a key element of interest limitation rules as a means to reduce the compliance burden for low‐risk entities. The research reflectsthat a re‐introduction of thin capitalisation safe harbour rules, to address ever‐increasing complexity in the relevant areas of our income tax legislation, would not be contrary to common practice in a number of countries. Drawing on the findings from the research and analysis conducted, it is recommended that the interest limitation rules in South African should be developed further and improved upon. As an example, these developments might include the reintroduction of thin capitalisation safe harbourrules,stronger alignment ofsection 23M of the Act to the best practice guidelines within BEPS Action Plan 4 or the circulation of government approved arm's length interest rates for cross‐border debt financing transactions between connected persons or associated enterprises.
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    Is it practically possible to comply with the qualifying interest requirement when entering into a section 42 asset-for-share transaction concerning immovable property, given the applicable time of disposal rules and the application of the Companies Act?
    (2025) Stronkhorst, Angelique; Tickle, Deborah
    The South African Income Tax Act No 58 of 1962 (“the ITA”) contains several group relief provisions aimed to facilitate corporate restructuring. In the ITA there are various examples of roll-over relief provisions generally that contain no time restrictions, nor which are determined with reference to a specific moment in time. That notwithstanding, section 42 of the ITA, colloquially known as referring to asset for-share transactions, requires a transferor company (the company disposing of an asset) to hold a qualifying interest in a transferee company (the company receiving the asset in exchange for the issue of shares) at the close of day on which the asset is disposed of. Accordingly, the ITA is prescriptive regarding the timing provision and when a qualifying interest in section 42 is required to be held. In this study, the author considers the practical application of the qualifying interest requirement and how compliance with this requirement is problematic when considering other legislative enactments. In doing so, the author identifies possible impediments for compliance with the section 42 qualifying interest requirement and furthermore attempts to adopt an interpretation in which the legislative enactments can either be reconciled or interpreted widely to ensure that the requirements of the ITA are complied with. The aim of this study and the question that the author attempted to address in its analysis above is whether it is practically possible to comply with the qualifying interest requirement when entering into a section 42 asset-for-share transaction concerning immovable property, given the applicable time of disposal rules and the application of the Companies Act? In this study and as part of the key findings of this paper, the author identifies several ambiguities arising from the application of various legislative enactments. The Companies Act and the impediments imposed by it to comply with the “qualifying interest” requirement enacted in section 42 of the ITA, specifically insofar as the issue of shares for adequate consideration is concerned in clearly highlighted by the author. To align the provisions of the various legislative enactments and in an attempt to reconcile them the author argued that a purposive approach to statutory interpretation should be adopted in which the practical application and functionality of the provision should be called into question.
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    Islamic finance: a low risk, value-adding alternative
    (2019) Ebrahim, Bint Nur; Kruger, Ryan
    In this thesis conventional indices were compared to Shariah compliant indices within the respective regions and asset classes. Within the equity asset class, on the global side, the MSCI World Index was compared to the Dow Jones Islamic Index, within the United States the S&P 500 Index was compared to the S&P Shariah Index and for South Africa the FSTE All Share Index was compared to the FTSE Shariah All Share Index. Within the fixed income asset class, the Barclays Global Aggregate Bond Index and the Merrill Lynch Global Bond Index were compared to the Dow Jones Sukuk Index. In respect of the global and South African equity and the global fixed income, a sample set of Shariah compliant funds were compared to the respective conventional indices. What was found was that overall for the global equity and the United States comparisons, the Dow Jones Islamic Index and the S&P Shariah Index created higher value than the MSCI World Index and the S&P 500 Index respectively and at a much lower level of debt and therefore risk, over the timeframe analysed. Within the South African equity market, the FTSE All Share Index added more value than the FTSE Shariah All Share Index over the time period reviewed, however these are highly concentrated indices, with the FTSE Shariah All Share Index having an over-exposure to commodities. On the fixed income side, the Barclays Global Aggregate Bond Index and the Merrill Lynch Global Bond Index created more value than the Dow Jones Sukuk Index over the years investigated, however the data and time horizon analysed were limited. When looking at the funds, definitive conclusions regarding the relative performance between the conventional index and the Shariah compliant fund proxy could not be drawn, however there were certain funds that outperformed the conventional index during specific time periods.
