Suchergebnisse

This document has been prepared in two parts. The first part deals with some basic aspects of valuations and the major aspects of taxation which should be borne in mind by a valuer. The second part, which commences on page 102, is a compendium of brief comment on tax matters and tax cases which may be of interest to a valuer. The document is based on research carried out in relation to: The Income Tax Act No. 58 of 1962, as amended, inclusive of the 1989 Amending Act; The Sales Tax Act No. 103 of 1978, as amended; and The Estate Duty Act No. 45 of 1955, as amended. Due to subsequent amendments to the legislation certain aspects of taxation dealt with in this document may no longer apply, but there has been comment and expectations in many instances that some of the changes are likely to be reintroduced. I have accordingly included my findings from the research carried out as this could be helpful in the event of a reintroduction of the affected legislation. Since preparing this document, The Sales Tax Act is no longer of force or effect and has been replaced with The Value Added Tax Act of 1991. There are many aspects of this new legislation which also require the consideration and attention of a valuer. I have not dealt with these aspects in detail in this document.

The use of financial derivative instruments has outpaced the development of a comprehensive tax policy framework for these instruments in South Africa. Income character determination relies on common law principles which provide limited certainty within the context of modern portfolio management. How the courts will approach character determination for financial derivative instruments within investment portfolios is uncertain. This thesis considers applicable tax legislation and case law in three common law jurisdictions. The United States, the United Kingdom and Australia provide insight into the difficulties associated with formulating legislation in the light of rapid market innovation. The detailed tax code of the United States has proved a less than satisfactory policy approach and the courts have struggled with doctrines of interpretation. Australia and the United Kingdom have followed accounting principles. Simplifying proxies are used in this thesis to help disentangle the analysis from the varied and complex ways in which derivatives can be used in financial transactions. Only equity derivatives are considered within the context of regulated investment portfolios. Insolvency case law following the filing for bankruptcy by Lehman Brothers Holdings Incorporated in 2008 provides authority with which to analyse the nature of standardised derivative contracts used in the markets and the rights therefrom as 'property'. The researcher argues per Smalberger JA in CIR v Pick 'n Pay Employee Share Purchase Trust 1992 (4) SA 39 (A) that, 'transactions involving shares do not differ from transactions in respect of any other property and the capital or revenue nature of a receipt is determined in the same way whether one is dealing with land or shares'. A definition is proposed to incorporate legal attributes of these instruments highlighted in the literature, and interpretive guidance issued by Her Majesty's Revenue and Customs in the United Kingdom is supported for adoption as policy principles aligned with our own common law. There can be no context distinct from the general concepts of law specific to derivatives. Continuity and coherency within a long tradition of case law on capital and revenue characterisation should be maintained and a policy framework developed from this premise.

This paper seeks to assess the presence of convergence of domestic and foreign tax judgments and principles in South African courtrooms. Besides the practical fact of assessing the general view of South Africa courts to the application of foreign cases and principles, it also explores whether convergence is beneficial to South African in a variety of contexts. The case law review concludes that while South Africa courts are bound only to take foreign cases as persuasive and not as binding, they appear to assign such cases similar weight to domestic cases, refuting them primarily on the facts of the matter as they would any other domestic citation and not dismissing them purely due to their foreign nature. With the evidence clearly favouring the existence of convergence, the paper goes on to assess whether this convergence is a benefit to South Africa, first in the example of the specific case law reviewed and then in the larger context of South Africa as a country. The cases largely show benefits from the inclusion of foreign cases, with the only caution that the court must be sensitive to the context of a foreign case, particularly when dealing with principles of language or business which may be culturally-specific. In the larger context, the paper cites writers from American, European and South African sources. The conclusion from these varying arguments is that convergence is primarily a positive force to a country of South Africa's relative size, position and economic power. The greatest risk the country faces would be to be forced in a form of convergence which is detrimental to its needs by other more powerful countries – however, historic evidence of how convergence in the European Union has led to clusters of countries with similar principles (and with free movement between these groups) suggests that it is far from likely that convergence will become such an autocratic influence.

