now specifically includes the formulation of a tax policy and strategy within the ambit of respon... more now specifically includes the formulation of a tax policy and strategy within the ambit of responsibilities of the board of directors and states that the organisation's tax policy must be 'transparent' and 'responsible'. The objective of the study was threefold: Firstly, to develop a tax reporting framework that incorporates the principles of good tax governance to ensure transparent and responsible tax policies and practices in South Africa. Secondly, to use the developed tax reporting framework to measure the tax reporting performance of the 50 largest Johannesburg Stock Exchange (JSE)-listed organisations in South Africa. Thirdly, to produce a holistic and strategic methodology for South African organisations to employ as a standard and pragmatic approach that incorporates the responsible and transparent tax policy requirements of the King IV Report on Corporate Governance. The study commences with a literature review of established international trends on good tax governance, continues by aligning these international trends with principles from the King IV Report on Corporate Governance for the South African context and concludes with descriptive statistics to measure the performance of South African JSE-listed organisations against these trends. It was found that less than half of the 50 largest JSE-listed organisations comply with more than 50 per cent of the disclosure criteria as recommended by international practice on good tax governance. Only 25 per cent of organisations complied with 65 per cent or more of the disclosure criteria. Of such organisations, 75 per cent are primarily listed on a stock exchange other than the JSE with a secondary listing on the JSE. It is evident that most primarily listed JSE-listed organisations do not meet international criteria of good tax governance. It is therefore submitted that the presented methodology may contribute to South African governance literature.
South African Journal of Economic and Management Sciences, Jun 25, 2018
Background and introduction In his Budget Speech of 2017, the Finance Minister of South Africa on... more Background and introduction In his Budget Speech of 2017, the Finance Minister of South Africa once again emphasised that tax avoidance or evasion schemes by multinational enterprises (MNEs) should be curbed (National Treasury 2017). The Republic of South Africa (South Africa) is part of the international tax movement to eliminate base erosion and profit shifting (BEPS) through the Base Erosion and Profit-shifting Action Project of the Group of 20 (G20) and the Organisation for Economic Cooperation and Development (OECD) (The Davis Tax Committee 2014a). The OECD/G20 BEPS Project developed 15 key reform actions in the international tax arena to ensure that profits are reported where economic activities are carried out and where economic value is created. The BEPS assists governments in closing the tax gap created by profit shifting from higher to lower or no-tax environments, without transactions having underlying economic substance (The Davis Tax Committee 2014a). The OECD published its final reports on the BEPS Project, which included the final report on BEPS Action 13, Transfer Pricing and Country-by-Country (CbC) Reporting (the final report) (OECD 2015) in October 2015. Action 13 of the Action Plan on BEPS requires the development of rules regarding transfer pricing documentation to enhance transparency for tax administration by taking into consideration the compliance costs for businesses. The rules include a requirement that MNEs must provide all relevant governments with the required information on their global allocation of income, economic activity and taxes paid among jurisdictions (OECD 2013). The objectives of the transfer pricing reporting documentation rules are the following: • to ensure that taxpayers can assess their compliance with the arm's length principle • to provide tax administrations with the information necessary to conduct an informed transfer pricing risk assessment Background: South Africa issued regulations implementing country-by-country (CbC) reporting standards for multinational enterprises (MNEs) on 23 December 2016. Country-by-country reporting will be applicable to all MNEs with a group revenue in excess of R10 billion. Aim: The aim of the study was twofold: to identify ambiguities that might influence the filing obligation and subsequent scope of CbC reporting in South Africa and to quantitatively measure the potential impact of any identified ambiguities. Setting: This study used data from Johannesburg Stock Exchange-listed companies. Methods: The study commences with a review of the relevant regulations and other applicable literature and continues with a quantitative analysis exploring alternative interpretations deduced from this review. Results: The review identified conflicting interpretations of how companies can be categorised as an MNE Group or not, as well as in measuring the revenue threshold. An analysis of the group structures and annual reports of a selected sample of 78 companies showed that the scope of CbC reporting will depend on the definitions applied to an MNE Group and revenue. Conclusion: Further guidance is needed to determine whether non-controlling entities must be considered as Constituent Entities, as well as how to measure revenue (i.e. whether only the International Financial Reporting Standards [IFRS] 15 revenue line item should be used or whether other income should also be included).