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    Level-dependent volatility in jumping short-rate models
    (2025) Chitambo, Nigel Elton Nyasha; Backwell, Alexander
    This dissertation constructs a no-arbitrage term structure with deterministically timed randomly sized jumps to price interest rate contingent claims while accounting for level-dependent volatility. This dissertation will price such claims using an implicit finite difference scheme to implement a modelling framework that prices bonds, bond options and caplets with scheduled shocks to the short-term interest rate to simulate macroeconomic announcements and other sudden developments. This dissertation found that the prices derived from the implicit finite difference scheme agree with those derived from Monte-Carlo simulations and, where applicable, analytical solutions. Moreover, this dissertation shows how innovations in the short-term rate affect the valuations of interest rate contingent claims.
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    Searching for common deviations from South Africaﾒs Tax Treaty Policy: The relationship with North Africa, West Asia and Eastern Europe
    (2019) Gordhan, Komil Dilap; West, Craig
    To achieve a degree of standardisation of the contents of treaties by their members, Model tax conventions were published by international organisations. Consequently, in 1963, the Organisation for Economic Co-operation and Development (“OECD”) Model was prepared by developed countries of the world and it thus embodies rules and proposals by capital-exporting countries. As it was drafted by representatives of major Western industrialised countries, lower-income, developing countries were concerned that it resulted in too large a reduction in source country tax. The developing countries responded to the success of the OECD Model by developing their own Model convention under the auspices of the United Nations (“UN”) in 1980. This Model was drafted between developed and developing countries and attempts to reflect the interests of developing countries. Although it is based upon the OECD Model, the United Nations Model Double Taxation Convention between Developed and Developing Countries retains much greater source country taxation. Several tax treaties have been promulgated over time in South Africa due to the surge in international trade and investment flows which have tax consequences. There is however, no external enforcement of the above Models in the Republic of South Africa (“RSA”) and as a direct result, deviations from these standard models occur. Both a qualitative and expository study was performed. Thereafter, this dissertation considers South Africa’s treaty practice by outlining the significant deviations between South African double tax treaties and the respective OECD and UN Models. This study examines treaties concluded between South Africa and countries situated in North Africa, East Europe and West Asia. This dissertation concludes that bilateral treaties negotiated and concluded with South Africa consistently deviate from both the OECD and UN Models. These deviations were further examined to establish whether an indicative pattern informs a particular treaty practice. A small number of these observed deviations concur with the RSA position taken on the OECD Model. Treasury needs to circulate a clear and distinct South African Tax Model since South Africa’s international trade and investment flows expand across borders. The concern that South Africa does not have a published Tax Treaty Model is likely to intensify as related parties draw on frequently changing tax Models by the OECD and UN committees which may indirectly affect a developing country’s negotiating power.
