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.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:uct/oai:localhost:11427/32632 |
| Date | 21 January 2021 |
| Creators | Daniels, Imran |
| Contributors | Hattingh, Johann, Roeleveld, Jennifer |
| Publisher | Faculty of Law, Department of Commercial Law |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Master Thesis, Masters, LLM |
| Format | application/pdf |
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