Spreads between swap legs referencing floating cashflows of different tenors have widened significantly since the global financial crisis of 2008. This frequency basis can be explained by the presence of “roll-over risk”. Defining the roll-over risk state variables in an affine form, this dissertation prices a credit default swap using an “affine transform” methodology. This price is then compared to that obtained from a traditional Monte Carlo simulation approach. The former is shown to produce accurate results with greater computational efficiency, providing a useful way to price complex financial instruments when the state variables are defined in an appropriate form.

A constitutional analysis of a differentiated tax treatment of residents and non-residents in respect of income deriving from immovable property in South Africa', Daniel Baines explores whether South African resident taxpayers' constitutional rights to equality and property are infringed by current laws which tax residents at higher rates than non-residents on rental income and proceeds from the disposal of fixed property. He aptly sets out what the right to equality and property entails and how these relate to taxpayers. He finds that the higher effective tax rates paid by residents violates their constitutional right to equality. The thesis provides valuable insight into a resident's right to equality and property in terms of current tax rates and illustrates how current tax rates are unconstitutional. The recommendations brought forward contribute toward the discussion of how tax rates should be altered in order to ensure that residents' constitutional rights are no longer violated. / Thesis (LLD)--University of Pretoria, 2021. / Mercantile Law / LLD / Unrestricted

The volatility of capital flows and their adverse impact on macroeconomic and financial variables is a major concern to policy makers, resulting in a debate on whether capital controls or financial (capital account) liberalisation is best suited to managing them. This study argues that a better understanding of the underlying process of the foreign capital flows, that is, whether they are a random walk, a persistent, or an anti-persistent series, is a critical but currently lacking element in informing this debate. Specifically for foreign portfolio equity flows, there may also be need to understand their dynamic impact on stock markets. The purpose of this study is therefore to determine the underlying process of foreign portfolio equity flows in the sub-Saharan Africa countries for which a sufficiently long data series is available (i.e., Kenya, Nigeria, South Africa, and Zambia); to establish the impact of these flows on the capitalisation of their stock markets; and draw conclusions on optimal policy choices based on this. Secondary monthly data, covering the period January 1994 to March 2019, is used, but with different sample periods for each country within that range. Structural break estimations are further undertaken to obtain more specific results. Fractal analysis is employed to estimate the Hurst parameter, a measure of the underlying process. This is aided by fractal signal classification, adopted from electronic and communication engineering and physiology, a novel approach in the analysis of capital flows, to avoid misinterpreting the estimated Hurst parameter. The correlation measure technique, another novelty in the analysis of foreign capital flows, is also used to further understand the underlying process of the flows. Bayesian techniques based on sign restrictions are employed in estimating the Calderon-Rossell model, a unique approach, to establish the impact of these flows on stock market capitalisation. The robustness of the results is tested with the Fry and Pagan Median target method. The results indicate that the underlying process of gross foreign portfolio equity inflows and outflows in the four sub-Saharan Africa countries are anti-persistent. Further, increases in market capitalisations owing to positive shocks to foreign portfolio equity inflows are greater than declines resulting from shocks to outflows. The policy implication of these results for the four SSA countries is that capital controls on foreign portfolio equity flows are redundant.

