A Research Report submitted to the Faculty of Commerce, Law and Management, University of the Witwatersrand, Johannesburg, in partial fulfilment of the requirements for the degree of Master of Commerce (specialising in Taxation) Degree: Master of Commerce (specialising in Taxation) Date: 30 March 2016 / The decision to undertake domestic (onshore) or international (offshore) trade activity should be one primarily influenced by the perceived commercial viability and sustainability of the trade activity in a local or foreign jurisdiction. As with all investment decisions, the decision to trade onshore or offshore should not be a “tax decision”, i.e. a decision motivated primarily by the resultant tax outcome of such trade in the jurisdiction under consideration. ‘Tax is usually not a major factor in the initial decision of an enterprise to make a direct investment abroad. Other factors such as return on investment, political stability, labo[u]r costs and access to foreign markets, are much more important as far as the original investment is concerned. The tax “tail” should not wag the commercial “dog”.1 Similarly, the decision to trade onshore or offshore should never result from a “taxable person or taxable entity decision”, i.e. a decision to trade onshore or offshore based on the manipulation of the existing mismatch in tax treatment between different ‘persons’ as recognised (whether defined or not) in the relevant tax legislation. Persons typically recognised for the purpose of tax legislation include, inter alia, natural individuals, companies2 and trusts. ‘A partnership, in South African law, is not a legal person distinct from the partners of whom it is composed, nor is a partnership a taxable persona for the purposes of the Income Tax Act 58 of 1962 (the ‘Act’).’3 The purpose of this research will be to reveal the creation of a bias in the matter of double taxation of companies, in comparison to, the avoidance of double taxation within partnerships, even where it is observed that the characteristics of a modern partnership are increasingly akin to those of a company. This is a phenomenon found to occur in many jurisdictions across the world. Essentially, the premise of this research is to assert that a company is subject to economic double taxation in South Africa and certain jurisdictions, whereas a partnership, although closely resembling a company (i.e. a ‘quasi-partnership’), is not. / MT2017

As a result of the different tax systems adopted by countries, foreign-sourced income earned by taxpayers may be subject to double taxation. This may therefore impede cross-border trade and investment. Double taxation relief is provided unilaterally, in terms of a country’s domestic laws or bilaterally in terms of Double Taxation Agreements. South African residents earning income from the Democratic Republic of Congo may be subject to tax in both countries. To eliminate such double taxation the South African Income Tax Act, No 58 of 1962, provides for unilateral relief from double taxation in the form of exemptions, rebates and deductions. The double tax agreement between South Africa and the Democratic Republic of the Congo came into effect recently and double taxation relief for South African residents is now also available in terms of tax treaty law. The objective of the research was to determine whether the combination of the unilateral measures and the double tax agreement provide relief in respect of all types of income earned by South African residents in the Democratic Republic of the Congo. It was concluded that the double tax agreement, together with the unilateral relief provided for in the Income Tax Act will grant relief for all types of income earned by South African residents in the Democratic Republic of the Congo.

Over the last 10 years the South African fiscus has introduced numerous changes to the Income Tax Act (ITA) which affect the income tax implications of persons ceasing to be a resident of South Africa. The two main changes were: - The introduction of a world-wide basis of taxation for residents - The introduction of capital gains tax (CGT) as part of the ITA The aim of this treatise was to identify the income tax implications of persons ceasing to be a resident of South Africa. Resulting from this research, several issues in the ITA have been identified, and the two major ones are summarised below. Firstly, upon the emigration of the taxpayer, there is a deemed disposal of a taxpayer’s assets in terms of paragraph 12 of the Eighth Schedule. It is submitted that the resulting exit tax may be unconstitutional for individuals. It is recommended that South Africa should adopt the deferral method within its domestic legislation for individuals who are emigrating. The deferral method postpones the liability until the disposal of the asset. Secondly, on the subsequent disposal of assets by former residents where there was no exit charge in terms of the exemption under paragraph 12(2)(a)(i) of the Eighth Schedule. Depending on the specific double tax agreement (DTA) that has been entered into with the foreign country, taxpayers have been given vii the opportunity to minimise or eliminate the tax liability with regard to certain assets. This should be of concern from the point of view of the South African government. Further issues noted in this treatise were the following: - It is submitted that the term ‘place of effective management’ has been incorrectly interpreted by SARS in Interpretation Note 6. - It is further submitted that the interpretation by SARS of paragraph 2(2) of the Eighth Schedule is technically incorrect. The above issues that have been identified present opportunities to emigrants to take advantage of the current tax legislation. It is further recommended that taxpayers who are emigrating need to consider the South African domestic tax law implications, respective DTA’s, as well as the domestic tax laws of the other jurisdiction, not only on the date of emigration but also on the subsequent disposal of the respective assets.