The purpose of this dissertation was to critically analyse the recently introduced section 7C of the Income Tax Act, 58 of 1962 (ITA) with the aim of determining whether section 7C achieved its stated objective. Although aimed at tax abuse through the use of trusts, the section is a further limitation on trusts, a vehicle that has been affected by numerous legislative amendments over the past couple of decades. The introduction of section 7C of the ITA is directly in line with the existing section 7 as well as international trends including the Base Erosion and Profit Shifting (BEPS) final reports. As globalisation accelerates and data becomes more readily available to both developed and developing economies the transparency of structures will become more evident and the previously utilised loopholes will close. Additionally, the current economic downturn in South Africa (SA), and globally, is likely to result in more aggressive revenue authorities. Taxpayers will have to ensure that they receive appropriate advice and that tax is considered at the outset of structure development opposed to being an afterthought following the commercial agendas. Further, there is currently room for the application of sections 7C, 7(5) and 7(8) simultaneously in specific circumstances which may result in the application of both donations and income tax. The question remains as to whether the application of these section is fair and/or correct. I think it is probably difficult to argue that it is not at this stage. Finally, it is submitted that the question raised by this dissertation – does section 7C of the ITA achieve its stated objective (the prevention of tax evasion through interest free loans) has been answered in the affirmative.

This dissertation seeks to establish whether the presence or activities of a partner or partners in South Africa creates (or is at risk of creating) a permanent establishment for that partner, the partnership or the co-partners in South Africa. At the outset, the major legal and fiscal consequences of a partnership under South African law are investigated. The unique legal and fiscal treatment of a partnership as a mere aggregate of persons that is treated as fiscally transparent under South African law is relevant to determine the potential application of double taxation agreements to partnerships or their partners. Once the terms of a double taxation agreement are found to apply in the circumstances, the creation of a permanent establishment in terms thereof becomes relevant. The different types of partnerships and partners under South African partnership law are set out and their differentiating characteristics analysed in an effort to identify whether the activities or presence of certain partners are more at risk of giving rise to a permanent establishment than others. In a commercial context, the important distinction is drawn between ordinary and extraordinary partners as very different commercial consequences attach to these partners. In particular, whereas ordinary partners automatically derive an implied authority or mutual mandate to manage the business of the partnership as agents of their co-partners by virtue of the partnership agreement, extraordinary partners are excluded from the mutual mandate. The implied authority amongst partners becomes particularly relevant when considering one of the alternative tests for creating a permanent establishment that appear in the prevalent model tax conventions commonly used in the South African context, in terms of which the existence of authority is one of the required elements for the creation of a permanent establishment. The special rules surrounding the source of partnership income is investigated as a means of establishing jurisdiction to tax under South African domestic source rules. The impact of legislation on the South African source rules pertaining to partnerships as developed under the common law is critically analysed and the relevance of source rules in the permanent establishment context is evaluated. It is submitted that it is premature to consider the rules surrounding the creation of a permanent establishment under the terms of a double taxation agreement before it is established that the relevant contracting state has the requisite jurisdiction to tax and furthermore that the terms of that double taxation agreement apply to the matter at hand. Finally, the relevant articles of the model tax conventions commonly used in the South African context are discussed with specific focus on the unique attributes of a partnership that may impact on the creation of a permanent establishment for the partner or partners by virtue of the presence or activities of a partner or the partners in South Africa. The risk of creating a permanent establishment by virtue of the presence or activities of an ordinary partner in South Africa is contrasted with that of an extraordinary partner. It is concluded that the activities or presence of ordinary partners (as opposed to extraordinary partners) are particularly at risk of creating a permanent establishment in South Africa, although it is acknowledged that certain requirements will have to be met on the facts of each case before a permanent establishment will be found to exist.