South African Journal of Economic and Management Sciences, May 23, 2023
According to Morris and Visser (n.d.), a company's tax policy and approach to tax is no more a ma... more According to Morris and Visser (n.d.), a company's tax policy and approach to tax is no more a matter of mere compliance. It is also becoming a powerful indicator of how a company views its position in society by paying a fair share of taxes and also accepting responsibility for workplaces Background and aim: The study explores the correlation between environmental, social and governance (ESG) ratings and the extent of corporate tax transparency to investigate whether ESG ratings are indicative of transparent corporate tax practices. To gain more insight, the correlation exploration is extended to the ratings achieved in the governance category and the transparency and reporting subcategory included in the overall ESG rating. Setting and method: The extent of corporate tax transparency disclosures in the corporate reports of 112 companies, listed on the Johannesburg Stock Exchange (JSE) on 28 February 2022, was assessed using a content analysis. The correlation between the ESG ratings and the extent of corporate tax transparency of these companies was then explored through correlation analysis. Results: The study provides evidence of significant correlation between overall ESG ratings and corporate tax transparency. However, no correlation was found between the ratings achieved in the governance category, or the transparency and reporting subcategory and corporate tax transparency. The latter might, however, be explained by the negatively skewed distributions of the ratings achieved in the governance category and the transparency and reporting subcategory. Contribution and conclusion: The study provides persuasive evidence that ESG ratings can be used as indicators of transparent corporate tax practices. It might provide valuable insight to boards of companies about the correlation between ESG ratings and the transparency of tax practices, encouraging them to incorporate tax governance as part of the ESG agenda. Additionally, it may be utilised by investors when making investment decisions.
Background: Following the global initiative to curb base erosion and profit shifting, South Afric... more Background: Following the global initiative to curb base erosion and profit shifting, South Africa introduced Country-by-Country (CbC) reporting standards for South African multinational groups with an effective date of 1 January 2016. Aim: The study aims to develop and analyse indicators to investigate the impact of CbC reporting on the effective tax rate of South African multinational groups. Setting: The research focused on a selection of Johannesburg Stock Exchange (JSE)-listed companies, using financial data retrieved from the IRESS Expert database. Methods:Descriptive analyses were conducted on five developed measurable indicators. These indicators comprise the analysis of the average ETR of multinational groups through various approaches. Results: A comparison of the average consolidated effective tax rate (ETR) between multinational and non-multinational groups found a higher ETR for the multinational groups. The average consolidated ETR of multinational groups with a filing obligation was significantly higher than the average consolidated ETR of multinational groups without such an obligation. A comparison was conducted on the average consolidated ETR of multinational groups with a filing obligation between two stages, namely pre- and post-CbC reporting implementation. The results of this comparison revealed a highly significant increase in the average consolidated ETR of multinational groups post-CbC implementation as opposed to the ETR pre-implementation. No significant difference was found between the average consolidated ETR of multinational groups with at least one affiliate in a tax haven, as compared to those without. A comparison of the average foreign unconsolidated ETR found a significantly lower average foreign ETR for multinational groups than the consolidated overall ETR of multinational groups. In line with the study’s earlier result, namely a higher consolidated ETR for multinational groups with a filing obligation compared to their counterparts with no filing obligation, the foreign ETR of multinational groups with a CbC filing obligation was found to be significantly higher than the foreign ETR of those without a filing obligation. Similarly, the foreign ETR of multinational groups was significantly higher in the years post-CbC reporting implementation, as compared to the foreign ETR pre-implementation. Conclusion: Based on the study’s findings that reveal a general increase in the average consolidated ETR per specific indicators, a possible explanation for such findings may point to CbC reporting requirements.
A withholding tax on interest is levied in terms of sections 50A to 50H of the Income Tax Act No.... more A withholding tax on interest is levied in terms of sections 50A to 50H of the Income Tax Act No. 58 of 1962 (as amended) and has been effective since 1 March 2015. In this study, certain areas of concern were identified regarding the scope of interest subject to withholding tax and the timing of the levying of the withholding tax. A secondary concern involved the application of section 23M of the Act. A literature review of the theoretical basis for the taxation of interest was undertaken. Relevant terms and phrases; other sections of the Act which might affect, or be affected by the application of the withholding tax on interest provisions; South African case law; international case law and the Model Tax Convention of the Organisation of Economic Cooperation and Development were analysed. Based on the findings, it is recommended that the provisions of section 50A to 50H of the Act be amended or extended to include a definition of interest subject to withholding tax and that section 50D(3) of the Act be amended to allow for interest paid in the form of an annuity to be exempt from withholding tax or for interest subject to withholding tax to be exempt from normal tax. Finally, the alignment of the wording of section 50D(3)(a) and section 10(1)(h)(i) of the Act is also recommended in order to remove contradictions in the accrual and payment of interest and to prevent the potential non-taxation of interest income.
