This treatise examines the history of private equity as a context in which to understand its role in the economy and specifically, the background for the high profile leveraged buy-outs that have been entered into in the past year. The treatise then focuses specifically on the Brait-Shoprite buy-out, examining its structure and the tax implications. The treatise then reviews the reaction of the South African Revenue Authority (“SARS”) to the buy-out and evaluates whether it was the best approach that could have been taken under the circumstances. As a result of the research, the following conclusions have been reached: Private equity transactions Private equity transactions have a role to play in the business world despite the apprehensions of tax authorities. The perception that these transactions are tax driven as part of an avoidance scheme is not justified. Structure of the Shoprite buy-out transaction: The Shoprite buy-out transaction was structured to obtain deduction for interest. The transaction was also structured to utilise the relief provisions of Part II of Chapter II (Special Provisions Relating to Companies) of the Income Tax Act no.58 of 1962, as amended (“the Act”). The relief was for capital gains tax (“CGT”) on disposal of the Shoprite assets. Finally, the transaction was designed to allow the existing shareholders to exit their investments free of Secondary Tax on Companies (“STC”). The reaction of SARS to the Shoprite buy-out transaction Whereas SARS may have been justified in questioning the structure and its impact on fiscal revenue, the response in the form of withdrawing STC relief from amalgamation transactions in section 44 was not in the best interest of a stable tax system and the majority of tax payers who are not misusing or abusing loopholes in the income tax legislation. It may have been possible for SARS to attack the structure based on the General Anti-Avoidance Rule (GAAR) in part IIA of the Chapter III of the Act.

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

Thesis (M.Com. (Taxation))--University of the Witwatersrand, Faculty of Commerce, Law and Management, School of Accountancy, 2017 / The Tax Administration Act 28 of 2011 is the most recent complete tax act to guide tax administration in South Africa and came into operation on 1 October 2012. The changes in the penalty regime in South Africa was that the understatement penalties, in sections 222 and 223 of the Tax Administration Act, replaced the additional tax that was previously levied in terms of section 76 of the Income Tax Act 58 of 1962. Understatement penalties are levied when a taxpayer understates his tax payable for a particular tax period. The understatement penalties are jointly determined by the behaviour of the taxpayer and other objective criteria that are listed in a table contained in section 223(1) of the Tax Administration Act. The report will focus on comparing the understatement penalties levied in South Africa and comparing it with understatement penalties levied in the United States of America (USA), Australia (AUS) and the United Kingdom (UK). The comparison will be used to determine how the understatement penalties are imposed in different cases and to determine if there are improvements that can be made to the current understatement penalties levied in South Africa. Keywords understatement penalty; understatement; behaviour; conduct; penalty; Tax Administration Act, United States of America (USA); United Kingdom (UK); Australia (AUS); South Africa (SA) / GR2018

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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.

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.

