This thesis presents an analysis of two classical problems in the theory of optimal taxation: commodity tax reform and nonlinear income taxation. Economic behavior is modeled as arising out of a family decision making process rather than owing to individual utility maximization. The taxation authority is assumed to have no direct control over intra-family allocations of ^resources. In this way, family interactions change the nature of the second-best constraints the planner faces. The analysis focuses on the impact of these constraints on optimal policy choices. Attention is focused on families with two members, whom the planner can (in most situations that are modeled) tell apart. In the chapters dealing with commodity tax reform, behaviour is modeled as the Pareto-efficient outcome of a family decision process. Conditions for the existence of a feasible, Pareto-improving tax change are presented and contrasted with those that obtain in the individualistic case. The consequences of treating households as a single individual are also discussed. It is shown that treating families as if they were individuals can lead to misleading conclusions. An example is presented to demonstrate that the traditional analysis may go wrong even when families behave as if they are individuals. Moreover, it is shown that household budget data alone is insufficient to address this issue. The model is then put to use to address question of temporary inefficiencies in tax reform. I present how the circumstances under which temporary inefficiencies can arise vary with the structure of poll taxes. The problem faced by a planner choosing an income tax schedule for families is modeled as a multi-dimensional screening problem. Families are described by a two-dimensional vector of characteristics, interpreted as the labour productivities of their members. The planner cannot observe these characteristics directly. Furthermore, families are free to redistribute the after-tax incomes of their members. The planner must take this behaviour into account when choosing the tax schedule. A description of the possible Pareto-efficient mechanisms is given. The implications of a standard redistributive assumption on the sign of marginal tax rates are explored. In contrast to uni-dimensional taxation models, the redistributive assumption does not imply that marginal tax rates are everywhere non-negative. For much of the analysis, the usual assumption of quasi-linear preferences is jettisoned, allowing an exploration of the implications of this additional structure. The qualitative features of optimal tax- schedules are discussed. It is concluded that neither individual-based taxation nor taxation based solely on total family income is optimal. / Arts, Faculty of / Vancouver School of Economics / Graduate

This dissertation examines whether South Africa's interest deduction tax laws are compatible with selected aspects of their Double Taxation Treaties that are based on the 2017 OECD Model Tax Convention. This dissertation will outline and examine the innerworkings of three of South Africa's domestic interest deduction legislative provisions namely, sections 23N, 31 and 23M of the Income Tax Act. Thereafter, the relevant Non-Discrimination provisions of the 2017 OECD Model Tax Convention contained in Article 24 will be discussed. The exemptions to Article 24 will also be dealt with before addressing the impact of the recently added ‘Savings Clause'. The understandings gained from the above will then be used to test South Africa's interest deduction legislative provisions against the relevant Articles of the OECD Model Tax Convention. This dissertation concludes the following: section 23N does not constitute discrimination; section 31 necessarily does but falls within one of the exemptions to Article 24; and section 23M violates the non-discrimination provision contained in Article 24(4) and as such, is not compatible with any of South Africa's Doubled Taxation Treaties that contain the relevant Articles. This dissertation ends off with recommendations on how South Africa deals with the conflict, the best of which is to amend section 23M to include an arm's length requirement.

When a South African taxpayer transfers his/her residence to another tax jurisdiction, exit tax is levied on certain accrued gains on the basis that a termination of residency results in a deemed disposal. This creates a fiction that the taxpayer disposes of his/her assets even though there was no change in ownership. It is likely that the levying of exit will create a cash flow disadvantage for the taxpayer, because there is a cash outflow, but no cash inflow. Moreover, the South African exit tax provisions require that exit tax is paid immediately upon emigration. The “immediate recovery” method of exit tax has raised a number of questions regarding the proportionality vis-à-vis the legitimate purpose of exit tax. Derived from Adam Smith’s first maxim, a tax is considered to be proportional to its purpose if the content and form of the tax does not go beyond what is required to attain the purpose of the tax. This principle is commonly known as the principle of proportionality. Proportionality is also one of the fundamental principles in the European Union ('EU’) and has featured in a number of European court cases concerning exit tax. This minor dissertation seeks to analyse the current legislated exit tax provisions for South Africa and evaluates whether these provisions are proportional to the purpose of exit tax or goes beyond what is necessary to achieve its purpose. The key findings arising from the research presented in this minor dissertation is that an exit tax regime which require an emigrating individual to immediately pay exit tax upon departure may restrict the mobility of that individual and prevent him/her from relocating to another tax jurisdiction. This dissertation found that such a restriction is not proportional to the purpose of exit tax. The mere imposition of exit tax may be justifiable and that it is not so much the principle of levying exit tax that cause concern, but more the timing and method of the application of exit tax. In South Africa, exit tax is due immediately upon departure. In line with the key findings in this dissertation, the current legislated exit tax provisions for South Africa is not proportional to the purpose of such provisions. Other countries have already addressed this issue by implementing alternative measures to levy and collect exit tax which is less burdensome for the taxpayer and therefore considered to be proportional to the purpose of exit tax. One such method is the deferral of exit tax until the point of actual realisation of the accrued gains. Following the analysis as described above, this dissertation finally evaluates the effectiveness of the current legal framework for information exchange and assistance in tax collection in a South African context in order to determine whether the adoption of a method whereby exit tax is deferred and collected upon actual disposal of the asset, is viable in South Africa. This evaluation found that South Africa already have the appropriate legal mechanisms in place in order to collect exit tax debt from a former resident.

