A research report submitted to the Faculty of Commerce, Law and Management, University of the Witwatersrand, Johannesburg, in partial fulfilment of the requirements of the degree of Master of Commerce (specialising in Taxation), Johannesburg, 2017 / Tax Base Erosion and Profit Shifting (BEPS)1 has become an epidemic of global legal tax avoidance being used by Multinational Enterprises (MNEs). BEPS has resulted in the structuring of transactions within groups of companies, with these including: transfer pricing, manipulating prices of goods, services, management fees, professional fees, royalties, interest and dividends. This study is a critical analysis of South African legislation in relation to the Double Taxation Agreement (DTA) with the United Kingdom (UK). Reference is made to the Mutual Agreement Procedure (MAP) as proposed by the Organisation for Economic Co-operation and Development (OECD).2 Even though South Africa follows the OECD guidelines (2010),3 Advance Pricing Agreements (APA) are not included in South African legislation, which may result in double non-taxation or double taxation and disputes. Recourse in the event of double taxation is examined in this research report. The application of APA legislation in the UK, as a leading tax authority,4 is analysed, as well as Davis Tax Committee recommendations in relation to Transfer Pricing. KEYWORDS Advance Pricing Agreement, Arm’s length price, Base Erosion and Profit Shifting, Davis Tax Committee, Double Taxation, Double Taxation Agreement, Multinational Enterprises, Mutual Agreement Procedure, OECD, South African Revenue Service, Transfer Pricing. 1 Organisation for Economic Co-operation and Development (OECD). (n.d.a), ‘About BEPS and the inclusive framework’, <http://www.oecd.org/ctp/beps-about.htm>, retrieved 5 November 2016. 2 Organisation for Economic Co-operation and Development (OECD). (2010b), Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. Paris: OECD. 3 Supra note 2. 4 Broomberg, E. B. (2007), Tax avoidance then and now, Tax Planning Corporate and Personal, vol. 21, no. 5, pp112-118. / GR2018

This paper investigates the spread of aggressive corporate tax reporting by modeling a firm's decision to adopt the corporate-owned life insurance (COLI) shelter. I use a sample of known COLI participants to examine whether certain firm characteristics are associated with the decision to adopt a COLI shelter. I find some evidence that firms with higher performance-matched discretionary accruals are more likely to adopt a COLI shelter, suggesting a positive relation between aggressive financial reporting and aggressive tax reporting. I also find that firms with greater capital market visibility are less likely to adopt a COLI shelter, consistent with a potential reputational cost for being associated with aggressive tax avoidance activities. Further, my results suggest that COLI adopters are generally R&D intensive firms with low leverage and few foreign operations. In addition to firm specific characteristics, I consider two explanations for the spread of COLI adoption motivated by theory on diffusion of innovations and institutional isomorphism. I investigate whether firms imitate prior COLI adopters and whether COLI adoption spreads through common auditors. My results are not consistent with an imitation explanation. Further, my results suggest that having the same auditor as a prior COLI adopter does not increase the likelihood that a firm will adopt COLI. / text

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M.Com. (Taxation) / Please refer to full text to view abstract

This thesis analyzes the effect of corporate tax rates on the purchasing-power-parity (PPP) doctrine. The data used to test this hypothesis are drawn from the U. S., the U. K., the Federal Republic of Germany, Canada, and Japan. The first chapter introduces the reader to the concepts of the PPP doctrine and states the hypothesis. Chapter 2 reviews the literature on the PPP doctrine. Chapter 3 specifies a model of the PPP doctrine including tax rates. Chapter 4 reports and interprets the findings. The study is summarized and conclusions are drawn in chapter 5. In this study it is shown that tax rates are significant only in the case of the U. S. dollar/Canadian dollar exchange rate.

This dissertation investigates the economic impact of the Tax Reform Act of 1986, one of the most far-reaching pieces of tax legislation in American history. The focus is on differential effects of the Act across industries. Event study methodology is used. A model is created which links tax law provisions, firms’ cash flows, and securities returns. Hypotheses are developed for seven industries, based upon analysis of the provisions of the Act and upon reading of contemporaneous expert commentary. The sample consists of firms in those industries trading over-the-counter. Evidence of an adverse impact for the Act as a whole on the steel and machine tool industries is found. It is concluded that the Tax Reform Act of 1986 caused a shift in economic resources away from those industries, and that shareholders of firms in those industries suffered losses of wealth. In addition, it is determined that the uniform capitalization rules for inventory adversely affected the retailing industry, and that the change in loan loss reserve rules adversely affected large banks. The latter set of findings emphasizes the substantive importance of tax accounting rules. With regard to event study methodology, it is found that non-synchronous trading in over-the-counter stocks poses a severe problem when attempting to use the market model. A methodological modification suggested by Dimson is shown to be ineffective in dealing with this problem. Alternatives to the market model are identified, and are used in analysis. Most significant reactions are found when abnormal returns are pooled over events, supporting an expectations-revision model of market reaction. / Ph. D.

