The approach by our courts of the apportionment of expenditure in terms of section 11(a) read with section 23(g) of the Income Tax Act no. 58 of 1962.January 2004 (has links)
The primary aim of a dissertation is to try to discover information that could assist in solving a particular problem at hand. The object of this dissertation is to determine the approach by our courts to apportionment of expenditure in terms of section 11(a) read with section 23(g) of the Income Tax Act No 58 of 1962. A single expenditure incurred for more than one purpose poses a problem when deduction of such an expenditure, is sought by a taxpayer. The problem that ttie courts have always encountered when dealing with the deductibility of expenditure incurred for a dual purpose, is that there is no provision in the Income Tax Act that directs what to do when faced with such a problem. The courts have always chosen apportionment of expenditure as a solution to the deductibility of expenditure incurred for more than one purpose, one such purpose being for tax purposes and the other being for non tax purposes. Apportionment of expenditure is used as a device to allocate part of the expenditure, which was incurred to produce income, as taxable expenditure, and another part of that expenditure which was incurred to produce non-taxable income, as non-deductible expenditure. This dissertation seeks to find out whether courts do take into consideration the provisions of the Income Tax Act applicable to the deduction of expenditure when called upon to make a decision on a particular case. The South African Revenue Services use apportionment of expenditure where it deems appropriate and the courts have never opposed it. The Legislature, which is responsible for the enactment of the act, seems to be happy to lie low, and allow the courts to dominate in handling the disputes that arise as a result of expenditure incurred with a dual purpose. It has been suggested that whilst the Income Tax Act does not provide any direction in situations where the deductibility of dual purposes expenditure is in dispute, apportionment is implied in the terms of section 11(a) read with section 23(g) of the Income Tax Act no 58 of 1962. The main aim of this research is to establish whether the path taken by the courts is the correct one in terms of section 11(a) and section 23(g) of the Income Tax Act no 58 of 1962. It is hoped that this work will be of assistance to both The South African Revenue Services and the taxpayers at large in terms of understanding that the courts are within the bounds of the Act. / Thesis (M.Com.)-University of KwaZulu-Natal, 2004.
Cook, Kirsten Abram
15 May 2009
This dissertation contains three essays. The first essay examines the response of equity values to the announcement of a decrease in the capital gains tax rate. The Taxpayer Relief Act of 1997 reduced the long-term capital gains tax rate. News of this rate reduction reached investors in late April to early May of 1997. During the week of this event, firms with appreciated stock positions, average holding periods of at least one year, and individual marginal investors reported lower returns than companies lacking one or more of these characteristics. The second essay builds on recent research reporting that firms establish target capital structures by weighing the costs and benefits of debt and that adjustment costs dictate how rapidly companies move toward optimal leverage ratios. If tax considerations impact debt structures adjust more rapidly than companies below the goals because low-tax firms have less need of interest deductions to decrease tax burdens and, thus, sacrifice less tax benefit when retiring debt. The third essay demonstrates that manufacturing firms manipulate production to manage earnings and examines whether tax incentives magnify or temper this strategy. Companies that exceed the quarterly consensus analyst forecasts absent the earnings effects of discretionary inventory changes cut production and create an earnings cookie jar for future quarters. For this sub-sample, companies make larger discretionary inventory decreases as the marginal tax rates rise in the fourth quarter relative to the first three quarters. In contrast, the sub-sample of firms that miss income goals without manipulating production use discretionary inventory increases to enhance earnings and potentially reach benchmarks. Higher tax rates do not impede miss firms from managing earnings upward; however, considerations of tax timing dissuade these companies from opportunistically manipulating production in the fourth quarter.levels of the firms, taxes are also likely to influence the rates of adjustment to target levels. Among high-tax firms, companies below the optimal leverage ratios respond more quickly than companies above the targets because high-tax firms can better utilize the interest deductions generated by issuing additional debt to reduce tax liabilities. Among low-tax firms, companies above the target capital
01 January 2008
It is well documented in existing literature that firms manipulate earnings before IPOs (initial public offerings) and SEOs (seasoned equity offerings). This study contributes to prior research by being the first to examine whether fiscal support from local governments has impact on the earnings management behavior of Chinese listed firms. Using data from firms that conduct IPOs and SEOs from 1997 to 2006, I find that firms are less likely to manipulate earnings prior to the offerings if they enjoy more income tax savings attributed to the preferential tax favor or more financial subsidy from the local governments. The findings of the study have important policy implications. Noticeably, the new Enterprise Income Tax Law effective from 1 January, 2008 abrogates the original tax system that allows various preferential tax rates for firms of different properties and stipulates a 25% enterprise income tax rate for all firms in China. Given the abolishment of the preferential tax favor, local governments lose a potent avenue of lending fiscal support to the listed firms. To this end, based on the findings in this study, I expect that the opportunistic earnings management by listed firms will probably be aggravated after the new income tax law is duly enforced.
