Browsing by Subject "tax"

Now showing 1 - 18 of 18
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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 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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    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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    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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    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.
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    Skill or luck: a bootstrapping approach to analysing South African equity unit trust returns
    (2022) Marinus, Luigi; Toerien, Francois
    The focus of the study is to add to the available literature on the ability of unit trust fund managers to consistently display skill in their investment performance, and to distinguish between skill and luck. The study focussed on South African domestic equity funds and divided these between funds that have an allowance for an offshore allocation and those that are domestic only. Domestic equity funds were specifically selected as sample because they can be analysed in terms of the multi-factor equity pricing models kept up to date by Legae Peresec. These funds were further divided between those that allowed global exposure and those that did not, to test whether this had a notable effect on the performance of the two subsamples. In the South African domestic equity ASISA category (ASISA, 2021), funds have an allowance for a maximum of 30% in offshore holdings, but most funds (roughly two-thirds in this study) choose to not allow offshore holdings in their mandates. The initial sample of 326 funds reduced to 179 funds after the exclusion of tracker funds, funds of funds, multi-managed funds, and funds with either less than 36 months of performance or where required data was missing. The study uses performance data for the period March 2006 to May 2020 for all qualifying funds regardless of whether they were active at the end of the period or not, and therefore caters for survivorship bias. Two methods are used to assess expected performance versus actual performance. The first was a regression analysis that tests fund performance against three multi-factor asset pricing models, namely the Fama and French 3-Factor Model, the Carhart 4-Factor Model, and the Fama and French 5-Factor Model. The second is a bootstrap resampling analysis that indicates whether fund performance is better than a randomised (luck-equivalent) distribution of returns, thereby implying manager skill. A regression was run per fund based on the Carhart 4-factor model with the error terms being resampled. A distribution per fund was then modelled by regression by replacing these error terms 1,000 times. A further regression was run independent of time to obtain the alphas for the comparison to the actual fund alphas. Any specific funds with alphas greater than the distribution performed better than the model suggests at certain percentile levels, which would imply skill was required to attain those performance levels. The first part of the study shows that certain funds outperform the multi-factor model performance over the measurement period, although in all models the average alpha is less than zero. In the second part of the study the bootstrap resampling produces a luck distribution that is compared to the actual distributions. There are no funds where the alpha exceeds the corresponding luck-based percentile level, which could imply that fund manager skill was not present over the measurement period. There are several actual fund alphas that fall within the luck distribution range of alphas, where skill was inconclusive. Funds that have a global allocation tend to perform better than local only funds before fees are taken into account. While this study may not be the final word on whether investment skill is observable in the South African market it gives some insight into the likelihood of skill being present over a certain defined investment period. As passive funds have attracted more assets, the question of whether active investment managers are justified in earning higher fees is becoming increasingly important. The results of this study indicate that this may indeed not in general be the case.
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    The effects of research and development expenditure on long-term stock returns: an analysis of the BRICS nations
    (2022) Swan, Matthew; Charteris, Ailie
    Research and development (R&D) facilitate and drive innovation, which plays a critical role in increasing competitiveness for firms and contributing to economic growth. This study examines a sample of 970 firms from Brazil, Russia, India, China and South Africa (BRICS) between 2007-2020 who increased their R&D expenditure or had an unexpected increase in R&D expenditure from one year to the next. The Fama and French (1993) three factor and Carhart (1997) four factor models are used to assess whether these firms earned abnormal returns in the long run. The study finds that value weighted portfolios of firms that increased their R&D expenditure or experienced unexpected R&D expenditure increases exhibited long term positive abnormal returns. This suggests that investors fail to respond immediately to the good news about R&D, consistent with the phenomenon of investor underreaction, and therefore presents an opportunity for market participants to earn abnormal returns by investing in BRICS companies engaged in R&D.