Section 263A was one of the largest revenue raising provisions enacted in the Tax Reform Act of 1986. Little empirical research regarding the impact of this tax law change has been conducted. The primary objective of this study was the empirical assessment of Section 263A to determine its relative impact on firms of different sizes, inventory methods and industries. Section 263A has been criticized for its complex rules which impose high compliance costs on affected firms. The secondary objective of this study was evaluation of simplification proposals to determine if simpler rules could be enacted that would have an impact similar to Section 263A yet reduce compliance costs. Corporate tax return data for taxable years 1986 and 1987 were analyzed to identify firms that were severely impacted by Section 263A. The results show the tax burden from this law change fell more heavily on small firms not electing the Last-In-First-Out inventory method. In addition, wholesalers paid relatively more tax than retailers. These firms have a relatively stronger incentive to react to Section 263A by reducing inventories, relocating their production and distribution facilities outside the United States and/or restructuring their investments away from production and distribution activities towards activities in the service sector. Reactions by these firms have potential adverse consequences on the U.S. economy. Four proposals for simplifying Section 263A rules were evaluated by simulating the impact of these proposals on the taxable income of affected firms. Use of an individual firm capitalization ratio for all future years based a firm's average ratio for the first three years Section 263A was in effect appeared superior to other proposals. The results show there is potential for decreasing the complexity of Section 263A without reducing current tax revenues. / Ph. D.

There are currently two methods states generally use to tax the income of multistate multi-corporate businesses. One is separate accounting, and the other is the unitary method. Virginia currently uses separate accounting to tax such income. Under separate accounting businesses have greater ability to avoid state income tax with (1) their choice of corporate organization (branches or affiliates) and filing methods, and (2) transfer price manipulations. The objectives of the research were to (1) measure the incentive provided multistate businesses to utilize corporate organization and filing methods as a tax planning tool, and (2) measure the extent to which current Virginia law helps multistate businesses to avoid tax in Virginia and other states. Computer models were developed to compute the total state tax liability of a hypothetical representative multistate business which operated in Virginia and two other states. The models were utilized to compute the Virginia and total state tax for the business in 1,053 different situations. To measure the incentive provided multistate businesses to utilize corporate organization and filing methods as a tax planning tool, a comparison was made of the state tax liability of a business which made elections that minimized its tax with the tax liability of a similar business which made elections that maximized its tax. The tax avoidable under current Virginia law with corporate organization and filing method planning was measured by comparing the business's minimized tax under current law with its minimized tax under the assumption that Virginia utilized the unitary method. The effectiveness of current Virginia law in limiting the ability of businesses to use transfer price manipulations to reduce their state tax liabilities was measured by comparing the effects of a given transfer price manipulation between current law and the unitary method. The results of the analyses show that businesses have a clear incentive to utilize corporate organization and filing method planning, and that current Virginia law makes a substantial contribution to the ability of businesses to avoid state income tax. / Ph. D.

The purpose of this study was an empirical investigation of the factors considered by the United States Tax Court in determining whether the principal purpose for an acquisition was tax avoidance (or alternatively, given the totality of the surrounding circumstances, whether there was an overriding business purpose for the acquisition).

Thesis (M.Com. (Taxation))--University of the Witwatersrand, Faculty of Commerce, Law and Management, School of Accountancy, 2017 / Share incentive schemes have been used for many years as a mechanism to compensate, retain and attract talent by offering employees a stake in the business. Share incentives, however, usually contribute an increasingly larger portion of executive pay in comparison with general employees. The motive for larger share incentive based compensation is on the foundation that management must have a skin in the game in order for their interest to be appropriately aligned with shareholders. The Treasury and the South African Revenue Service (‘SARS’) have historically viewed share incentive schemes with suspicion. Treasury and SARS consider these schemes as salary conversion plans designed avoid tax. This has led to a litany of tax legislation that has sought to combat this so called avoidance. As things stand it appears the legislation is far too reaching and no longer reflects the commercial and economic reality of an increasingly entrepreneurial world. The aim of this research report is to ascertain whether the current tax policy is effectively discouraging employee share ownership. This paper will consider the impact of the current tax provisions on share incentive schemes for both the employees and their companies’. The United Kingdom offer tax advantages for employee share ownership plans thus the report will also include a comparison with the tax legislation governing share option schemes in the UK. The comparison will aid in recommending a more sensible and equitable way forward with regards to the taxation of share incentive schemes in South Africa. Key words: Share incentive plans, Section 8B, Section 8C, executive remuneration, equity based compensation / GR2018