Thesis (MAccounting)--Stellenbosch University, 2013. / ENGLISH ABSTRACT: The term beneficial owner is most commonly found in the dividend, interest and the royalty articles of tax treaties (Baker, 2007:15), yet there is still uncertainty surrounding the actual meaning of the term (Du Toit, 2010: 500). Since Dividends Tax became effective in South Africa as from 1 April 2012, it has become necessary to clarify what the term beneficial owner means to correctly apply section 64E of the Income Tax Act No 58 of 1962 (‘Act’). Section 64EA(a) of the Act determines that the Dividends Tax liability falls on the “beneficial owner of a dividend” [Emphasis added]. Section 64D of the Act does define the beneficial owner as “the person entitled to the benefit of the dividend attaching to the share”, the application of this definition to a discretionary trust may be challenging since legal ownership must be distinguished from economic ownership (PWC Synopsis, 2012:6). In the absence of guidance by the South African Revenue Service (‘SARS’), the first problem arises as to the interpretation of this term within the context of dividend income received by a discretionary trust (Louw, 2012:1). This leads to a second problem relating to the correct application of section 64G(3)(a)(i) of the Act, which makes provision for a reduced rate of dividends tax. The purpose of this study is to set parameters for determining who the beneficial owner of dividend income within the context of a discretionary trust is, where the dividend is paid in respect of shares held in a resident company, and to the extent that the dividend does not consist of a distribution of an asset in specie. The instances when the reduced rate is applicable in terms of section 64G(3) of the Act will also be clarified. In order to achieve these objectives, an analysis of factors that should be taken into account to define and determine beneficial ownership, was undertaken. Common- and civil law definitions were investigated. The Organisation for Economic Co-operation and Development’s (‘OECD’) Model Tax Conventions (MTCs’) and its Commentaries provided possible factors to assist in identifying the beneficial owner. In the absence of a decision by a South African court, the judgements in the five international court cases were consulted. Four steps were formulated to reach a conclusion. In terms of the these steps, the trust beneficiary remains the beneficial owner of dividend income received by a trust in the case of the income having been distributed by the trustees in having exercised their discretion in terms of the trust deed. In the case of contingent beneficiaries it is suggested that the trust, with the trustees, acting in their official capacity on behalf of the trust, would be seen as the beneficial owner of the dividend income. In terms of section 64G(3) of the Act, where a foreign trustee or a foreign trust beneficiary has been identified as the beneficial owner(s) of a dividend, the rate at which Dividends Tax is withheld could be reduced as a result of the application of a double tax agreement. / AFRIKAANSE OPSOMMING: Die begrip uiteindelik geregtigde kom mees algemeen voor in die dividende, rente en die tantième artikels van dubbel belasting ooreenkomste (Baker, 2007:15), tog is daar steeds onsekerheid oor die werklike betekenis van hierdie begrip (Du Toit, 2010: 500). Nadat Dividendbelasting op 1 April 2012 in Suid-Afrika in werking getree het, het dit noodsaaklik geword om die betekenis van die begrip uiteindelik geregtigde vas te stel ten einde artikel 64E van die Inkomstebelastingwet Nr. 58 van 1962 (‘die Wet’) korrek toe te pas. Artikel 64EA(a) van die Wet bepaal dat die aanspreeklikheid vir Dividendbelasting op die “uiteindelik geregtigde van ‘n dividend namate die dividend nie ‘n uitkering van ‘n bate in specie uitmaak nie” [klem bygevoeg] val. Artikel 64D van die Wet as "die persoon geregtig op die voordeel van die dividend verbonde aan ‘n aandeel", nogtans kan die toepassing hiervan in 'n diskresionêre trust uitdagend wees, aangesien wettige eienaarskap onderskei moet word van ekonomiese eienaarskap (PWC Synopsis, 2012:6). In die afwesigheid van leiding deur die Suid-Afrikaanse Inkomstediens ('die SAID'), ontstaan die eerste probleem weens die interpretasie van die begrip binne die konteks van dividend inkomste ontvang deur 'n diskresionêre trust (Louw, 2012:1). Dit lei tot 'n tweede probleem wat verband hou met die korrekte toepassing van artikel 64G(3)(a)(i) van die Wet, wat voorsiening maak vir 'n verminderde koers Dividendbelasting. Die doel van hierdie studie is om grense af te baken vir die bepaling van die uiteindelik geregtigde van dividend inkomste binne die konteks van 'n diskresionêre trust, waar die dividend betaal word ten opsigte van aandele gehou in 'n maatskappy wat ‘n inwoner is, tot die mate dat die dividend nie bestaan uit 'n uitkering van 'n bate inspecie nie. Die gevalle waar die verminderde tarief van toepassing is ingevolge artikel 64G(3) van die Wet, sal vasgestel word. Ten einde hierdie doelwitte te bereik, is 'n ontleding van die faktore wat in ag geneem moet word om die uiteindelik geregtigde te definieer en te bepaal, onderneem. Gemeenen siviele regs-definisies is ondersoek. Die ‘Organisation for Economic Co-operation and Development’s (‘OECD’) Model Tax Conventions (MTCs’) en sy kommentare verskaf moontlike faktore om te help in die identifisering van die uiteindelik geregtigde. In die afwesigheid van 'n besluit deur 'n Suid-Afrikaanse hof, word die besluite in die vyf internasionale hofsake geraadpleeg. Vier stappe is geformuleer om ʼn slotsom te bereik. In terme van die stappe, bly die trustbegunstigde die uiteindelik geregtigde van die dividendinkomste ontvang deur die trust, in die geval waar die inkomste uitgekeer word deur die trustees nadat hul diskresie uitgeoefen is in terme van die trustakte. In die geval van voorwaardelike begunstigdes, word dit gestel dat die trust, met die trustees wat in hul amptelike hoedanigheid namens die trust optree, gesien word as die uiteindelik geregtigde van die dividend inkomste. In terme van artikel 64G(3), waar 'n buitelandse trustee of 'n buitelandse trustbegunstigde as die uiteindelik geregtigde(s) van 'n dividend geïdentifiseer is, kan die koers waarteen Dividendbelasting weerhou word, verminder word as gevolg van die toepassing van 'n dubbelbelastingooreenkoms.

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