Abstract
M.Com.
Base Erosion and Profit Shifting (BEPS) creates a risk for tax collections, the right to tax and tax fairness for all countries and their citizens. The Organisation for Economic Co-operation and Development (OECD) has highlighted the problems associated with tax planning in ways that erode the tax base that aim to shift profits to jurisdictions where they receive a more favourable tax treatment. The Supreme Court of Appeal (SCA) judgement on 8 May 2012 prevented the South African Revenue Services (SARS) from levying an exit tax on Tradehold Limited on a capital gain from the deemed disposal of its asset. SARS argued that although a valid Double Tax Agreement (DTA) was in place with Luxembourg, it did not apply to deemed disposals in terms of the application of the Capital Gains Tax (CGT) provisions of the Eighth Schedule to the Income Tax Act.
The research focuses on the case, C:SARS v Tradehold Limited. It applies a text-based expository doctrinal research methodology through a study of the need for DTAs, their objectives, the scope and classification of tax treaties and their interpretation. It also investigates the residence status of a corporate taxpayer with particular reference to the concept of ‘place of effective management’. This is crucial in establishing which tax jurisdiction has the right to tax the entity. The study researches Capital Gains Tax implications which arise once residency ceases, particularly in cases where DTAs are in place. It continues with an in-depth review of the Tradehold Limited case to gain an understanding of why the Supreme Court of Appeal (SCA) arrived at its decision and to gain an understanding of why the then Minister of Finance considered it necessary to amend the Income Tax Act to effectively nullify any DTA provisions when a taxpayer leaves South Africa and moves to a tax jurisdiction with which there is a DTA in place.