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A corporate separation is an arrangement whereby the shareholders of a single corporation split up their investment among several corporate shells through a spin-off, split-off, or split-up. The tax treatment of a corporate separation is governed by Section 355 of the Internal Revenue Code of 1954, which allows the separation of two or more existing businesses to be tax-free provided certain requirements are met. This thesis discusses and analyzes Section 355 and its related regulations in light of the various subsequent developments in order to expound the current tax treatment of corporate separations. Also, the historical development of the tax treatment of corporate separations up to 1954 is presented as background material. Basically, Section 355 desires to encourage, through tax deferment, those corporate separations which are motivated by valid business reasons, while at the same time imposing ordinary income tax on the shareholders in the case of those corporate separations which are merely being utilized as a device to distribute corporate earnings and profits at capital gain rates. Due to the possible use of a corporate separation for tax avoidance purposes, Section 355 was made very restrictive and has usually been strictly interpreted by the Internal Revenue Service and the courts. This general restrictive trend will probably continue to persist in the future. However, there appeals to be an underlying trend developing to further consider the economic results of otherwise valid corporate separations in cases where an unnecessary restrictive technicality blocks their tax-free status. / Master of Science

Thesis (MAcc) -- Stellenbosch University, 1999. / ENGLISH ABSTRACT: The current South African tax dispensation does not make provision for a system of group taxation, which gives rise to various tax anomalies. The Katz Commission recommended the implementation of a consolidation system of group taxation in their third interim report. This study investigates the issue of group taxation with the objective of commenting on the Katz Commission's recommendation. Chapter 1 explains the purpose of a system of group taxation and discusses the different forms of group taxation. Furthermore, the theoretical norms or canons are described which can be used to evaluate the current tax treatment of groups as well as the different forms of group taxation. Chapter 2 investigates the current tax treatment of groups by focussing on the tax implications of various intra-group transactions. It is found that the current tax treatment of groups does not satisfy the canons of equity, neutrality, efficiency of tax collection, low administration cost and certainty. Although the absence of a system of group taxation may contribute to technical simplicity, such an absence also leads to complex tax schemes that attempt to exploit favourable tax anomalies or avoid unfavourable anomalies. Chapter 3 exammes certain Issues which may render a system of group taxation unnecessary or undesirable, even if such a system leads to better compliance with the canons of taxation. The conclusion is reached that none of these issues will cause such a result. With regard to the issue of divisionalisation as an alternative to group taxation, it is found that section 39 of the Taxation Laws Amendment, No. 20 of 1994 does not provide an accessible mechanism for divisionalisation. Furthermore, groups may be preferred over divisionalised companies for various commercial and legal reasons. With regard to the issue of limited liability of individual group companies (a benefit which is not available to individual divisions of a single company) it is found that group companies rarely abuse this benefit. In addition, a system of group taxation will complement the concept of limited liability in promoting economic growth. With regard to the issue of concentration of economic control and ownership, the conclusion is reached that group taxation will not lead to further concentration of economic control, as the intra-group shareholding required for group tax treatment will greatly exceed the intra-group shareholding necessary for economic control. A system of group taxation may even lead to the broadening of economic ownership by enabling minority shareholdings in group companies which would otherwise be structured as divisions of existing companies due to tax considerations. Chapter 4 compares the loss transfer system of group taxation with the consolidation system, using the canons of taxation as a reference framework. Because a loss transfer system is similar to the current tax treatment of groups, in the sense that both dispensations treat individual group companies as separate taxable entities, the current tax treatment of groups is included in the above mentioned comparison by implication. It is found that a consolidation system will satisfy the canons of taxation the best. Although such a system carries the risk of undue complexity, it should be possible to design and implement a specific system which will fall within the administrative capabilities of both taxpayers and tax authorities. Chapter 5 