South Africa remains reliant on a number of countries to sustain its energy requirements. The acute shortage and unreliable supply of electricity, requires that South Africa consider other energy sources, more specifically, that it considers the use of oil and gas as an alternative or complementary energy source to the main energy sources currently used in the country. The recent announcement of oil and gas discoveries in South Africa could see less reliance on other countries for the importation of crude oil and petroleum products. Despite newly discovered oil and gas resources in South Africa, the country will continue to remain reliant on the industry's international investors since South Africa does not have the requisite expertise, skill and capital to operate efficiently in this industry. The shortage of capital to further develop the industry means that the country will need to continue to compete with other emerging markets to secure international investment. One such way of being an attractive investment destination has been touted through the offering of a tax regime with incentives which, more importantly, provides certainty and stability (Mausling, 2017: iv). South Africa introduced the Tenth Schedule to the Income Tax Act No.58 of 1962 (“Income Tax Act”) which aims to provide incentives that stimulate industrial and economic growth in the oil and gas industry. Against the backdrop of recent oil and gas finds, the Minister of Finance announced in the 2019 Budget Speech that changes to the Tenth Schedule would be considered. This has brought about the need to consider the role of fiscal stability agreements (“FSA”). Under the Tenth Schedule, South Africa offers FSAs which allows for the “freezing” of the Income tax provisions when the FSA was signed i.e. even if there is a new tax regime, the investor may elect to continue to use the old tax regime. Firstly, this dissertation considers whether there is a need for FSAs. To achieve this aim, the dissertation considers the reasons for fiscal instability and considers these within the South African context. These reasons are used to substantiate whether there is a need for FSA's as a remedy for fiscal instability. The current incentives offered by the Tenth Schedules are examined in order to determine the reasons as to why oil and gas companies would find FSAs advantageous. Secondly, the dissertation examines the types of FSAs typically offered, including freezing clauses (currently used in the FSA offered by South Africa), economic balancing clauses and, finally, hybrid clauses. In critically reviewing these different clauses, the most preferred clause is suggested. A further review of this preferred clause is enhanced through the consideration of the types of FSAs offered by comparable countries. Ghana and Mozambique have been identified and selected for comparison for the purposes of this study. The paper further considers aspects of the FSA such as the legality and legal effectiveness of FSAs. Such issues are critical in light of the challenges that have been identified in the use of FSAs, particularly that such instruments limit the State's sovereignty. Furthermore, the costs associated with FSAs are considered. Lastly, the remedies available should the state elect not to adhere to a FSA once in force are considered. The findings of the study suggest that there remains a need for FSAs in South Africa. However, the findings indicate a need to change the current fiscal stability clause into an economic balancing clause, in particular a negotiated economic balancing clause.

The issue considered in this paper proceeds from the basis of a hypothetical income tax assessment issued by SARS against a hypothetical taxpayer. The circumstances under which the hypothetical assessment is raised are as follows: suppose that Company A, a South African resident, owns 100% of the participation rights in Company B (the hypothetical taxpayer), a resident of Luxembourg. Company A has failed to qualify for any of the internal “exemptions”1 contained in section 9D of the Income Tax Act, 58 of 1962 (“the Act”), and has thus been taxed with reference to the profits of Company B for the past ten years. In the eleventh year, SARS audits Company B and determines that its effective place of management has, in fact, been in South Africa all along and that it is therefore resident in South Africa in terms of paragraph (b) of the definition of “resident” contained in section 1 of the Act. Upon the determination that Company B is resident in South Africa, SARS proceeds to raise assessments against Company B in relation to the taxable income it earned during its current and former years of assessment (i.e. income tax assessments are raised for the full 11-year audit period) (referred to herein below as the “hypothetical assessment”). The purpose of this paper is thus to investigate the fiscal consequences that do (and, it will be argued, do not) arise subsequent to a controlled foreign company (“CFC”) having been declared resident of the Republic of South Africa, in circumstances where a South African resident taxpayer had historically been taxed with reference to the profits of that CFC in terms of section 9D. It is clear from the example that the same income now being taxed in the hands of Company B subsequent to its South African residency would already have been taxed in the hands of Company A by application of section 9D. The inequity of this result is undeniable. Should assessments be raised against Company B in the manner suggested it would amount to economic double taxation.