Through various incentives, special economic zones (SEZs) aim to promote industrial capacity deve... more Through various incentives, special economic zones (SEZs) aim to promote industrial capacity development, create jobs and stimulate the South African economy. However, in practice, misalignment of tax legislation requirements with current practices may undermine the success of the SEZ programme. If property developers are unable to claim capital allowances for expenditure incurred on property developments within an SEZ, this acts as a disincentive to investment, which conflicts with the overarching rationale for the SEZ initiative. This study seeks to determine the extent to which current practices prevent property developers from claiming capital allowances for developments in SEZs, and to propose appropriate remedies. The study presents a doctrinal analysis of the requirements of the SEZ Act and relevant provisions of the Income Tax Act in the context of current practices in SEZ development. The analysis demonstrates that, where the ownership of land designated for SEZ development...
South African Journal of Economic and Management Sciences
Background and aim: The study explores the correlation between environmental, social and governan... more Background and aim: The study explores the correlation between environmental, social and governance (ESG) ratings and the extent of corporate tax transparency to investigate whether ESG ratings are indicative of transparent corporate tax practices. To gain more insight, the correlation exploration is extended to the ratings achieved in the governance category and the transparency and reporting subcategory included in the overall ESG rating.Setting and method: The extent of corporate tax transparency disclosures in the corporate reports of 112 companies, listed on the Johannesburg Stock Exchange (JSE) on 28 February 2022, was assessed using a content analysis. The correlation between the ESG ratings and the extent of corporate tax transparency of these companies was then explored through correlation analysis.Results: The study provides evidence of significant correlation between overall ESG ratings and corporate tax transparency. However, no correlation was found between the ratings ...
South African Journal of Economic and Management Sciences, 2018
Background: South Africa issued regulations implementing country-by-country (CbC) reporting stand... more Background: South Africa issued regulations implementing country-by-country (CbC) reporting standards for multinational enterprises (MNEs) on 23 December 2016. Country-by-country reporting will be applicable to all MNEs with a group revenue in excess of R10 billion. Aim: The aim of the study was twofold: to identify ambiguities that might influence the filing obligation and subsequent scope of CbC reporting in South Africa and to quantitatively measure the potential impact of any identified ambiguities. Setting: This study used data from Johannesburg Stock Exchange-listed companies. Methods: The study commences with a review of the relevant regulations and other applicable literature and continues with a quantitative analysis exploring alternative interpretations deduced from this review. Results: The review identified conflicting interpretations of how companies can be categorised as an MNE Group or not, as well as in measuring the revenue threshold. An analysis of the group struct...
South African Journal of Accounting Research, 2019
In line with current international sentiment which promotes greater transparency, the King Commit... more In line with current international sentiment which promotes greater transparency, the King Committee on Corporate Governance in South Africa updated its corporate governance framework through the issue of the King IV Report on Corporate Governance for South Africa, which replaced the King III Report on Corporate Governance for South Africa with effect 1 April 2017. The King IV Report on Corporate Governance for South Africa now specifically includes the formulation of a tax policy and strategy within the ambit of responsibilities of the board of directors and states that the organisation’s tax policy must be ‘transparent’ and ‘responsible’. The objective of the study was threefold: Firstly, to develop a tax reporting framework that incorporates the principles of good tax governance to ensure transparent and responsible tax policies and practices in South Africa. Secondly, to use the developed tax reporting framework to measure the tax reporting performance of the 50 largest Johannesburg Stock Exchange (JSE)-listed organisations in South Africa. Thirdly, to produce a holistic and strategic methodology for South African organisations to employ as a standard and pragmatic approach that incorporates the responsible and transparent tax policy requirements of the King IV Report on Corporate Governance. The study commences with a literature review of established international trends on good tax governance, continues by aligning these international trends with principles from the King IV Report on Corporate Governance for the South African context and concludes with descriptive statistics to measure the performance of South African JSE-listed organisations against these trends. It was found that less than half of the 50 largest JSE-listed organisations comply with more than 50 per cent of the disclosure criteria as recommended by international practice on good tax governance. Only 25 per cent of organisations complied with 65 per cent or more of the disclosure criteria. Of such organisations, 75 per cent are primarily listed on a stock exchange other than the JSE with a secondary listing on the JSE. It is evident that most primarily listed JSE-listed organisations do not meet international criteria of good tax governance. It is therefore submitted that the presented methodology may contribute to South African governance literature.