examines key recommendations of the Katz commission with regard to group taxation. The writer expresses his agreement with the commission's conclusion that a consolidation system of group taxation should be implemented gradually. Certain adjustments to the commission's recommendations are suggested, which will facilitate quicker implementation and increased simplicity. The current tax treatment of groups leads to tax anomalies which are highly unsatisfactory. From a theoretical as well as a practical perspective, the implementation of a consolidation system of group taxation will represent a significant improvement to the South African tax dispensation. / AFRIKAANSE OPSOMMING: Suid-Afrika beskik tans nie oor 'n stelsel van groepbelasting nie, wat aanleiding gee tot verskeie belastinganomaliee. Die Katz-kommissie het die implementering van 'n gekonsolideerde stelsel van groepbelasting aanbeveel in hulle derde tussentydse verslag. Hierdie studie ondersoek die aangeleentheid van groepbelasting met die doel om kommentaar te !ewer op die Katz-kommissie se voorstelle in hierdie verband. In Hoofstuk 1 word die doel van 'n stelsel van groepbelasting verduidelik, en die verskillende vorme van groepbelasting bespreek. V erder word die teoretiese norme beskryf waaraan die huidige belastinghantering van groepe en die verskillende vorme van groepbelasting gemeet kan word. In Hoofstuk 2 word die huidige belastinghantering van groepe ondersoek deur te fokus op die belastingimplikasies van 'n verskeidenheid intra-groep transaksies. Dit word bevind dat die huidige belastinghantering van groepe nie lei tot billikheid, neutraliteit, effektiewe invordering van die belastinglas, lae administrasiekoste en sekerheid nie. En alhoewel die gebrek aan 'n stelsel van groepbelasting bydra tot tegniese eenvoud, lei dit terselfdetyd tot ingewikkelde, belastinggedrewe skemas wat poog om gunstige belastinganomaliee te benut en om ongunstige belastinganomaliee te vermy. In Hoofstuk 3 word sekere aangeleenthede ondersoek wat moontlik 'n stelsel van groepbelasting onnodig of onwenslik sal maak, selfs al sou so 'n stelsellei tot 'n meer gebalanseerde bevrediging van die teoretiese belastingnorme. Die slotsom word bereik dat geeneen van hierdie aangeleenthede we! so 'n resultaat sal he nie. Met betrekking tot divisionalisering as 'n altematief vir groepbelasting, word beslis dat artikel 39 van die Wysigingswet op Belastingwette, No. 20 van 1994 nie 'n toeganglike meganisme daarstel vir die divisionalisering van bestaande groepe nie. Uit 'n kommersiele en regsoogpunt bestaan daar boonop verskeie redes waarom groepe bo gedivisionaliseerde maatskappye verkies word. Met betrekking tot die beperkte aanspreeklikheid van afsonderlike groepmaatskappye ('n voordeel wat nie tot die beskikking is van divisies van 'n enkele maatskappy nie), word bevind dat groepe in praktyk selde hierdie voordeel misbruik of selfs benut. Voorts sal 'n stelsel van groepbelasting die konsep van beperkte aanspreeklikheid komplimenteer in die bevordering van ekonomiese groei. Met betrekking tot die konsentrasie van ekonomiese beheer en eienaarskap, word beslis dat 'n stelsel van groepbelasting nie die verdere konsentrasie van ekonomiese beheer sal aanhelp nie, aangesien die kwalifiserende aandeelhouding wat vir groepbelastinghantering vereis sal word, die aandeelhouding wat nodig is vir ekonomiese beheer ver sal oorskry. 'n Stelsel van groepbelasting mag voorts hydra tot die verbreding van aandeeleienaarskap, deurdat buiteaandeelhouers direkte belange sal kan opneem in ondernemings wat andersins gestruktureer sou word as divisies van bestaande maatskappye. In Hoofstuk 4 word verliesoordragstelsels en gekonsolideerde stelsels van groepbelasting in die algemeen vergelyk, met die belastingnorme as 'n verwysingsraamwerk. Aangesien 'n verliesoordragstelsel soortgelyk is aan die huidige belastinghantering van groepe, in die sin dat albei bedelings groepmaatskappye as afsonderlike belastingentiteite hanteer, word die huidige belastinghantering van groepe by implikasie ingesluit in die vergelyking. Die slotsom word bereik dat 'n gekonsolideerde stelsel van groepbelasting die mees bevredigende stelsel is in terme van 'n gebalanseerde voldoening aan die belastingnorme. Alhoewel 'n gekonsolideerde stelsel die risiko van kompleksiteit inhou, is dit moontlik om 'n spesifieke stelsel op sodanige wyse te ontwerp en implementeer dat dit wel administreerbaar sal wees. In Hoofstuk 5 word sleutelaanbevelings van die Katz-kommissie met betrekking tot groepbelasting ondersoek. Die skrywer spreek sy instemming uit met die kommissie se voorstelle vir die geleidelike implementering van 'n gekonsolideerde stelsel van groepbelasting. Sekere wysigings word aangebring aan die kommissie se voorstelle, ten einde verdere eenvoud en spoediger implementering teweeg te bring. W anneer die belastinganomaliee as gevolg van die huidige belastinghantering van groepe oorweeg word, is dit duidelik dat die huidige situasie onhoudbaar is. Uit 'n teoretiese en praktiese oogpunt, sal die implementering van 'n gekonsolideerde stelsel van groepbelasting 'n beduidende verbetering van die Suid-Afrikaanse belastingbedeling meebring.