International transfer pricing in a developing economy context : perspectives from the taxpayers and the tax authoritiesLO, Wai Yee, Agnes 11 June 2004 (has links)
Since the 1979 economic reforms, China has been characterized by a rapid increase in international trade and an inflow of foreign direct investment. Foreign investment enterprises (FIEs) play an increasing important role in the Chinese economy and are substantially engaged in transactions with affiliates outside China. Therefore, international transfer pricing in China has become a significant issue. Empirical research on international transfer pricing has focused on multinational corporations (MNCs) operating in developed countries. However, it is difficult to generalize their findings to MNCs operating in developing countries as the business environment of developing countries is quite different from that of developed countries. Existing literature identifies that due to differences in the business environment between developed and developing countries, the tax factors which are important in developed countries should not be over-emphasized in developing countries. Some nontax factors such as foreign exchange control and restrictions on profit repatriation which may not be important in developed countries are nevertheless important in developing countries. However, empirical studies on international transfer pricing in developing countries are relatively scare. Furthermore, there have been no empirical studies that examine the relationships between management’s perception of the importance of environmental variables and management’s choice of international transfer pricing methods in developing countries, or which analyze the tax and nontax cost trade-off for tax evasion via international transfer pricing in developed or developing countries. The objective of this thesis is to provide a comprehensive empirical study on international transfer pricing in China from the perspectives of both taxpayer and the tax authority. The results of this thesis indicate that the more important the management perceives the interest of local partners and the maintenance of a good relationship with host government to be, the more likely it is that the FIE will adopt a market-based transfer pricing method. On the other hand, the more important the management perceives foreign exchange controls in transfer pricing decisions to be, the more likely it is that the FIE will choose a cost-based transfer pricing method. The research results also reveal that based on a tax and non-tax cost trade-off analysis, wholly foreign-owned enterprises, cooperative joint ventures and exportoriented FIEs are more likely to be selected for transfer pricing audits in China than equity joint ventures and domestic -market oriented enterprises. Some explanations for this result are the lack of monitoring by Chinese local partners in certain FIEs and the opportunity for transfer pricing manipulations. The results of this thesis have important policy implications for foreign investors carrying on business in China, the Chinese tax authorities as well as academic researchers. My research results should help foreign investors to have a better understanding of the tax and the nontax factors in formulating transfer pricing policies in China. The results should also help tax authorities tackle tax audit problems more effectively and in setting tax audit guidelines on related party transactions. Further, this thesis should contribute to the establishment of a more comprehensive theoretical framework of international transfer pricing in developing countries. It also empirically demonstrates the applicability of the tax and nontax cost theory in the context of international transfer pricing.
Includes bibliographical references (leaves 89-90). / A group taxation regime can be defined as: "a set of rules that enables corporate taxpayers to compute the tax liability of related corporations on a consolidated or combined basis(.) (and) ... encompasses not only full consolidation. but also tranifer of particular tax allributes between the members (?f a corporate group .. I. This definition is very broad and group taxation could be better understood when considering the more common forms of group taxation such as the group relief regime and the consolidation regime. The consolidation regime generally involves each company within a group of companies computing its own income after which the income is consolidated at the holding company-level for tax purposes. The holding company would thereafter become liable for the group's tax2 , whereas a group relief regime involves the ability of losses incurred by one company in a group of companies to be transferred to another member group company3. Does group taxation exist in South Africa? Based on the above, it would appear not. The more pertinent question that has to be answered is whether or not elements of group taxation currently exist in South African tax legislation. The debate in terms of the introduction of group taxation in South Africa was raised for the first time by the Margo Commission of Inquiry, which ultimately decided against recommending the introduction of group taxation. The Katz Commission of Inquiry however recommended the introduction of group taxation. National Treasury has however failed to act on the Katz Commission's recommendations.