South African Journal of Accounting Research, 2016
The introduction of the Consumer Protection Act 68 of 2008 has had significant implications for t... more The introduction of the Consumer Protection Act 68 of 2008 has had significant implications for the South African commercial arena. This Act forms part of government regulation and is aimed at protecting the rights of consumers. Not only does the Consumer Protection Act 68 of 2008 have a significant impact on the manner in which parties conduct business; it also affects the accounting and taxation treatment of amounts that fall within the scope of the Act. This article investigated the effect of the provisions contained in section 62 to section 65 of the Consumer Protection Act 68 of 2008 on the tax implications of certain amounts. These amounts include lay-bys, prepaid certificates, credits, vouchers and deposits (prepaid amounts). Particular attention was given to the meaning of receipts and accruals within the definition of gross income in section 1 of the Income Tax Act 58 of 1962, and the effect of section 62 to section 65 of the Consumer Protection Act 68 of 2008 on this Act. A literature review of the relevant legislation, terms used therein, and further applicable literature was undertaken. The study concluded with three recommendations in order to align the different items of legislation. The first is to extend section 65 of the Consumer Protection Act 68 of 2008 to include the requirements that must be met to prove that a supplier adheres to the fiduciary duty imposed on it by the Consumer Protection Act 68 of 2008. The South African Revenue Service must consider an amendment to the gross income definition, or specific legislation to this effect. Alternatively, the South African Revenue Service must provide the supplier with its view on and interpretation of section 62 to section 65 of the Consumer Protection Act 68 of 2008 and the applicability thereof on the definition of gross income, as contained in section 1 of the Income Tax Act 58 of 1962.
South African Journal of Accounting Research, 2016
A withholding tax on interest is levied in terms of sections 50A to 50H of the Income Tax Act No.... more A withholding tax on interest is levied in terms of sections 50A to 50H of the Income Tax Act No. 58 of 1962 (as amended) and has been effective since 1 March 2015. In this study, certain areas of concern were identified regarding the scope of interest subject to withholding tax and the timing of the levying of the withholding tax. A secondary concern involved the application of section 23M of the Act. A literature review of the theoretical basis for the taxation of interest was undertaken. Relevant terms and phrases; other sections of the Act which might affect, or be affected by the application of the withholding tax on interest provisions; South African case law; international case law and the Model Tax Convention of the Organisation of Economic Cooperation and Development were analysed. Based on the findings, it is recommended that the provisions of section 50A to 50H of the Act be amended or extended to include a definition of interest subject to withholding tax and that section 50D(3) of the Act be amended to allow for interest paid in the form of an annuity to be exempt from withholding tax or for interest subject to withholding tax to be exempt from normal tax. Finally, the alignment of the wording of section 50D(3)(a) and section 10(1)(h)(i) of the Act is also recommended in order to remove contradictions in the accrual and payment of interest and to prevent the potential non-taxation of interest income.
South African Journal of Economic and management Sciences
Background and introduction In 2013, the Organisation for Economic Cooperation and Development (O... more Background and introduction In 2013, the Organisation for Economic Cooperation and Development (OECD) issued a report on base erosion and profit shifting (BEPS) which is regarded as the first step towards the review and analysis of BEPS (OECD 2013). Overall, the report identified 15 areas of focus, one of which is Action Plan 12 dealing with mandatory disclosure rules. The OECD explains that the intention of Action Plan 12 is to give countries an extra tool for tackling BEPS by providing tax administrations with early information on cross-border tax planning (OECD 2015a). In 2017, the National Treasury (2017) explained South Africa's position regarding mandatory disclosure on the OECD action plan by stating that the Tax Administration Act (no. 28 of 2011) contains rules addressing reportable arrangements. Treasury held that these rules require taxpayers who have entered into reportable arrangements, to report the details of these arrangements to the South African Revenue Service (SARS) (National Treasury 2017), who uses the reported details of the reportable arrangements to respond to tax risks through timely risk assessment and audits (OECD 2015a). Background: An additional reportable arrangement was added to South African tax legislation by way of a public notice in section 2.6 of the Government Gazette no. 39650 of 3 February 2016 (hereafter referred to as the foreign services reportable arrangement provision). This reportable arrangement relates to service fee payments made by a South African resident (or non-resident with permanent establishment in South Africa) to a nonresident. The services include consultancy, construction, engineering, installation, logistical, managerial, supervisory, technical and training services. Aim: The aim of this study was twofold: to critically analyse the reportable arrangement provision by examining undefined terminology contained in this provision and to develop a decision tree that may assist taxpayers in the application of this provision. Setting: Relevant South African literature and tax partners, directors and tax managers at leading audit and legal firms in South Africa. Methods: The study commences with a review of available South African literature in an attempt to define the terms 'arrangement' and 'anticipated', as applied in the foreign services reportable arrangement provision and continues with survey research to validate some of the conclusions drawn in the literature review. Results: From the literature review it was determined that although there are South African literature available providing persuasive value to the meaning of some of the undefined terms used in the foreign services reportable arrangement provision, there is no single consolidated source of information which clarifies the exact meaning of the terms in the context of this provision. Hence, survey research was performed to apply the available South African literature in the context of the foreign services reportable arrangement provision. The majority of the respondents in the survey research agreed and validated the assumptions and conclusions drawn from the literature review. Conclusion: It is therefore submitted that the presented findings may contribute to the limited existing South African literature on the foreign services reportable arrangement provision.