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    Seeking deviations from South Africaﾒs tax treaty policy with respect to treaties in Africa: evidence from the treaty practice
    (2019) de Wet, Mary-Ann; West, Craig
    Since South Africa was welcomed back into the international arena in 1994, there has been a significant increase in the number of tax treaties concluded between South Africa and other Sub-Saharan Africa countries, as part of South Africa’s goal to expand into Sub-Saharan Africa (SSA). The purpose of this dissertation is to determine whether these treaties concluded between South Africa and SSA countries have been influenced by South Africa’s stated tax treaty policy, or have been guided by regional practices or to confirm whether South Africa’s tax treaty practices have influenced any regional models. This dissertation includes a detailed analysis of 18 tax treaties concluded between South Africa and other SSA countries. This analysis is used to identify any significant deviations in these treaties as compared to the OECD Model and the UN Model. The SSA region has several economic organisations that have developed tax models to cater for treaty negotiations of developing countries. These models include the African Tax Administration Forum (ATAF) Model, the Southern Africa Development Community (SADC) Model and the East African Community (EAC) tax agreement. The study observes that South Africa’s tax treaty practise generally follows the OECD Model, but also incorporates certain provisions of the UN Model. The analysis of the 18 treaties as compared to the OECD Model identified 31 significant deviations to the OECD Model, and of these deviations, 22 (71%) align to the provisions of the UN Model. These significant deviations were analysed to determine if they arose from South Africa’s stated positions on the OECD Model, influenced by South Africa’s domestic laws, or arose at the insistence of the other Contracting State, or from other factors. v The findings suggest that of the 31 deviations, the majority (80%) arise out of South Africa’s positions on the OECD Model and from its domestic laws. Further analysis was conducted to determine if these significant deviations were contained in the SSA regional tax models. The findings indicate that the SADC Model has the highest correlation as it includes 87% of these deviations, followed by ATAF (77%) and EAC (71%). An additional analysis, by country per regional body, was conducted on the deviations arising from South Africa’s treaty practices. This analysis indicates that 80% of South Africa’s treaty practices occur in the ATAF Model, 84% in the SADC Model, and 72% in the EAC Model. This analysis found that, on average, 82% of treaties concluded with ATAF member countries, 81% of SADC member countries and 89% of EAC member countries aligned to South Africa’s treaty practices. The high correlation to the SADC and ATAF Models indicates that South Africa’s tax treaty practices have influenced the development of these regional models, and the high correlation between the treaties for each country and region, suggests that the majority of the treaties have been significantly influenced by South Africa’s tax treaty practices. Thus, the conclusion is that the majority of the significant deviations found in South African treaties concluded with Sub-Saharan African countries arise from the South African tax treaty practices which are generally based on the OECD model, with the inclusion of certain provisions of the UN Model. These deviations align with South Africa’s position to the OECD Model and its domestic laws, which form the South African treaty practices. It is concluded that these treaty practices have significantly guided the SSA treaties and suggests that these treaty practices have influenced the Sub-Saharan African ATAF and SADC Models.
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    Shareholder wealth effects of convertible bond announcements in South Africa
    (2019) Albanie, Sylvester; Pamburai, Harvey
    This study examines shareholder wealth effects of convertible bond announcements in South Africa for the period 2004 to 2017. The data shows that South African companies issue convertible bonds for several reasons and that issues are not only South African rand denominated, but are in other currencies as well. However, a review of the convertible bond announcements show that the majority of convertible bonds were issued in local currencies. In addition to the currency of issue, the study also shows that the majority of the stated practical uses of the proceeds was to finance corporate general purposes (47%, i.e. 7 of the 15 in the final sample) and the repayment of debt (, i.e. 47% that is, 7 out of 15). Contrary to prior studies in Korea and Japan, the results of this current study show that the use of proceeds towards project financing and capital expenditure ranked the least. Empirically, various t- tests were conducted to examine statistical significance of the wealth effects of convertible bond announcements. The findings from the various tests performed consistently showed that the announcements had significant negative price reactions. First, the findings shows that the announcements of convertible bonds in general (that is without distinction) had significant negative price reactions. The announcements in general, had significant negative wealth effects irrespective of whether the announcements were based on local or foreign currency. The results also show that the mean cumulative abnormal returns (CARs) of the issues denominated in rand value were more negative than those made in other currencies. In addition, further tests also show that the mean CARs based on the stated use of proceeds were significantly negative irrespective of whether the issues were for corporate general purpose or for the repayment of debt. Overall, the study shows that convertible bond issues in South Africa have a significant negative CARs around the announcement date.