Fiction in domestic tax law is a peculiar legal construct. Set in contradiction, the result is plainly counter-factual. The question arises as to what the fiction means when constructed in the context of tax treaties? This minor dissertation draws a comparative analysis between the statutory construction of two opposing international tax treaty cases, one more recent than the other, in regard to the effect of one particular fiction in domestic tax law – the ‘as if'. In 1997, the United Kingdom court of appeal ruled on Bricom Holdings Limited v IRC. The finding from that decision surrounded the interpretation of the ‘as if' fiction in British Controlled Foreign Company (CFC) rules. In that case, the court found that the reference to ‘as if' was a purely notional definition based on fictional assumptions. These assumptions resulted in a product of artificial calculation, such that when constructed in CFC rules, resulted in a tax charge that was not a charge on the CFC's actual income, but a notional amount based on a notional definition of that income. The notional amount could, therefore, not be provided relief by way of tax treaties. In 2000, South Africa followed the British court's reasoning by updating its domestic Controlled Foreign Company rules with the same ‘as if' terminology. In 2018, the principle which formulated that longstanding argument appeared to be rejected by the same British court in the decision of Fowler v HMRC. The court of appeal reached the opposite result by finding that the fiction arising from the ‘as if' terminology did not represent a notional tax charge. Instead, the ‘as if' assumption created a new and exclusive taxable subject matter on the same income source, alike to statutory deeming. The fictional income arising from that fictional treatment was the substitution of one (notional) source of taxable income for another (actual, but disregarded) source. The deemed character in the computation was, therefore, retained in tax treaties, allowing tax treaty relief. This minor dissertation analyses both cases in order to posit whether or not the net income imputed from South Africa's CFC rules, using the same ‘as if' terminology, may be construed as a deeming rule on the same CFC's income. The finding in this minor dissertation is that an ‘as if' fiction may not represent a purely notional definition. The computation of CFC net income in tax treaties may, therefore, be afforded tax treaty relief akin to statutory deeming.

It has been suggested by international lawyers that Memoranda of Understanding (MOUs) are instruments concluded between States which they do not intend to be governed by international law (or any other law) and, as a result, are not legally binding. The question as to what legal status MOUs have in the context of international tax law, particularly in relation to treaties for the avoidance of double taxation and information exchange has, to a greater extent, not been asked or answered in academic literature. This minor dissertation seeks to address that. Based on a review of the legal framework for treaties and MOUs, analyses of cases dealing with tax MOUs, and taking into consideration doctrinal work of various commentators, it is evident that the legal status of tax MOUs is determined by the role they play in the interpretation and application of tax treaties. The key finding arising from the research presented in this minor dissertation is that the roles of tax MOUs are to complete the treaty or modify or clarify substantive provisions of the treaties they are based on. If they complete or modify the treaty, such MOUs have legal consequences. On the other hand, if they only clarify substantive treaty provision, they do not have direct legal consequences but can be considered for interpretation purposes. Although MOUs have been viewed historically as non-legally binding agreements not governed by international law or any other law, evidence seem to suggest a contrary view in the context of international tax treaty law. If an MOU is concluded pursuant to a treaty article, through the powers given to Competent Authorities (CAs) under articles 25(1)-(3) of the OECD Model Tax Convention (MTC) to conclude, for example, an interpretive instrument, then arguably such an MOU is intended to be governed by international law as the treaty authorises its conclusion. MOUs of this kind concluded by CAs have binding effects.

The fundamental legal principles in South African law relating to simulated transactions are based on a long line of cases that have been decided in our courts over the past one and a half centuries. The main principle underlying the rule that simulated transactions are void, or that substance prevails over form, is that there can be no contract where there is no true legal intention by the parties. This is simply a necessary consequence of the application of the will theory. As opposed to the legal intentions of the parties, the purpose of the parties, as another subjective factor, is generally not relevant in determining whether a genuine agreement has been entered into. Purpose may however be taken into account as a factor in determining the true legal intentions of the parties. The existence of an unlawful purpose will also render an agreement unenforceable. In the case of Commissioner for the South African Revenue Service v NWK Limited 73 SATC 55, Lewis JA has seemingly introduced new considerations into South African law (particularly relevant to tax law), focusing on the presence of an avoidance purpose coupled with the lack of a commercial purpose to determine simulation. This stands somewhat apart from the importance of the true legal intentions of the parties as decisive factor. This work focuses on the interpretation of these new considerations and the impact of the said judgment on the established principles relating to simulated transactions. In this regard the views of certain critics are discussed. The judgment is also critically analysed in order to draw a conclusion as to what the current legal position is regarding simulation in the context of tax law. / Dissertation (LLM)--University of Pretoria, 2013. / lmchunu2014 / Mercantile Law / unrestricted