now specifically includes the formulation of a tax policy and strategy within the ambit of respon... more now specifically includes the formulation of a tax policy and strategy within the ambit of responsibilities of the board of directors and states that the organisation's tax policy must be 'transparent' and 'responsible'. The objective of the study was threefold: Firstly, to develop a tax reporting framework that incorporates the principles of good tax governance to ensure transparent and responsible tax policies and practices in South Africa. Secondly, to use the developed tax reporting framework to measure the tax reporting performance of the 50 largest Johannesburg Stock Exchange (JSE)-listed organisations in South Africa. Thirdly, to produce a holistic and strategic methodology for South African organisations to employ as a standard and pragmatic approach that incorporates the responsible and transparent tax policy requirements of the King IV Report on Corporate Governance. The study commences with a literature review of established international trends on good tax governance, continues by aligning these international trends with principles from the King IV Report on Corporate Governance for the South African context and concludes with descriptive statistics to measure the performance of South African JSE-listed organisations against these trends. It was found that less than half of the 50 largest JSE-listed organisations comply with more than 50 per cent of the disclosure criteria as recommended by international practice on good tax governance. Only 25 per cent of organisations complied with 65 per cent or more of the disclosure criteria. Of such organisations, 75 per cent are primarily listed on a stock exchange other than the JSE with a secondary listing on the JSE. It is evident that most primarily listed JSE-listed organisations do not meet international criteria of good tax governance. It is therefore submitted that the presented methodology may contribute to South African governance literature.
South African Journal of Economic and Management Sciences, Jun 25, 2018
Background and introduction In his Budget Speech of 2017, the Finance Minister of South Africa on... more Background and introduction In his Budget Speech of 2017, the Finance Minister of South Africa once again emphasised that tax avoidance or evasion schemes by multinational enterprises (MNEs) should be curbed (National Treasury 2017). The Republic of South Africa (South Africa) is part of the international tax movement to eliminate base erosion and profit shifting (BEPS) through the Base Erosion and Profit-shifting Action Project of the Group of 20 (G20) and the Organisation for Economic Cooperation and Development (OECD) (The Davis Tax Committee 2014a). The OECD/G20 BEPS Project developed 15 key reform actions in the international tax arena to ensure that profits are reported where economic activities are carried out and where economic value is created. The BEPS assists governments in closing the tax gap created by profit shifting from higher to lower or no-tax environments, without transactions having underlying economic substance (The Davis Tax Committee 2014a). The OECD published its final reports on the BEPS Project, which included the final report on BEPS Action 13, Transfer Pricing and Country-by-Country (CbC) Reporting (the final report) (OECD 2015) in October 2015. Action 13 of the Action Plan on BEPS requires the development of rules regarding transfer pricing documentation to enhance transparency for tax administration by taking into consideration the compliance costs for businesses. The rules include a requirement that MNEs must provide all relevant governments with the required information on their global allocation of income, economic activity and taxes paid among jurisdictions (OECD 2013). The objectives of the transfer pricing reporting documentation rules are the following: • to ensure that taxpayers can assess their compliance with the arm's length principle • to provide tax administrations with the information necessary to conduct an informed transfer pricing risk assessment Background: South Africa issued regulations implementing country-by-country (CbC) reporting standards for multinational enterprises (MNEs) on 23 December 2016. Country-by-country reporting will be applicable to all MNEs with a group revenue in excess of R10 billion. Aim: The aim of the study was twofold: to identify ambiguities that might influence the filing obligation and subsequent scope of CbC reporting in South Africa and to quantitatively measure the potential impact of any identified ambiguities. Setting: This study used data from Johannesburg Stock Exchange-listed companies. Methods: The study commences with a review of the relevant regulations and other applicable literature and continues with a quantitative analysis exploring alternative interpretations deduced from this review. Results: The review identified conflicting interpretations of how companies can be categorised as an MNE Group or not, as well as in measuring the revenue threshold. An analysis of the group structures and annual reports of a selected sample of 78 companies showed that the scope of CbC reporting will depend on the definitions applied to an MNE Group and revenue. Conclusion: Further guidance is needed to determine whether non-controlling entities must be considered as Constituent Entities, as well as how to measure revenue (i.e. whether only the International Financial Reporting Standards [IFRS] 15 revenue line item should be used or whether other income should also be included).