A research report submitted to the Faculty of Commerce, Law and Management, University of the Witwatersrand, Johannesburg, in partial fulfilment of the requirements for the degree of Master of Commerce (specialising in Taxation) Johannesburg, 2015 / The Katz Commission recognised that South Africa could benefit from multinational enterprise (MNE) groups headquartering in South Africa. MNE headquarter companies create jobs and attract highly skilled individuals who impact on the economies in which they reside. These highly skilled individuals are also high taxpayers in the countries where they provide their services. South Africa has a number of attributes which would encourage MNE groups to headquarter in South Africa but the cost of doing business with the rest of Africa is high due to withholding taxes levied by African countries on technical and management fees. Countries with low tax rates attract MNE groups to headquarter in those countries as this effectively reduces the cost of doing business with the rest of Africa. The National Treasury introduced section 6quin of the Income Tax Act to provide effective relief to the South African taxpayer from double taxation on South African-sourced service fees charged to other countries and, in particular, other African countries. An examination is conducted on the impact of double taxation and whether section 6quin provides more effective relief from double taxation compared to other double tax relief mechanisms available to the South African taxpayer which will incentivise MNE groups to headquarter in South Africa. An analysis is performed on the income tax forfeited by the South African Receiver of Revenue (SARS) in the National Treasury providing this incentive to South African headquarter companies compared to if the headquarter is relocated out of South Africa. The results indicate that section 6quin provides a feasible solution to reducing double taxation on South African-sourced services provided to other African countries which incentivises MNE groups to headquarter in South Africa. If section 6quin is withdrawn from the South African Income Tax Act, MNE groups potentially will not headquarter in South Africa and seek low tax jurisdictions to reduce costs of providing headquarter services into Africa. This study indicates that the fiscus stands to lose more income tax if the MNE group headquarters outside of South Africa compared to the relief provided to the MNE group headquarter company in accordance with section 6quin by reducing income tax payable. This study informs MNE groups seeking to headquarter in South Africa and the National Treasury of the effects of double taxation on South African-sourced services provided to other African countries and the requirement for relief against double taxation. This study highlights the need for the National Treasury to retain section 6quin in the Income Tax Act or provide an alternate suitable solution to reducing double taxation on South African-sourced services provided by South African headquarter companies to other African countries. / MT2017