South Africa has seen a growth in cross-border services in the last decade. This comes as no surprise since, as early as 2010, the global service sector accounted for approximately 70% of the world's Gross Domestic Product. Given the magnitude of the service sector, it is imperative that South Africa implements laws that seek to tax service fees in an efficient, effective and equitable manner. South Africa's Minister of Finance and the Davis Tax Committee are amongst the key government stakeholders who have expressed concern regarding the threat that South Africa faces to the erosion of its tax base as a result of outward cross-border service fees. The tax base erosion typically occurs when a non-resident derives a service fee from South Africa which is not taxed in South Africa, whilst the resident payor is allowed to claim a deduction. As a means of addressing the above threat, South Africa introduced the withholding tax on service fees regime. This withholding tax was intended to apply on service fees derived by a non-resident from a source in South Africa. However, as the application of this withholding tax was subject to the application of the relevant double tax treaties, South Africa's right to impose this withholding tax was in most cases limited. The withholding tax on service fees regime was therefore repealed. With the withdrawal of the withholding tax on service fees, South Africa can only tax service fees to the extent that they are derived by a non-resident from a source in South Africa and attributable to the non-resident's permanent establishment situated in South Africa. In terms of the Organisation for Economic Co-operation and Development Model Tax Convention ('OECD MTC'), a permanent establishment is defined as essentially comprising of a fixed place of business whilst, under the United Nations Model Tax Convention9 ('UN MTC'), this definition is extended to include the provision of services by a non-resident who is at least present in South Africa for more than 183 days in any 12-month period rendering services in connection with the same or connected project. Globalisation and electronic commerce has made the remote provision of services possible. It has therefore become relatively easy for a non-resident business to render services in South Africa without the presence of a fixed place of business or without being present in South Africa for substantial periods and thereby avoid being subjected to income tax in South Africa on the service income derived. In light of the above, this dissertation argues that the permanent establishment threshold is no longer appropriate for the taxation of services. Specifically, it is contended that the permanent establishment threshold is excessively high and as a result contributes towards the erosion of the source state's tax base. Various options for addressing this concern are then explored and a recommendation is made that South Africa should negotiate for the inclusion of the technical fee article in its double tax treaties and re-instate the withholding tax on service fees regime.

The 2018 Value-Added Tax (VAT) rate increase caused a national debate on the regressive nature of VAT and its impact on the poor. This study assessed whether an appropriate response is to include further zero-rated items and to analyse which items should be selected. This study confirmed that VAT is regressive, and the instruments used to address this issue is to either introduce the zero-rating of 'merit goods' or to use cash transfers in a social grant system. Given that a significant portion of the South African government expenditure is already spent on the social grant system and has not yet resulted in a significant decline of income inequality, the appropriate response to the 2018 VAT rate increase is to expand the list of zero-rated items. This study performed an analysis on the South African spending patterns per income group to identify the food items most consumed by the poor. The notable items included; poultry, beef, aerated soft drinks, white bread and white sugar, however these items would result in a significant loss of tax revenue, which is an inherent issue with a zero-rating amongst others. As the purpose of the 2018 VAT rate increase was to address the significant fiscal budget deficits over the last few years it would not be rational to introduce a zero-rating which would effectively eliminate the tax revenue needed to balance the fiscal budget. The government's response was to include sanitary pads, cake wheat flour and white bread wheat flour be zero-rated, which do not result in such a significant tax loss. Therefore, the selection of items in the current South African economic environment would involve a balancing act between providing relief to the poor but not at the expense of a significant share of tax revenue.

The main purpose of this study is to analyse the South African VAT implications for offshore investment via the CIS industry in the absence of detailed place of supply rules; more specifically, where the fees charged, in respect of services rendered to manage these funds, are consumed. This is accomplished by analysing the South African VAT legislation in order to determine whether it succeeds in providing certainty regarding the place of supply of offshore investments, and whether there is a VAT on imported services exposure in the CIS industry. This analysis highlights the problems associated with the limited place of supply rules in South Africa. Furthermore, this study also includes an analysis to establish whether place of supply rules exist in certain developed countries, with regard to offshore portfolio management services. These findings are compared to determine whether similar rules can be implemented in South Africa. Some foreign countries, like New Zealand, Canada and the member states of the European Union, do cater for specific place of supply rules and this is the reason for their selection. This study concludes that the place of supply rules identified in the South African VAT legislation are not sufficient to determine whether offshore portfolio management services are deemed to take place (consumed) in South Africa, and accordingly be subject to VAT in South Africa. The study further concludes that the place of supply rules recommended in the International VAT/GST Guidelines issued by the Organisation for Economic Cooperation and Development (OECD) and place of supply rules established in certain member states2 of the European Union indicate that portfolio management services should be taxed where the consumer is located. Should South Africa implement place of supply rules based on the European legislation and guidelines issued by the OECD, the problems associated with the absence of place of supply rules in South Africa can be resolved. This will ensure no competitive advantage gained for foreign or domestic service providers of portfolio management services.