South African Journal of Economic and Management Sciences, May 23, 2023
According to Morris and Visser (n.d.), a company's tax policy and approach to tax is no more a ma... more According to Morris and Visser (n.d.), a company's tax policy and approach to tax is no more a matter of mere compliance. It is also becoming a powerful indicator of how a company views its position in society by paying a fair share of taxes and also accepting responsibility for workplaces Background and aim: The study explores the correlation between environmental, social and governance (ESG) ratings and the extent of corporate tax transparency to investigate whether ESG ratings are indicative of transparent corporate tax practices. To gain more insight, the correlation exploration is extended to the ratings achieved in the governance category and the transparency and reporting subcategory included in the overall ESG rating. Setting and method: The extent of corporate tax transparency disclosures in the corporate reports of 112 companies, listed on the Johannesburg Stock Exchange (JSE) on 28 February 2022, was assessed using a content analysis. The correlation between the ESG ratings and the extent of corporate tax transparency of these companies was then explored through correlation analysis. Results: The study provides evidence of significant correlation between overall ESG ratings and corporate tax transparency. However, no correlation was found between the ratings achieved in the governance category, or the transparency and reporting subcategory and corporate tax transparency. The latter might, however, be explained by the negatively skewed distributions of the ratings achieved in the governance category and the transparency and reporting subcategory. Contribution and conclusion: The study provides persuasive evidence that ESG ratings can be used as indicators of transparent corporate tax practices. It might provide valuable insight to boards of companies about the correlation between ESG ratings and the transparency of tax practices, encouraging them to incorporate tax governance as part of the ESG agenda. Additionally, it may be utilised by investors when making investment decisions.
Background: Following the global initiative to curb base erosion and profit shifting, South Afric... more Background: Following the global initiative to curb base erosion and profit shifting, South Africa introduced Country-by-Country (CbC) reporting standards for South African multinational groups with an effective date of 1 January 2016. Aim: The study aims to develop and analyse indicators to investigate the impact of CbC reporting on the effective tax rate of South African multinational groups. Setting: The research focused on a selection of Johannesburg Stock Exchange (JSE)-listed companies, using financial data retrieved from the IRESS Expert database. Methods:Descriptive analyses were conducted on five developed measurable indicators. These indicators comprise the analysis of the average ETR of multinational groups through various approaches. Results: A comparison of the average consolidated effective tax rate (ETR) between multinational and non-multinational groups found a higher ETR for the multinational groups. The average consolidated ETR of multinational groups with a filing obligation was significantly higher than the average consolidated ETR of multinational groups without such an obligation. A comparison was conducted on the average consolidated ETR of multinational groups with a filing obligation between two stages, namely pre- and post-CbC reporting implementation. The results of this comparison revealed a highly significant increase in the average consolidated ETR of multinational groups post-CbC implementation as opposed to the ETR pre-implementation. No significant difference was found between the average consolidated ETR of multinational groups with at least one affiliate in a tax haven, as compared to those without. A comparison of the average foreign unconsolidated ETR found a significantly lower average foreign ETR for multinational groups than the consolidated overall ETR of multinational groups. In line with the study’s earlier result, namely a higher consolidated ETR for multinational groups with a filing obligation compared to their counterparts with no filing obligation, the foreign ETR of multinational groups with a CbC filing obligation was found to be significantly higher than the foreign ETR of those without a filing obligation. Similarly, the foreign ETR of multinational groups was significantly higher in the years post-CbC reporting implementation, as compared to the foreign ETR pre-implementation. Conclusion: Based on the study’s findings that reveal a general increase in the average consolidated ETR per specific indicators, a possible explanation for such findings may point to CbC reporting requirements.
A withholding tax on interest is levied in terms of sections 50A to 50H of the Income Tax Act No.... more A withholding tax on interest is levied in terms of sections 50A to 50H of the Income Tax Act No. 58 of 1962 (as amended) and has been effective since 1 March 2015. In this study, certain areas of concern were identified regarding the scope of interest subject to withholding tax and the timing of the levying of the withholding tax. A secondary concern involved the application of section 23M of the Act. A literature review of the theoretical basis for the taxation of interest was undertaken. Relevant terms and phrases; other sections of the Act which might affect, or be affected by the application of the withholding tax on interest provisions; South African case law; international case law and the Model Tax Convention of the Organisation of Economic Cooperation and Development were analysed. Based on the findings, it is recommended that the provisions of section 50A to 50H of the Act be amended or extended to include a definition of interest subject to withholding tax and that section 50D(3) of the Act be amended to allow for interest paid in the form of an annuity to be exempt from withholding tax or for interest subject to withholding tax to be exempt from normal tax. Finally, the alignment of the wording of section 50D(3)(a) and section 10(1)(h)(i) of the Act is also recommended in order to remove contradictions in the accrual and payment of interest and to prevent the potential non-taxation of interest income.
