With constant changes in the nature of businesses, the way businesses are
managed and the manner in which corporate groups are structured, a valid risk
exists that legislation, including controlled foreign company (CFC) legislation can
become outdated. The implication is that a country’s tax base will not be effectively
protected. The aim of this mini-dissertation is to analyse section 9D of the South
African Income Tax Act (58 of 1962) against the United Kingdom’s CFC regime to
identify aspects of the new CFC rules enacted in Great Britain that could enhance
South African CFC rules. Since the United Kingdom and South Africa levy income
tax on a residence basis, it was concluded that the CFC regimes of these countries
would be comparable.
The research problem statement was determined to consider whether any aspects of
the amended United Kingdom CFC legislation could be incorporated in the South
African CFC rules to ensure that they are more accommodating to investors on the
one hand and still protect the South African tax base efficiently on the other hand.
The problem statement was addressed through the research objectives. Their
findings are summarized as follows:
1 To determine what the factors and circumstances were that resulted in the revised
CFC legislation in the United Kingdom.
It was found that the Commissioner of Inland Revenue was applying the “motive test”
very subjectively which resulted in resident-holding companies being taxed on
legitimate trading profits of foreign subsidiaries. The “motive test” therefore lacked
objectivity which resulted in the residents being taxed on the profits of their
subsidiaries.
Since section 9D of the South African Income Tax Act (58 of 1962) also applies a
subjective test to consider the investor’s motives, it was concluded that the South
African legislation is faced with a similar pitfall as the UK CFC legislation enacted in
1984. 2 To critically compare the CFC rules per section 9D of the South African Income
Tax Act to the CFC legislation effective 1 January 2013 in the United Kingdom.
It was found that the South African rules address a wider range of activities, whereas
the UK CFC regime focuses on specific income streams. A number of aspects were
identified where the two sets of legislation agree, but areas were also identified
where the legislation differs.
3 To identify elements of the new CFC legislation in the United Kingdom that might
improve the current South African CFC regime.
The differences identified between the South African and United Kingdom CFC
regimes were evaluated. It was concluded that there are elements of the South
African legislation that should remain unchanged as it addresses specific risks. It
was, however, also concluded that there are valid elements implemented in the UK
CFC regime that could simplify the South African CFC legislation, enhancing its
competitiveness while still retaining the integrity and effectiveness of the legislation.
It was concluded that even though the differences between section 9D and the UK
CFC regime may enhance section 9D when enacted in South Africa, these
enhancements should be considered very carefully as they might create loopholes
providing false progress to section 9D. / MCom (South African and International Taxation), North-West University, Potchefstroom Campus, 2014
| Identifer | oai:union.ndltd.org:NWUBOLOKA1/oai:dspace.nwu.ac.za:10394/12217 |
| Date | January 2014 |
| Creators | Viviers, Johannes Andrias |
| Source Sets | North-West University |
| Language | English |
| Detected Language | English |
| Type | Thesis |
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