Tax planning, where taxpayers arrange their affairs so as to minimize the resulting tax liability, has evolved over the last couple of decades as a result of the change in the way business is conducted by virtue of globalisation and the development in technology. It appears to have become more and more aggressive as taxpayers have the opportunity to access tax benefits not only through utilising loopholes in domestic legislation, but also through international tax loopholes. Revenue Authorities have to respond to this by employing mitigating anti-avoidance mechanisms. One such mechanism employed in South Africa ("SA") is the use of General anti-avoidance Rules ("GAAR") found in s80A-L of the Income Tax Act No. 58 of 1962 ("ITA"). To combat certain shortcomings in this GAAR's predecessor and to stay abreast of international trends, for the first time ever, a Statutory Purpose Element has been included in GAAR. This Statutory Purpose Element, as included in s80A(c)(ii) of the ITA, evaluates the misuse or abuse of the provisions of the ITA as a means to identify impermissible tax avoidance arrangements. Essentially, this calls for the application of the modern approach to statutory interpretation, where the purpose and context of the provisions of the ITA are first identified, before the misuse or abuse of these provisions can be proven. This study evaluates whether the inclusion of this Statutory Purpose Element in GAAR, adds any value or provides any additional powers to SARS when applying GAAR, especially in light of s39(2) included in the Bill of Rights of the Constitution, of 1996, ("Constitution"). The Constitution, the supreme law in SA, already calls for the modern approach to be applied to any statutory interpretation and the findings of this study indicate that s80A(c)(ii) appears to be completely superfluous as it does not award any additional powers to SARS, which were not already granted by the Constitution. If anything, s80A(c)(ii) broadens the scope of GAAR to such an extent, that it most likely will only cause further confusion for taxpayers wanting to engage in tax planning.

A non-resident who disposes of a direct interest in immovable property or an indirect interest in immovable property through the disposal of shares may be subject to capital gains tax in the country in which the immovable property is situated. Certain African countries were selected and the capital gains tax consequences on disposal of such property were determined by analysing the domestic tax legislation of the country in which the property is situated. In addition, the effect of any applicable double tax agreement ('DTA') to such disposals was considered. In certain countries - such as Angola and Nigeria - in terms of their domestic tax legislation, a non-resident will not be subject to capital gains tax in the respective country where the property is situated regardless of the value of the shares that is attributable to immovable property. In certain countries - such as Mozambique, Namibia, Tanzania and Zimbabwe - in terms of their domestic tax legislation, a non-resident may be subject to capital gains tax upon the disposal of an interest in immovable property in the respective country in which the immovable property is held regardless of the value of the shares that is attributable to immovable property, unless a DTA provides otherwise. In certain other countries - such as Botswana, Ghana, Lesotho and South Africa - in terms of their domestic tax legislation, a non-resident may be subject to capital gains tax upon the disposal of an interest in immovable property in the respective country in which the immovable property is held, however this will depend in general on the percentage of the value of shares that is attributable to immovable property, unless a DTA provides otherwise. Certain countries domestic tax legislation have specific provisions regulating how this percentage is determined. A DTA may provide relief to taxpayers who are subject to capital gains tax in both their resident country and the source country, on the disposal of an interest in immovable property held in the source country. In terms of domestic tax legislation, where the non-resident is liable to pay capital gains tax in the source country, the non-resident will in general have to comply with the withholding tax and filing obligations of that country where applicable.