Through various incentives, special economic zones (SEZs) aim to promote industrial capacity deve... more Through various incentives, special economic zones (SEZs) aim to promote industrial capacity development, create jobs and stimulate the South African economy. However, in practice, misalignment of tax legislation requirements with current practices may undermine the success of the SEZ programme. If property developers are unable to claim capital allowances for expenditure incurred on property developments within an SEZ, this acts as a disincentive to investment, which conflicts with the overarching rationale for the SEZ initiative. This study seeks to determine the extent to which current practices prevent property developers from claiming capital allowances for developments in SEZs, and to propose appropriate remedies. The study presents a doctrinal analysis of the requirements of the SEZ Act and relevant provisions of the Income Tax Act in the context of current practices in SEZ development. The analysis demonstrates that, where the ownership of land designated for SEZ development...
South African Journal of Economic and Management Sciences
Background and aim: The study explores the correlation between environmental, social and governan... more Background and aim: The study explores the correlation between environmental, social and governance (ESG) ratings and the extent of corporate tax transparency to investigate whether ESG ratings are indicative of transparent corporate tax practices. To gain more insight, the correlation exploration is extended to the ratings achieved in the governance category and the transparency and reporting subcategory included in the overall ESG rating.Setting and method: The extent of corporate tax transparency disclosures in the corporate reports of 112 companies, listed on the Johannesburg Stock Exchange (JSE) on 28 February 2022, was assessed using a content analysis. The correlation between the ESG ratings and the extent of corporate tax transparency of these companies was then explored through correlation analysis.Results: The study provides evidence of significant correlation between overall ESG ratings and corporate tax transparency. However, no correlation was found between the ratings ...
South African Journal of Economic and Management Sciences, 2018
Background: South Africa issued regulations implementing country-by-country (CbC) reporting stand... more Background: South Africa issued regulations implementing country-by-country (CbC) reporting standards for multinational enterprises (MNEs) on 23 December 2016. Country-by-country reporting will be applicable to all MNEs with a group revenue in excess of R10 billion. Aim: The aim of the study was twofold: to identify ambiguities that might influence the filing obligation and subsequent scope of CbC reporting in South Africa and to quantitatively measure the potential impact of any identified ambiguities. Setting: This study used data from Johannesburg Stock Exchange-listed companies. Methods: The study commences with a review of the relevant regulations and other applicable literature and continues with a quantitative analysis exploring alternative interpretations deduced from this review. Results: The review identified conflicting interpretations of how companies can be categorised as an MNE Group or not, as well as in measuring the revenue threshold. An analysis of the group struct...
South African Journal of Accounting Research, 2019
In line with current international sentiment which promotes greater transparency, the King Commit... more In line with current international sentiment which promotes greater transparency, the King Committee on Corporate Governance in South Africa updated its corporate governance framework through the issue of the King IV Report on Corporate Governance for South Africa, which replaced the King III Report on Corporate Governance for South Africa with effect 1 April 2017. The King IV Report on Corporate Governance for South Africa now specifically includes the formulation of a tax policy and strategy within the ambit of responsibilities of the board of directors and states that the organisation’s tax policy must be ‘transparent’ and ‘responsible’. The objective of the study was threefold: Firstly, to develop a tax reporting framework that incorporates the principles of good tax governance to ensure transparent and responsible tax policies and practices in South Africa. Secondly, to use the developed tax reporting framework to measure the tax reporting performance of the 50 largest Johannesburg Stock Exchange (JSE)-listed organisations in South Africa. Thirdly, to produce a holistic and strategic methodology for South African organisations to employ as a standard and pragmatic approach that incorporates the responsible and transparent tax policy requirements of the King IV Report on Corporate Governance. The study commences with a literature review of established international trends on good tax governance, continues by aligning these international trends with principles from the King IV Report on Corporate Governance for the South African context and concludes with descriptive statistics to measure the performance of South African JSE-listed organisations against these trends. It was found that less than half of the 50 largest JSE-listed organisations comply with more than 50 per cent of the disclosure criteria as recommended by international practice on good tax governance. Only 25 per cent of organisations complied with 65 per cent or more of the disclosure criteria. Of such organisations, 75 per cent are primarily listed on a stock exchange other than the JSE with a secondary listing on the JSE. It is evident that most primarily listed JSE-listed organisations do not meet international criteria of good tax governance. It is therefore submitted that the presented methodology may contribute to South African governance literature.