Thesis (LLD)--Stellenbosch University, 2014. / ENGLISH ABSTRACT: Trusts are used for a variety of purposes, both in South Africa and abroad. Like so many other entities, trusts often do not function only in one jurisdiction and may therefore be exposed to international double taxation. South Africa, like most other states, enters into bi-lateral double taxation treaties, to limit the effects of international double taxation. Most of these treaties are based on the OECD Model Tax Convention on Income and on Capital (the OECD MTC). The South African trust is a unique creature. It is not based on the dual ownership concept on which most common law trusts are based, yet, it is not a juristic person either. The question that this research aims to address is how South Africa will interpret and apply certain provisions of the OECD MTC to trusts. Although the South African position is investigated, it is compared to the positions of the United Kingdom, Canada and the Netherlands. The dissertation starts with an analysis of the trust law in each of the relevant states, followed by an overview of the taxation regime governing trusts (and the parties thereto) in each state. The status of double taxation treaties and their interpretation are examined before certain critical provisions of the OECD MTC are analysed to determine how South Africa will apply these provisions to trusts. Hence it is explored whether a trust will be regarded as a person, whether it may be a resident and a beneficial owner for purposes of the OECD MTC. Furthermore, possible solutions for conflicts of attribution in the application of double tax conventions to trusts are investigated. The dissertation concludes that South Africa will regard a trust as a person for purposes of the OECD MTC. Moreover, some types of trusts may be viewed as residents and as beneficial owners for purposes of the OECD MTC. The solution proposed in the OECD’s Partnership Report should be applied to resolve conflicts of attribution involving trusts. / AFRIKAANSE OPSOMMING: Trusts word vir ‘n groot verskeidenheid doeleindes gebruik, nie net in Suid-Afrika nie, maar ook in die buiteland. Net soos baie ander entiteite funksioneer trusts baie keer nie net in een jurisdiksie nie. Trusts word dus ook blootgestel aan internasionale dubbelbelasting. Soos die meeste ander state, sluit Suid-Afrika dubbelbelastingooreenkomste om die effek van internasionale dubbelbelasting te beperk. Die meeste van hierdie ooreenkomste is gebaseer op die OECD Model Tax Convention on Income and on Capital (die OECD MTC). Die Suid-Afrikaanse trust het ‘n unieke aard. Dit is nie gebaseer op die konsep van verdeelde eiendomsreg waarop die meeste gemeenregtelike trusts gebasseer is nie, maar tog is dit ook nie ‘n regspersoon nie. Die vraag wat hierdie navorsing probeer beantwoord is hoe Suid-Afrika sekere bepalings van die OECD MTC sal interpreteer en toepas op trusts. Alhoewel die Suid-Afrikaanse posisie ondersoek word, word dit deurgaans vergelyk met die posisie in die Verenigde Koningkryk, Kanada en Nederland. Die proefskrif begin met ‘n analise van die trustreg in elk van die betrokke state en word gevolg deur ‘n oorsig van die belastingstelsel wat trusts (en die partye daartoe) belas in elk van die state. Die status van dubbelbelastingooreenkomste en hul interpretasie word ondersoek voordat sekere kritiese bepalings van die OECD MTC geanaliseer word om vas te stel hoe Suid-Afrika hierdie bepalings sal toepas op trusts. Daar word dus ondersoek of ‘n trust beskou sal word as ‘n persoon, of dit ‘n inwoner en ‘n uiteindelik geregtigde kan wees vir doeleindes van die OECD MTC. Voorts word moontlike oplossings vir toerekeningskonflikte in die toepassing van dubbelbelastingooreenkomste op trusts, ondersoek. Die proefskrif kom tot die gevolgtrekking dat in Suid-Afrika die trust beskou sal word as ‘n persoon vir doeleindes van die OECD MTC. Verder sal sommige tipes trusts gesien word as inwoners en as uiteindelik geregtigdes vir doeleindes van die OECD MTC. Die oplossing voorgestel in die OECD se Verslag oor Vennootskappe behoort toegepas te word om toerekeningskonflikte op te los.

The research examined whether the services provided by the “sharing economy” platforms are adequately dealt with by the current South African tax systems. In addressing this main goal, the research analysed how the South African tax systems deal with the income and expenses of Uber, Airbnb and their respective service providers. The research also investigated how South Africa could classify “sharing economy” workers and how this would affect the deductibility of the worker’s expenses. A brief analysis was made of the taxation of the “sharing economy” businesses in Australia and the United States of America. These countries have implemented measures to effectively deal with regulating the “sharing economy” businesses. An interpretative research approach was used to provide clarity on the matter. Documentary data used for the research consists of tax legislation, case law, textbooks, commentaries, journal articles and theses. The research concluded that the current taxation systems have loopholes that are allowing participants in the “sharing economy” to avoid paying tax in South Africa. The thesis recommends that the legislature could adopt certain measures applied in Australia and the United States of America to more effectively regulate “sharing economy” in South African and remedy the leakages the current tax systems suffer, causing SARS to lose potential revenue.