i.i Research question
The purpose of this dissertation is to examine whether South Africa’s approach to the taxation of ordinary partnerships flows clearly from its legal recognition thereof, or whether further clarity is needed from South Africa’s fiscal legislation
i.ii Background and research method
Peculiarities inherent in South Africa’s taxation of ordinary partnerships versus the legal nature of a partnership, is discussed in detail with reference to a comparison of the local treatment of foreign legal and tax systems. The legal systems of the United Kingdom, Ireland and the United States of America, have evolved out of the same common law as is recognised in South Africa, and so have already dealt with the issues illustrated in this dissertation, namely:
Legally, partners own the assets of the partnership in joint and undivided shares. For tax purposes, however, each partner is treated as having a fractional interest in the assets of the partnership. The two approaches are different and give rise to an analysis as to how our tax legislation achieves conformity.
Legally, when a partner 'joins’ or leaves a partnership, there is a legal dissolution of the partnership, and thereby a disposal by each partner of his or her share in the underlying assets. In tax, a disposal is likely to give rise to income and/or capital gain considerations. In the event that a legal dissolution of a partnership arises, and should the taxation consequences follow, the extent of any concomitant disposal must be determined, and whether any relief (roll-over or recognition of a divided interest) should be provided to such disposals and the subsequent consequences (such as valuation).
The evolution of the ordinary commercial partnership is discussed, with particular reference to its use as a regulatory avoidance structure, for example by the circumvention of the usury doctrine. Those characteristics which have survived in the modern-day legal recognition of partnership, in light of their history, contextualise the ensuing discussion as to the necessity, or otherwise, of legislative intervention. One of the tents of a robust legal system which exudes the qualities of the rule of law, is clarity. It is therefore incumbent on Government to address any lack of clarity in the application of the law if adherence to the rule of law is to be upheld.
Once it is established that a valid ordinary commercial partnership is constituted, the relevant mechanics flowing from the model, which require legislative clarification are more easily identified. The approaches taken by the foreign jurisdictions considered in this dissertation provide some guidance as to possible methods of addressing and overcoming those legal-versus-tax dichotomies discussed herein. Whether it is necessary for South Africa to reject the aggregate approach in law with harmonious intervention coming from tax legislation, such as the practice in the United States; or whether the aggregate approach be retained subject to clear legal treatment as demonstrated by the UK, remains a question for further research. It is submitted that the UK, Ireland and the US have taken extensive legislative measures to overcome the dichotomy between the legal-versus-tax recognition and treatment of partnerships, and that South Africa might not require such extensive codification. Rather, the specific areas in which the greatest discord exists are discussed in this dissertation, and it is submitted that bespoke intervention, as suggested in the concluding paragraphs of this dissertation, would go far towards achieving legal certainty in this regard.
i.iii Findings
Section 24H and paragraph 36 of the Eighth Schedule to the Income Tax Act 58 of 1962 (“the Act”) deal adequately with the income and capital gains arising during the continuation of a partnership, as well as in the event of a change in the profit and loss sharing ratios of the partners. It is submitted, however, that on the commencement of a partnership, including the introduction of a person to an existing partnership or an asset by a partner into a partnership, and on termination of a partnership or a partner’s interest therein, the legal considerations are not clearly dealt with by existing tax legislation. It is also possible that unbusiness-like results at these tax trigger-points could be avoided with pragmatic legislative intervention.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:uct/oai:localhost:11427/31015 |
| Date | 29 January 2020 |
| Creators | Haupt, Karl Alexander |
| Contributors | West, Craig |
| Publisher | Faculty of Commerce, Department of Finance and Tax |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Master Thesis, Masters, MCom |
| Format | application/pdf |
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