Modern portfolio theory (MPT), asset pricing models and broader financial modelling are dependent upon the accuracy of input parameters. For example, the accuracy of expected returns, standard deviations and correlations as an input into MPT will result in a more efficient selection of the optimal portfolio. These metrics are exposed to reference-day risk which is the variation in input estimation due to the selection of initial reference-day in calculations. This paper examines whether a change in reference-day, the day on which a metric is calculated, significantly affects estimates of risk-return metrics on the Johannesburg Stock Exchange (JSE). Thereafter, it applies these findings to the asset allocation problem of constructing a maximum Sharpe portfolio. The objective of this paper is to further prior research through the evaluation of an alternative simulation method and an extension of the range of tested metrics. The advancement of this prior research is achieved through the use of the Cholesky decomposition and a nonparametric bootstrapping procedure to generate reference-day risk-free estimates for average returns, standard deviations, correlations and betas. Furthermore, this paper applies the reference-day risk-free metrics to the construction of optimal multi-asset portfolios in the mean-variance framework. The findings suggest that through the use of a five-year period of monthly returns, the selection of a reference-day materially affects risk-return metrics and the subsequent portfolio characteristics that are based upon these metrics. The performance of portfolios, optimised on each reference day, ranged between 10% during the out-of-sample period. Additionally, using traditional end of month data resulted in underperformance of out-of-sample, overstated average returns, understated standard deviations and lower correlations between asset classes. Based on these findings we propose an alternative bootstrapping method for calculating reference-day risk-free metrics which reduces the effect of reference-day risk. The purpose of this methodology is to use these estimates for portfolio construction, risk management and asset pricing. The results of this paper indicate that reference-day risk makes a material difference in portfolio construction.

Includes bibliographical references / The OECD made certain recommendations in its 2014 discussion draft, "Neutralising the Effects of Hybrid Mismatch Arrangements", comprising recommendations on domestic law and double tax convention measures. This dissertation assesses the potential implication of these recommendations for South Africa's tax laws and double tax conventions as these relate to cross border financing arrangements between two taxpayers using hybrid instruments or hybrid entities. These hybrid entities and mismatches and which give rise to mismatch outcomes either through a deduction arising in either jurisdictions or a deduction arising in one jurisdiction without an inclusion in income in the other jurisdiction. This assessment is made to understand how these recommendations could impact on South Africa's tax laws and double tax conventions. This impact is assessed by determining the publically expressed sentiment of the South African government towards the OECD's base erosion and profit shifting proposals and thereafter by assessing how the above noted recommendations may interact with the Income Tax Act and South Africa's double tax conventions to address mismatches within the scope of this dissertation. This interactions is assessed by: reviewing the treatment of cross border hybrid instrument and hybrid entity arrangements in the Income Tax Act, the withholding tax measures in the Income Tax Act, the treatment of these arrangements in double tax conventions concluded by South Africa, and the interaction of the recommendations in the above OECD report with the Income Tax Act and double tax conventions concluded by South Africa. Conclusions are then drawn from this analysis. The review of publically expressed sentiments of the South African government evidenced support for the OECD's base erosion and profit shifting proposals but also a sensitivity to South Africa's tax sovereignty. The review of the treatment in the Income Tax Act of the arrangements within the scope of this dissertation found that at times the Income Tax Act potentially did not resolve the mismatches of concern and that withholding tax may not have the potential to comprehensively preserve the tax base against these arrangements, particularly taking into account the influence of double tax conventions. The review of the recommendations in the above OECD report found that these recommendations could assist existing domestic tax law measures in addressing the mismatch outcomes of concern, albeit not necessarily comprehensively and potentially at the cost of added complexity. It was also found that the double tax convention recommendations appeared to have limited impact to clarifying and confirming the existing treatment of arrangements involving hybrid entities. These findings are significant as they indicate a support for the OECD's recommendations by the South African government and that the recommendations could assist in addressing the mismatch outcomes addressed in this dissertation.