The tax consequences for a seller (also briefly commenting from the perspective of the purchaser) when contingent liabilities are transferred in a sale of a business as a going concern with specific reference and evaluating income tax case no. 1839 : (South Gauteng Tax Court)Rossouw, Dewald Pierre January 2010 (has links)
Includes summary. / Includes bibliographical references (leaves 55-57). / The selling of a business as a going concern can have various tax consequences for both the seller and the purchaser. This is so whether the purchase price is determined with reference to the net asset value, i.e. gross assets less liabilities, or not. Accounting liabilities are always part of a business and therefore part of a business sales contract. The basic transaction is normally that some or all of the assets of the business are transferred to the purchaser who also assumes all or some of the liabilities of the business. The liabilities transferred may include various accounting provisions.
Schutters, Clint Charles
27 February 2019
Developments in technology have created a global market place for consumers. Consumers have the option of purchasing goods in a physical store or an online store. Consumers are no longer limited to shopping at physical stores in their own jurisdiction and can shop online from the convenience of their home. Consumers can acquire goods and services from any country in the world. Online shopping provides consumers with a wide selection of goods and services that may not be available in their own jurisdiction. Consumers favour purchasing online since the goods and services acquired from foreign suppliers are usually offered at better prices (price excludes VAT/GST). This creates an unfair advantage for foreign suppliers over local suppliers. The problem with selling a product to a consumer over the internet is that no physical product crosses through any physical border post. These products are not physical goods and are therefore referred to as services. Certain jurisdictions such as South Africa refer to these services as electronic services. Electronic services are remotely supplied by foreign suppliers to recipients resident in the Republic. Tax administrations lose revenue since there are no border posts acting as agent to collect VAT/GST and remitting the VAT/GST to the revenue authority. The foreign supplier would charge no VAT/GST on the supply and the consumer will fail to self‐declare the VAT/GST to the revenue authority. 1 April 2014, National Treasury introduced electronic services which required foreign suppliers of electronic services to register as vendors in the Republic. However, the implementation was postponed to 1 June 2014 to allow foreign suppliers to update its business systems. In 2015, further amendments were made to the electronic services provisions. However, in 2015 the Davis Tax Committee issued the first interim report on VAT to the Minister of Finance which highlighted concerns about the uncertainty and inconsistency in the application of the electronic services provisions outlined in the Regulations. This study aims to analyse the supply of cross border electronic services in the Republic. Any benefits and shortcomings will be assessed in a South African and international context. The VAT Act is based on the New Zealand GST Act. The GST Act will be analysed to identify areas of recommendation to improve the VAT Act, subject to the socio‐economic conditions in South Africa. The BEPS Report and VAT/GST Guidelines will be analysed to identify how the South African electronic services provisions have been adapted for a developing country based on developed country principles.
02 February 2019
Employers have used various means to remunerate, retain and incentivize employees. One of these methods, is through the allocation of ownership in the employer to the employee, which help align the financial interests of the company and the staff member. SARS and National Treasury regulate the taxation of these forms of remuneration, typically called employee share incentive schemes, through section 8C of the Income Tax Act. A common practice among these schemes, is for the employer to impose some form of restriction on the equity shares issued to the employee, usually limiting the holder’s ability to dispose of the instrument. Once an equity share with a restriction is issued to an employee by an employer – section 8C of the Act applies. These types of structures are prevalently in the private equity industry, but with a slight nuance: the employee will receive an equity share indirectly or directly linked to the private equity fund(s) operated by the private equity fund management company. This provides the staff member with ‘skin in the game’, ensuring the longevity of the private equity fund can be sustained, and provides a foundation on which a rapport can be built with investors. The underlying investments in the private equity fund will provide the value of the equity shares in question. In most cases, these amounts will be in capital in nature owing to the length of holding period and the intention with which those investments are acquired. However, the effect of section 8C is to classify the gains on the employees’ equity shares as income rather than capital. The private equity industry finds itself in a precarious position with respect to the long-term equity incentivisation of staff and aligning this with the long-term nature of the fund’s underlying investments.