Thesis (MBA)--Stellenbosch University, 2008. / This study investigated whether the way in which dividends are taxed in South Africa, with the introduction of Secondary Tax on Companies (STC) in 1993, together with the extensive piece of legislation which incorporates dividends, has a negative impact on the total amount of dividends paid by companies listed on the Johannesburg Stock Exchange for the period from 1993 to 2006. The Wilcoxon Signed Ranked test was employed to compare the difference in total dividends declared, effective from 1993 and repeated for 1995. The results of the negative differences in proportion to the positive differences measured were then compared to the size of STC applicable in 1993 and 1995. The results of the comparison were that STC had no negative effect on the total dividends paid on the companies used in the sample and the majority of companies constantly increased dividend payments. The study did not distinguish between the different origins of dividends as research advises that the origins of dividends have changed during the increase and decrease of STC. It does seem that total dividends declared are increasing.

This dissertation examines the relationship between debt and investment-related tax shields using changes in these classes of tax shields scaled by expected operating earnings following the passage of the Economic Recovery Tax Act(ERTA) in 1981. The substitution effect predicts that a negative relationship between changes in the two classes of tax shields will be observed in response to the increased investment-related tax shields offered by ERTA. Debt tax shields should decrease following ERTA since the probability of losing the tax benefit of tax shields would rise as investment-related tax shields increased following ERTA. Firms' probability of losing the deductibility of tax shields is used to segregate the sample into two groups. For the group of firms with a low probability of losing the deductibility of tax shields, the substitution effect is inapplicable and the relation between changes in the two classes of tax shields simply represents the debt securability effect. Since fixed assets can be used as collateral for debt, the debt securability hypothesis predicts a positive relationship between changes in debt and investment-related tax shields after the passage of ERTA. The model developed to segregate debt securability from the substitution effect reveals that, as predicted, the debt securability effect is positive for all firms and that the substitution effect is negative for those firms with a large probability of losing the benefits of tax shields. This reverses the findings of prior research. Controls for pecking order theory effects are introduced into the model to assure that the substitution effect observed is not due to debt ratio as predicted by Myers (1984). The findings described above remain intact except that the debt securability effect does not exist and the substitution effect is weaker for high-debt firms. Furthermore, support is offered for the pecking order theory. These results are robust to alternate specifications of time periods tested, variable definitions, data screening criteria and model specifications.

M.Comm. / At some stage in the development of multi-national organisations, the need for a company to raise adequate finance for the group and use the group's retained earnings in the most efficient way may well arise. In order to raise adequate finance tax efficiently, careful consideration should be given to, inter alia, income tax consequences pertinent to different jurisdictions considered as a possible locus for a finance company. Since South Africa's emergence into the modern day commercial village, many foreign investors were either re-introduced or introduced to South Africa as a place of business or potential business. Also, South African businesses started to expand more rapidly across the country's borders. Assuming, as the optimist would, that what has been experienced is only the start of greater things to come, the need for the development of international tax planning techniques and/or the identification of planning opportunities in the context of group finance companies is imperative. Naturally, such techniques can only be developed subsequent to analysing the tax systems of the home jurisdiction of potential major investors (for instance the United States of America) and/or of jurisdictions which traditionally represented planning opportunities from a South African perspective (for instance the Netherlands) and/or of jurisdictions that may become relevant from a planning perspective as a result of South Africa's transition or some other reason such as differences in tax systems opening up the opportunity for tax arbitrage (for instance Mauritius or Ireland, respectively). However, since the first and second of the above categories have been explored amply up until the current point in time there is no need to take them into account in yet another study.

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In the course of 2002 and 2003, the Australian Government introduced a fundamental change to the taxation of corporate groups. The new tax consolidation legislation allows wholly-owned groups to be regarded as one homogenous entity for income tax purposes from 1st of July 2002. After making an irrevocable decision to implement the elective consolidation provisions, a group, consisting of a head company and at least one other wholly-owned entity (company, trust or partnership), lodges a single income tax return and pays a single set of PAYG instalments over the period of consolidation. The assessment of the policies, principles and rules governing the implementation and operation of the consolidation regime reveals far-reaching implications for the accessibility of tax attributes and changes to the tax cost / adjusted values of capital / depreciating assets. Tax accounting systems and corporate governance guidelines established by groups are also affected. Groups deciding against the implementation of the consolidation rules, on the other hand, face the removal of previous grouping concessions, such as loss transfer provisions, CGT asset roll-overs and inter-corporate dividend rebates. Furthermore, a number of modified anti-avoidance and integrity measures affect intra-group transactions undertaken outside the consolidation regime. This thesis identifies and analyses the areas of taxation, accounting and corporate governance which are relevant for the initial consolidation decision. The following analysis is structured with primary regard to legal concepts stipulated by the consolidation legislation. However, frequent references to policies underlying the relevant provisions, for instance the wholly-owned approach, allow a deeper understanding of the consolidation core rules and the effects arising for groups deciding to implement them. Finally, this thesis also provides a comparative perspective through the discussion of consolidation policies and rules delivered by German tax legislation, accounting regulations and corporations law.

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