The South African ("SA") mining industry played (and continues to play) a pivotal role in the development of the SA economy. It is therefore no surprise that the industry has long been the beneficiary of favourable tax concessions. One of these favourable tax concessions is the 100% capital expenditure allowance. Access to this allowance is dependent on the interpretation of the definition of "mining operations" in section 1(1) of the Income Tax Act, No. 58 of 1962 ("the ITA"). Currently, there is legal uncertainty in SA regarding the meaning of "mining operations". This is so because central to the term "mining operations" is the term "mineral", which is not defined in the ITA, nor does it have an ordinary fixed meaning. SA courts have further not authoritatively dealt with the meaning of "mining operations" despite being presented with the opportunity to do so in recent case law. This legal uncertainty is further fuelled by a recent draft interpretation note issued by the South African Revenue Service ("SARS"), expressing the view that quarrying operations for inter alia clay for brickmaking and limestone for the manufacture of cement, do not constitute "mining operations". Practically, this legal uncertainty may act as a deterrent to mining companies incurring capital expenditure, essentially curbing the development of the SA mining industry. This study seeks to analyse the different meanings attributed by SARS, SA academic writers and SA courts to the definition of "mining operations" (and the related meaning of "mineral") for income tax purposes. The purpose of this analysis is to determine whether the extraction of clay for brickmaking and limestone for the manufacture of cement constitutes "mining operations". Against this background, Australian legislation and case law on the interpretation of the term "mining operations" and "mineral" will be studied in order to draw a comparison between SA and Australia's treatment of "mining operations". This study further interprets the meaning of "mining operations" through the application of the Savignian interpetation model in terms of which it is concluded that useful guidance can be sought by SA from Australian jurisprudence when interpreting the meaning of the term "mining operations" for income tax purposes and that the purposive test applied in Australia should be adopted by SA courts. Based on the application of this guidance, the key finding of this dissertation is that the extraction of clay for brickmaking and limestone for the manufacture of cement should in principle qualify as "mining operations" and that the capital expenditure incurred in this regard should be eligible for the 100% capital expenditure allowance.

Different tax rules apply to farming and manufacturing activities respectively, and it appears that the South African Revenue Service (SARS) applies an arbitrary practice in determining whether, and if so, at what point a farming operation needs to be distinguished from manufacturing activities. This dissertation explores how and when a taxpayer is required to distinguish between farming and manufacturing activities within the context of a single business i.e. when one form of 'trade' comes to an end, and when another form of 'trade' commences. The First Schedule to the Income Tax Act, 1962 (ITA), and paragraph 12, in particular, gives certain privileges to farmers that other taxpayers do not enjoy. Similar to this, taxpayers who are conducting manufacturing activities, or operations accepted and listed by SARS as a process of manufacture or similar process, enjoy advantageous allowances in respect of the write off of machinery and buildings. Thus, the point at which one activity ends and the next activity begins can have significant tax consequences. This dissertation argues that these consequences are too significant to be governed by arbitrary decisions. In conclusion it is shown that the ITA provides the wherewithal to enable the decisions to be made based on sound statutory principles. Where the wherewithal is not present, appropriate additions to the legislation are recommended. Examples from case law are also discussed from which general principles to be used in practice are developed.