Equity securities lending arrangements are contracts whereby a shareholder lends his shares to a borrower for a period of time. If dividends are declared during that period, these accrue to the borrower, and the borrower pays a manufactured dividend to the lender as compensation. The applicable income tax legislation deems manufactured dividends to be dividends for purposes of dividends tax. However, unless manufactured dividends are governed by Article 10 of a double tax treaty, South Africa may not have the right to tax manufactured dividends received by non-resident lenders. This would result in a loss of revenue for the South African fiscus. This paper examined the qualification or characterisation for treaty purposes of manufactured dividend income earned by lenders in terms of securities lending arrangements. This examination was done through an analysis of the ‘dividends' definition in Article 10 of the 2017 OECD model convention. It was found that manufactured dividends are not ‘dividends' for treaty purposes, and are instead business income in terms of Article 7. South African domestic tax legislation was analysed, together with publications by the South African Revenue Service and National Treasury, and demonstrated that there is a risk of taxation not in accordance with the provisions of a convention, as well as a risk of revenue losses to the South African fiscus where a non-resident lender has no permanent establishment in South Africa.

The difference between South Africa’s domestic PE definition and the PE definition in its various DTCs and regional MTCs suggest some material inconsistency in South Africa’s PE policy. The research question this minor dissertation seeks to answer is whether South Africa has a coherent PE policy for source-based taxation. In addressing this question, this thesis considered what South Africa’s PE negotiating policy is and identified trends in its tax treaty practice in order to determine any inconsistency with its domestic PE definition. The key finding arising from the research of this minor dissertation is that South Africa does not have a coherent PE policy as its domestic policy is based on the OECD PE definition from time to time, whereas its tax treaty negotiating position and tax treaty practice is closely aligned with the 2006 SA MTC. Finally, this thesis provide recommendations to South Africa’s relevant fiscal authorities on how to reform the PE policy in a coherent manner.

This dissertation examines the impact of the imposition of both estate duty and capital gains tax (CGT) by South Africa (SA) on South African resident investors at the date of death.1 The focus of this dissertation, within this chosen area of study, is the effect of the imposition of these two taxes on cross-border transactions; this study examines the international tax consequences that arise on death, should a SA resident investor hold foreign situs assets at such time. The study uses a portfolio of stock listed in the United States of America (US) to demonstrate that the imposition of both estate duty and CGT by SA at the date of death may result in unresolved double taxation or at the very least the imposition of taxes that are confiscatory, excessive or prejudicial to SA resident investors. In order to demonstrate that double taxation may exist or that confiscatory, excessive and prejudicial taxes may arise, the study outlines the current legislation in SA and the US, as well as the relevant unilateral and bilateral relief available to such an investor. The study then goes on to determine the global tax liability that would result for the investor in question at the date of death. After determining the global tax liability, the study analyses whether the relief available to the investor is sufficient in preventing double taxation or taxes that may be considered prejudicial, confiscatory and/or excessive. Where it is found that double taxation persists or prejudicial, excessive and confiscatory taxes exists, the study recommends action that should be taken by the relevant authorities to remedy such concerns.

The OECD's MLI was tabled for signature on 7 June 2017 and South Africa was amongst the first 68 countries to sign the MLI on that date. With its signature, South Africa made the provisional selection to adopt the PPT minimum standard, which was introduced by the OECD's Final Report on BEPS Action 6. This minimum standard effectively incorporates a treaty GAAR into South Africa's treaties that are covered under the MLI. However, South Africa already has a very comprehensive and complicated domestic GAAR. In their review of the OECD's Final Report on BEPS Action 6, the Davis Tax Committee observed that the GAAR and the PPT serve a similar purpose and that the GAAR can be applied to prevent the abuse of treaties. They stated further, that one could therefore argue that there is no need for South Africa to amend its treaties to include the PPT. Nevertheless, as much as the OECD Final Report on BEPS Action 6 clearly explains that domestic law provisions can be applied to prevent treaty abuse, there could be concerns of treaty override if South Africa applies its GAAR in a treaty context. This dissertation's objective was to investigate the Davis Tax Committee's propositions noted above. An in depth analysis and comparison of the GAAR and the PPT resulted in the conclusion that the Davis Tax Committee's propositions were correct. The core purpose and functions of the GAAR and PPT are similar to the extent that the GAAR could be applied to prevent treaty abuse, instead of the PPT. The South African legal framework is further set up in such a way that the GAAR can not only be legally applied in a treaty context, but that it would trump a treaty provision in the event of an irreconcilable clash, which results in the Davis Tax Committee's concern for treaty override. Despite the conclusion that the GAAR may replace the PPT, it may not be practical for South Africa to apply its GAAR in a treaty context and it was concluded that it is highly unlikely that South Africa would substitute the PPT for the GAAR.