Research paper 1. (International tax) Is South Africa's headquarter regime successful and does it go against national legislation. This research paper discusses how South Africa has changed its legislation to become the Gateway of investment into Africa. It addresses the prior barriers previously faced by investors in South Africa and Africa as well as changes to legislation to accommodate this problem. The current criteria tin qualifying as a headquarter company is addressed in terms of Section 80 A of the Income Tax Act, which also addresses the draw backs and restrictions which as a result South Africa has not received any applications by companies in becoming a headquarter company. A comparison is drawn between South Africa's headquarter regime versus a well - known popular tax haven country namely Mauritius. A comparison is performed on both the qualification in becoming headquarter companies as well as the tax benefits thereto which encourage investment. From the comparison, it is clear that Mauritius provides a more favourable environment for the establishment of a headquarter regime based on the ease of qualification as a headquarter company, the corporate tax rate is low to none and it has no CGT, dividends withholding tax, and interest withholding tax, transfer pricing and thin capitalisation, exchange control and finally CFC rules. The advantage that South Africa has is that of their double tax agreements with Nigeria and Algeria. The research paper also addresses the extent to which headquarter regimes in South Africa are considered to be treaty shopping. OECD Glossary of Tax Terms defines treaty shopping as: "An analysis of tax treaty provisions to structure an international transaction or operation so as to take advantage of a particular tax treaty. The term is normally applied to a situation where a person not resident of either the treaty countries establishes an entity in one of the treaty countries in order to obtain treaty benefits." 1 It further addresses the impact that treaty shopping has on our general anti - avoidance legislation. Research paper 2 (Local tax) Is customer loyalty programmes capital or revenue of nature? The general gross income definition is defined as '... the total amount, in cash or otherwise, received by or accrued to in favour of such resident during such year or period of assessment, excluding receipts or accruals of a capital nature...' The research problem is extracted from the general gross income definition. The research problem is based on the fourth element of the general gross income definition, namely, whether the transaction is of revenue or a capital nature. In formulating an answer to our research problem, being the last element of the general gross income definition, we look at case law handling the test applied by courts on revenue versus capital applications. The test laid down, deals with the intention, duration, nature and frequency of the customer loyalty programme being of a revenue or capital nature. In terms of the general gross income definition, all elements except the last element, being, the transaction must be of a capital nature, are met. As all the elements of the general gross income definition are not met, the rewards from a customer loyalty programme should not be taxable in the hands of th e customer. However, capital gains tax consequences can be dealt with as the reward received as part of the customer loyalty programme is of a capital nature. If for some reason, SARS proves that a customer embarked in a customer loyalty programme as part of a scheme to make profits and therefore he should be taxed on the reward, the onus SARS having to collect monies from taxpayers would far exceed the monies received. And in most cases, majority of the active users of a customer loyalty programme would be below the submission of tax return threshold. With this said, we are assuming that due to the changes in economic climate the majority of the users would be from a low income background.

This study examines whether Piotroski's (2000) F-Score strategy can successfully be applied to the Chinese A-Share market. The empirical evidence shows that in the Chinese A-Share market, the high F-Score portfolio significantly outperforms the low F-Score portfolio. Especially within a low BM firm sample, buying high F-Score firms and shorting low F-Score firms consistently, on average, generate 1.28% market adjusted profit per month. The results are robust for size partition. However, the benefits of Piotroski's F-Score strategy are concentrated in low liquidity and analyst following sample. Within the high BM firm sample, Piotroski's F-Score strategy cannot generate any significant return. The excess return of a low BM sample persists across time, as well as after controlling for size, book-to-market ratio, and market beta. In addition, if we measure risk in terms of beta and volatility, high F-Score firms are less risky than low F-Score firms. To conclude, the empirical evidence presented in this study suggests investors can use Piotroski's F-Score to identify mispriced stocks and earn abnormal returns in the Chinese A-share market, especially within a low BM firm sample.

The study will be based on a comparative analysis of the general antiavoidance section of the South African Income Tax Act no. 58 of 1962 and the Tanzanian Income Tax Act no. 11 of 2004. The focus is on how the two provisions are interpreted by showing the similarities and differences. The approach will be analytical and comparative, starting by showing the concept of tax avoidance and historical backgrounds of the two provisions.