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    Value added tax on electronic services: an explorative study on the current regulations prescribing electronic services and the proposed amendments as at 01 October 2018
    (2019) Khulu, Ntombifuthi Valerie; Roeleveld, Jennifer
    Value-Added Tax (VAT) was introduced in South Africa (“SA”) on 29th September 1991 to replace GST (General Sales Tax) as an indirect system of taxation. It is levied in terms of the Value-Added Tax Act 89 of 1991. The Commissioner of the South African Revenue Service (SARS) is a mandated collector of all tax that is legally payable. SARS has a duty to ensure that the collection of tax is efficient and effective. VAT is a transaction and consumption-based tax that is triggered upon the consumption of goods and services in South Africa. South Africa operates a destination-based VAT system, which means that exports are zero-rated, and imports are subject to VAT at the standard rate of 15 per cent. The upshot of the destination-based VAT system is that it is designed to tax the consumption (in economic parlance) that takes place in South Africa (SA). For the purposes of VAT, revenue loss as a result of cross border supply of goods is insignificant in comparison to revenue loss experienced in the cross-border supply of services supplied via electronic means. This is due to the tangible nature of goods which would be required to be channelled through the border and/or customs, which are generally strictly controlled areas. Such goods could be subject to domestic tax (including VAT), thereby limiting the trade distortions as the foreign supplier will be put in the same tax position as the local supplier. However, all of this will be dependent on domestic legislation and value thresholds in a particular jurisdiction. In the instance of cross border supplies of services supplied electronically, there is increased exposure or risks to trade distortions since these are provided via the internet or through other forms of electronic agents or communication methods. These supplies do not have to physically pass through the border or customs, thereby limiting the control and monitoring of tax authorities. Imported services/reverse charge mechanism is where services supplied by non-residents are taxed within a taxing jurisdiction. This means that a resident of South Africa must account for VAT on services acquired from a non-resident or a person who carries on a business outside of South Africa, to the extent that such services are not used in the furtherance of taxable supplies. Essentially, the responsibility for the collection of tax does not lie with the non- resident but the person who imported the goods or services into South Africa. This is known as the reverse charged mechanism and is applied with respect to imported services acquired from non-resident businesses, consumed in South Africa and not for the furtherance of taxable supplies. In order to level the playground between foreign and local suppliers, the legislature introduced new rules governing the supply of electronic services by a foreign supplier to South Africa. This was done to eradicate the incorrect interpretation & application of the provisions governing imported services. In the 2018 National Budget Speech, released on 21 February 2018, the Minister of Finance announced that the regulation defining “electronic services” for VAT purposes would be updated. This resulted in an amended draft regulation being published on the same date. On 24 October 2018, the Minister of Finance presented the Medium-Term Budget Policy Statement which was accompanied by the Amendment of Revenue Laws Bill 37 of 2018 (“the Bill). Amongst those amendments contained in the Bill was the changes in the VAT treatment of the supply of electronic services (“e-services”) in South Africa. These amendments and the revised e-services regulations are due to take effect on 1 April 2019. The objective of this paper is to discuss to what extent the SA regulations are in line with regulations introduced in the Ottawa Taxation Framework. This paper will also discuss the Amendment of Revenue Laws Bill 37 of 2018 considering electronic services. Lastly, the EU, New Zealand and Australia’s frameworks will be looked at to establish if they have also amended their local VAT/GST legislation considering the Ottawa Taxation Framework. New Zealand, Australia and EU were chosen as target jurisdictions of comparison because they are more developed than South Africa. Furthermore, South Africa has economic relations with Australia and some countries which form part of the European Union. It is also understood that Australia’s GST and South Africa’s VAT are similar in terms of certain aspects. Collectively, South Africa’s VAT and Australia’s GST were both based on the New Zealand’s GST model. This paper finds that the recent amendments by the National Treasury are broad and do not conform to the Ottawa Taxation Framework. The paper also finds that the regulations looks fine on paper, but the implementation thereof will be challenging to both SARS and the VAT vendors. The paper suggests that the National Treasury should look at what countries i.e. New Zealand have done to address the challenge of taxing 'electronic services’ to ensure that the SA VAT legislation is amended in accordance with the suggested guidelines.