South African Journal of Accounting Research, 2016
The introduction of the Consumer Protection Act 68 of 2008 has had significant implications for t... more The introduction of the Consumer Protection Act 68 of 2008 has had significant implications for the South African commercial arena. This Act forms part of government regulation and is aimed at protecting the rights of consumers. Not only does the Consumer Protection Act 68 of 2008 have a significant impact on the manner in which parties conduct business; it also affects the accounting and taxation treatment of amounts that fall within the scope of the Act. This article investigated the effect of the provisions contained in section 62 to section 65 of the Consumer Protection Act 68 of 2008 on the tax implications of certain amounts. These amounts include lay-bys, prepaid certificates, credits, vouchers and deposits (prepaid amounts). Particular attention was given to the meaning of receipts and accruals within the definition of gross income in section 1 of the Income Tax Act 58 of 1962, and the effect of section 62 to section 65 of the Consumer Protection Act 68 of 2008 on this Act. A literature review of the relevant legislation, terms used therein, and further applicable literature was undertaken. The study concluded with three recommendations in order to align the different items of legislation. The first is to extend section 65 of the Consumer Protection Act 68 of 2008 to include the requirements that must be met to prove that a supplier adheres to the fiduciary duty imposed on it by the Consumer Protection Act 68 of 2008. The South African Revenue Service must consider an amendment to the gross income definition, or specific legislation to this effect. Alternatively, the South African Revenue Service must provide the supplier with its view on and interpretation of section 62 to section 65 of the Consumer Protection Act 68 of 2008 and the applicability thereof on the definition of gross income, as contained in section 1 of the Income Tax Act 58 of 1962.
South African Journal of Accounting Research, 2016
A withholding tax on interest is levied in terms of sections 50A to 50H of the Income Tax Act No.... more A withholding tax on interest is levied in terms of sections 50A to 50H of the Income Tax Act No. 58 of 1962 (as amended) and has been effective since 1 March 2015. In this study, certain areas of concern were identified regarding the scope of interest subject to withholding tax and the timing of the levying of the withholding tax. A secondary concern involved the application of section 23M of the Act. A literature review of the theoretical basis for the taxation of interest was undertaken. Relevant terms and phrases; other sections of the Act which might affect, or be affected by the application of the withholding tax on interest provisions; South African case law; international case law and the Model Tax Convention of the Organisation of Economic Cooperation and Development were analysed. Based on the findings, it is recommended that the provisions of section 50A to 50H of the Act be amended or extended to include a definition of interest subject to withholding tax and that section 50D(3) of the Act be amended to allow for interest paid in the form of an annuity to be exempt from withholding tax or for interest subject to withholding tax to be exempt from normal tax. Finally, the alignment of the wording of section 50D(3)(a) and section 10(1)(h)(i) of the Act is also recommended in order to remove contradictions in the accrual and payment of interest and to prevent the potential non-taxation of interest income.
South African Journal of Economic and management Sciences
Background and introduction In 2013, the Organisation for Economic Cooperation and Development (O... more Background and introduction In 2013, the Organisation for Economic Cooperation and Development (OECD) issued a report on base erosion and profit shifting (BEPS) which is regarded as the first step towards the review and analysis of BEPS (OECD 2013). Overall, the report identified 15 areas of focus, one of which is Action Plan 12 dealing with mandatory disclosure rules. The OECD explains that the intention of Action Plan 12 is to give countries an extra tool for tackling BEPS by providing tax administrations with early information on cross-border tax planning (OECD 2015a). In 2017, the National Treasury (2017) explained South Africa's position regarding mandatory disclosure on the OECD action plan by stating that the Tax Administration Act (no. 28 of 2011) contains rules addressing reportable arrangements. Treasury held that these rules require taxpayers who have entered into reportable arrangements, to report the details of these arrangements to the South African Revenue Service (SARS) (National Treasury 2017), who uses the reported details of the reportable arrangements to respond to tax risks through timely risk assessment and audits (OECD 2015a). Background: An additional reportable arrangement was added to South African tax legislation by way of a public notice in section 2.6 of the Government Gazette no. 39650 of 3 February 2016 (hereafter referred to as the foreign services reportable arrangement provision). This reportable arrangement relates to service fee payments made by a South African resident (or non-resident with permanent establishment in South Africa) to a nonresident. The services include consultancy, construction, engineering, installation, logistical, managerial, supervisory, technical and training services. Aim: The aim of this study was twofold: to critically analyse the reportable arrangement provision by examining undefined terminology contained in this provision and to develop a decision tree that may assist taxpayers in the application of this provision. Setting: Relevant South African literature and tax partners, directors and tax managers at leading audit and legal firms in South Africa. Methods: The study commences with a review of available South African literature in an attempt to define the terms 'arrangement' and 'anticipated', as applied in the foreign services reportable arrangement provision and continues with survey research to validate some of the conclusions drawn in the literature review. Results: From the literature review it was determined that although there are South African literature available providing persuasive value to the meaning of some of the undefined terms used in the foreign services reportable arrangement provision, there is no single consolidated source of information which clarifies the exact meaning of the terms in the context of this provision. Hence, survey research was performed to apply the available South African literature in the context of the foreign services reportable arrangement provision. The majority of the respondents in the survey research agreed and validated the assumptions and conclusions drawn from the literature review. Conclusion: It is therefore submitted that the presented findings may contribute to the limited existing South African literature on the foreign services reportable arrangement provision.
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Papers by Cara Thiart