General renvoi clauses in DTAs based on article 3(2) of the OECD MTC provide that an undefined term in a DTA shall have the meaning that it has in the domestic law of the contracting state applying the DTA unless the context otherwise requires. All South African DTAs include such a clause. Many interpretational issues remain with regard to the application and interpretation of general renvoi clauses. This article considers four of these issues in the light of South African cases in which general renvoi clauses were referred to. The following cases are considered: ITC 789 (1954) 19 SATC 434, Baldwins (South Africa) Ltd v Commissioner for Inland Revenue (1961) 24 SATC 270 and Commissioner for the South African Revenue Service v Tradehold Ltd 2012 3 All SA 15 (SCA). The first of the issues considered in the article is relevant in those cases where a DTA includes a general renvoi clause based on the pre-1995 version of article 3(2) and where amendments were made to a relevant domestic meaning after the conclusion of the particular DTA. These clauses do not expressly state whether the relevant domestic meaning is the domestic meaning existing at the time of the conclusion of the DTA, or at the time of the application of the DTA. The second issue arises if the expression used in the domestic law is not identical to the undefined treaty term. The question is whether the expression in the domestic law can be used to give meaning to the treaty term under the general renvoi clause. Another interpretational issue considered in the article concerns deeming provisions in the domestic law. The issue is whether a meaning that a term is deemed to have under a provision in domestic legislation can be used under the general renvoi clause to give meaning to the undefined term in the DTA. The last issue deals with the meaning of the phrase "unless the context otherwise requires". The question raised is whether this phrase means that the domestic meaning should be given only as a "last resort", or whether it should apply unless "reasonably strong" arguments to the contrary are made.

General renvoi clauses in DTAs based on article 3(2) of the OECD MTC provide that an undefined term in a DTA shall have the meaning that it has in the domestic law of the contracting state applying the DTA unless the context otherwise requires. All South African DTAs include such a clause. Many interpretational issues remain with regard to the application and interpretation of general renvoi clauses. This article considers four of these issues in the light of South African cases in which general renvoi clauses were referred to. The following cases are considered: ITC 789 (1954) 19 SATC 434, Baldwins (South Africa) Ltd v Commissioner for Inland Revenue (1961) 24 SATC 270 and Commissioner for the South African Revenue Service v Tradehold Ltd 2012 3 All SA 15 (SCA). The first of the issues considered in the article is relevant in those cases where a DTA includes a general renvoi clause based on the pre-1995 version of article 3(2) and where amendments were made to a relevant domestic meaning after the conclusion of the particular DTA. These clauses do not expressly state whether the relevant domestic meaning is the domestic meaning existing at the time of the conclusion of the DTA, or at the time of the application of the DTA. The second issue arises if the expression used in the domestic law is not identical to the undefined treaty term. The question is whether the expression in the domestic law can be used to give meaning to the treaty term under the general renvoi clause. Another interpretational issue considered in the article concerns deeming provisions in the domestic law. The issue is whether a meaning that a term is deemed to have under a provision in domestic legislation can be used under the general renvoi clause to give meaning to the undefined term in the DTA. The last issue deals with the meaning of the phrase "unless the context otherwise requires". The question raised is whether this phrase means that the domestic meaning should be given only as a "last resort", or whether it should apply unless "reasonably strong" arguments to the contrary are made

There are different opinions as to the process whereby double taxation agreements (DTAs) are incorporated into South African law. This contribution aims to discuss some of the existing opinions and to offer a further perspective on the matter. At the heart of the debate lies the interpretation of two provisions, namely section 231 of the Constitution of the Republic of South Africa and section 108 of the Income Tax Act and the interaction between the two. This contribution argues that South Africa's DTAs are not self-executing (a term referred to in section 231(4) of the Constitution) and should therefore be enacted into law by national legislation. It is furthermore argued that section 108(2) of the Income Tax Act enables a DTA to be incorporated into South African domestic law, by means of publication in the Government Gazette. An analysis of the case law supports this argument. Whether or not DTAs are regarded as self-executing, the status of a DTA in relation to the Income Tax Act still has to be determined. In other words, once the DTA forms part of South African domestic law, does it rank higher, lower or on a par with the Income Tax Act? It is submitted that the status of DTAs in South Africa is determined by the Constitution. It is furthermore submitted that South Africa's DTAs do not attain a status on the same level as the Constitution and that the Constitution allows for the possibility that South Africa's DTAs may be overridden by subsequent legislation (for example, by amendments to the Income Tax Act). Whether or not an override will take place in a specific case should, it is submitted, be determined by the application of the principles of statutory interpretation which apply in the case of conflict. Although this latter submission finds support in the minority judgement in Glenister, both the AM Moolla and Tradehold decisions express contrary views. The hope is expressed that the South African courts will provide clarity on this matter in due course.