Abstract
M.com.
Determining a company’s residency is based on two tests. The first test is the place where the company is incorporated, established or formed, which is fairly straight forward. The second test is based on the place of effective management (POEM) of a company. Confusion caused by varying interpretation of the term forms the crux of this study. This research charts the interpretation of the term ‘POEM’ within the South African context. Guidance for interpreting POEM was provided to taxpayers in Interpretation Note 6 Issue 1. However, because there was no definitive interpretation of POEM, the term remained vulnerable to manipulation for many years. The present research addresses the problem of whether Interpretation Note 6 Issue 2 changes the way POEM is being applied by foreign companies operating in South Africa and whether the uncertainties that arose from the application of Interpretation Note 6 Issue 1 have subsequently been resolved. The research question posed in this study is whether Interpretation Note 6 Issue 2 has improved the interpretation of POEM in South Africa by providing more certainty regarding the application of POEM in South Africa.
The study argues that the new interpretation of POEM provides an improved understanding for the taxpayer and also serves as an accurate legal precedent in the South African context. The research relies on documentary data, which consists of the South African Income Tax Act, SARS Interpretation Note 6 Issues 1 and 2, the SARS discussion paper, case law and relevant research in order to reach a definitive conclusion. The study sets out the interpretation of POEM as currently applied in South Africa. In doing so, it provides greater clarity for taxpayers, particularly those involved in cross-border transactions or multinational organisations.