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Can a multilateral negotiating process—that is, cooperation between many states in a single forum—successfully reform the network of bilateral tax treaties that currently makes up the bulk of international tax law? The BEPS Project aims to be the first major push for a multilateral tax process since the creation of the OECD’s Model Tax Convention in the 1960s. Through BEPS, the OECD and 130-plus countries are in final negotiations to implement Pillar One and Two, which will: (1) create a new taxing right for “market jurisdiction” countries on the profit of international companies that do business there without a physical presence; and (2) implement a top-up tax levied against companies that offshore profits from intangible assets in low-tax jurisdictions. To predict whether the multilateral reform effort will be successful, it is important to examine the nature of the multilateral negotiating process itself, because every negotiation is shaped by its context.  But this context is not static—rather, the nature of tax multilateralism varies depending on certain global conditions. Sometimes, it is a hierarchical process, dominated by powerful countries operating in a closed-club of developed states spearheading the effort, while weaker countries must tag along and accept the eventual outcome. Alternatively, multilateralism may be egalitarian and inclusive, with many countries—strong and weak alike—contributing to the debate, accepting tradeoffs, and endorsing the outcome. In this thesis, I demonstrate that the nature of tax multilateralism has changed from the former model to the latter by comparing the negotiation of the OECD Model Tax Conventions with the Pillars Negotiation. I begin by identifying several factors that influence the nature of tax multilateralism: first, the distribution of global power among states; and second, the level of integration of the global economy. In an international system where power is concentrated in a few states, and the international economy is fragmented (i.e., the conditions of the 20th Century), multilateralism tends to be hierarchical and exclusive. However, when power is diffused and the global economy is integrated, (the conditions of the 21st Century), then multilateralism is egalitarian and inclusive. In such a context, international tax issues—like base erosion and profit-shifting—are so vast and complex that no state, acting alone or in a small group, could deal with them. The thesis thus concludes that the nature of tax multilateralism has changed, because in modern negotiations, powerful states are both less capable of dominating other states in the negotiating process and are highly dependent on a successful outcome that creates global consensus.

Globalisation of trade and investment has led multinational enterprises to develop strategies to maximise profits by investing in countries with a favourable tax climate, resulting in loss of tax revenue to domestic economies. In South Africa, recent economic liberalisation and associated relaxation of exchange controls have created increasing exposure to global competition, risk of capital flight and potential threat to the tax base. Heeding OECD recommendations intended to counter negative tax implications for domestic economies and curb harmful tax practices, South Africa introduced controlled foreign company provisions initially in 1997, followed by comprehensive legislation in 2001. Appropriateness of South Africa’s CFC regulations as domestic anti-avoidance measures is assessed in this study for their relevance in the international fiscal arena, highlighting key divergences, shortcomings and anomalies in the South African regulations compared with OECD recommendations, and with regulatory measures in the United Kingdom (jurisdictional-entity approach) and the United States (transactional approach), these two examplars offering paradigms of the most important CFC regulatory approaches currently in force. The primary materials investigated in the study are the statutes which constitute the taxation laws, read in conjunction with auxiliary, quasi-statutory advisory and explanatory documentation issued by the respective regulatory authorities, along with test cases that established legal precedent on points of ambiguity in taxation law. A key finding in the literature review is the relative dearth of publications on current South African CFC regulations in an international comparative context. A paradigm shift is noted in United Kingdom tax policy, as it migrates towards a territorially inclined tax system in CFC regulations – more compatible with European Union (EU) requirements and propelled in large measure by EU-pressure – with a similar trend in United States tax policy, intended to rekindle expansion and growth of the United States economy through repatriation of foreign funds earned by CFCs. The study finds that it would be unrealistic to seek an absolute paradigm for reform or evolution of South African CFC regulations in either the United Kingdom or the United States, although the South African and United Kingdom CFC measures show significant affinities in their entity-based mechanisms to grant full exemption. More significant constituents of CFC regulation in one or another of the two countries do, however, prove to be generally congenial to the South African situation and offer useful pointers for ongoing reform of the South African measures. Other areas in the United Kingdom or United States CFC regulations are identified as less relevant to South African requirements, being linked to tax principles that would be excessively complicated in the South African circumstances, needlessly demanding for tax administrators and for South African shareholders, contradictory to South African tax principles, anachronistic, or not suited for the underlying global-entity approach in the South African regulations. The research provides an updated assessment of the current state of the South African CFC regulatory measures, when seen in a broader international context, and indicates areas that could be the subject of fruitful ongoing investigation. / PhD (Tax), North-West University, Potchefstroom Campus, 2014

Globalisation of trade and investment has led multinational enterprises to develop strategies to maximise profits by investing in countries with a favourable tax climate, resulting in loss of tax revenue to domestic economies. In South Africa, recent economic liberalisation and associated relaxation of exchange controls have created increasing exposure to global competition, risk of capital flight and potential threat to the tax base. Heeding OECD recommendations intended to counter negative tax implications for domestic economies and curb harmful tax practices, South Africa introduced controlled foreign company provisions initially in 1997, followed by comprehensive legislation in 2001. Appropriateness of South Africa’s CFC regulations as domestic anti-avoidance measures is assessed in this study for their relevance in the international fiscal arena, highlighting key divergences, shortcomings and anomalies in the South African regulations compared with OECD recommendations, and with regulatory measures in the United Kingdom (jurisdictional-entity approach) and the United States (transactional approach), these two examplars offering paradigms of the most important CFC regulatory approaches currently in force. The primary materials investigated in the study are the statutes which constitute the taxation laws, read in conjunction with auxiliary, quasi-statutory advisory and explanatory documentation issued by the respective regulatory authorities, along with test cases that established legal precedent on points of ambiguity in taxation law. A key finding in the literature review is the relative dearth of publications on current South African CFC regulations in an international comparative context. A paradigm shift is noted in United Kingdom tax policy, as it migrates towards a territorially inclined tax system in CFC regulations – more compatible with European Union (EU) requirements and propelled in large measure by EU-pressure – with a similar trend in United States tax policy, intended to rekindle expansion and growth of the United States economy through repatriation of foreign funds earned by CFCs. The study finds that it would be unrealistic to seek an absolute paradigm for reform or evolution of South African CFC regulations in either the United Kingdom or the United States, although the South African and United Kingdom CFC measures show significant affinities in their entity-based mechanisms to grant full exemption. More significant constituents of CFC regulation in one or another of the two countries do, however, prove to be generally congenial to the South African situation and offer useful pointers for ongoing reform of the South African measures. Other areas in the United Kingdom or United States CFC regulations are identified as less relevant to South African requirements, being linked to tax principles that would be excessively complicated in the South African circumstances, needlessly demanding for tax administrators and for South African shareholders, contradictory to South African tax principles, anachronistic, or not suited for the underlying global-entity approach in the South African regulations. The research provides an updated assessment of the current state of the South African CFC regulatory measures, when seen in a broader international context, and indicates areas that could be the subject of fruitful ongoing investigation. / PhD (Tax), North-West University, Potchefstroom Campus, 2014