Is the Value-Added-Tax treatment for educational services still valid?Is zero-rating a better alternative to the current VAT treatment?Are there any other alternative VAT treatments available?Jugdhaw, Diara 08 February 2019 (has links)
The aim of this dissertation is to analyse whether the current VAT treatment for educational institutions is still valid given the development within these institutions and if not, to identify alternative VAT treatments that may be used. Educational services are an exempt supply under section 12(h) of the VAT Act. The main reason for the exemption of educational services is that many of the institutions providing educational services were government institutions and to some extent financed by the government. However, over the years, the activities of institutions providing educational services have changed drastically and a reduced number of institutes are wholly subsidized in terms of government subsidies. In order to aid government grants and increase income, these institutions have increased their taxable activities considerably. Furthermore, privately owned and semi-subsidized institutions are accountable for their own costs and are not provided any or limited support from government. Numerous educational institutions within South Africa conduct an enterprise with the rendering of taxable supplies in addition to the provision of educational services. Such additional activities, provided the educational institute qualifies for and is VAT registered, are taxed at the standard rate. This in turn has created complications in administering the VAT Act, whereby these service providers are then required to carry out an apportionment calculation of VAT on their mixed supplies. This practice is inefficient and not cost effective. Furthermore, the ease of compliance, which was the basis in implementing the exemption, is diminished, as registration for VAT purposes is unavoidable. Educational institutions that render taxable supplies would be incurring inputs on associated costs. The effect of exempting educational services from the VAT net ultimately results in an increase in tuition fees as the burden of “hidden” or “trapped” cost is passed onto the student, as a result of the institution’s inability to claim a refund of the tax paid. As there is no recovery of input tax embedded in the price of exempt supplies, the cost of the tax included in the price must be borne by the entity that acquires the exempt supply and can only be recovered if the tax is passed on to customers. This is in effect contradictory to the initial intention of the government’s political and economic objective in respect of education, to ensure access to education to all on a non-discriminatory basis. As the objective and intention of the legislation towards exempting educational services is no longer satisfied, it must be reassessed and the treatment relating thereto re-examined. The first alternate VAT treatment recommended is for educational services to be zero rated, this will reduce the administrative burden most educational institutions currently face in terms of carrying out complex apportionment calculations and will keep with the original intention of the VATCOM. Furthermore educational institutions will have additional funding via the release of input tax credits which may potentially result in a reduction in the percentage increase in student fees in future periods the burden of the ‘hidden’ or ‘trapped cost’ will not be passed onto the student. Other VAT treatments recommended should zero-rating fail is to tax educational services at a reduced rate or include educational services as a welfare organization activity. Should the above-recommended VAT treatments not be feasible it is suggested that the current VAT treatment be improved by providing additional guidance on what supplies can be included as educational services.
Income Tax – Sale of a going concern: Assumed Contingent Liabilities Clarification versus legislative reformsMarais, Abrianne 03 February 2020 (has links)
The income tax consequences that flow from the assumption of contingent liabilities as part of the sale of a going concern is a contentious matter that continues to frustrate sellers and purchasers. The challenges faced by sellers and purchasers include inherent mismatches between the objects of accounting practice and that of income tax legislation; inconsistent policy formulation by National Treasury (Treasury) and the South African Revenue Service (SARS), and income tax legislation and case law that do not adequately recognise the economic effect of these transactions for sellers and purchasers. These, and other, challenges are highlighted and unpacked in this study by evaluating accounting standards, the Income Tax Act 58 of 1962 (ITA), case law and publications by SARS. In recent years there have been increasing calls for Treasury and Parliament to intervene by means of legislative reforms and for SARS to issue guidelines, in order to provide clarity regarding the income tax consequences for sellers and purchasers. New provisions and amendments to the ITA were proposed in the Draft Taxation Laws Amendment Bill of 2011 (draft Bill). The proposed legislative reforms were however withdrawn before the Taxation Laws Amendment Bill of 2011 was introduced in Parliament. Interpretation Note 94: Contingent Liabilities Assumed in the Acquisition of a Going Concern (IN94) was published by SARS during the latter part of 2016, with the aim of setting out principles which can serve as an interpretative guide for the determination of the income tax consequences for sellers and purchasers. This study investigates whether IN94 adequately addresses the challenges highlighted in this dissertation. The Davis Tax Committee, in its Report on the Efficiency of South Africa's Corporate Income Tax System, states that while SARS has attempted to address some of the shortcomings in respect of the taxation of contingent liabilities through interpretation notes and rulings, this is unsatisfactory as it is the legislation which requires amendment in order to address the shortcomings. In the final part of this study, the legislative reforms proposed in the draft Bill iv are evaluated, and the case is made for the reconsideration of comprehensive legislative reforms in order to create more certainty for sellers and purchasers.
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