Abstract
M.Com.
This research concerns itself with the problem of tax avoidance by multinationals operating in South Africa. It is the author’s supposition that multinational tax avoidance is a pervasive and systematic problem with an adverse impact on developing countries such as South Africa. It is hoped that this research will identify and diagnose multinational tax avoidance in all its manifestations, with the end goal of possibly proposing solutions and remedies to address this problem. Tax avoidance is described as a situation in which taxpayers take advantage of provisions in tax law to legally reduce their tax liability. In contrast to tax avoidance is tax evasion, which is when taxpayers use illegal means to reduce their tax liability. Tax evasion is a criminal offence.
The term ‘multinational companies’ usually refers to entities that exhibit the following characteristics:
- they consist of multiple group companies dispersed around the globe;
- the parent company within the group is usually based in a developed country;
- the operating subsidiaries within the group are usually based in developing or third world countries with high tax rates; and
- they have subsidiaries with little or no economic activity are usually incorporated in a tax haven, and interposed between the parent company and operating subsidiaries.
Naturally, this multiplicity of locations provides multinationals with opportunities for tax avoidance. Multinational tax avoidance typically manifests itself in the following manner:
- the charging of artificial prices between group companies with the express purpose of avoiding tax; and
- the shifting of taxable income from operations based in the so-called ‘high tax jurisdiction’ to ‘sham’ companies in tax havens using the artificial prices.
The research method adopted is of a qualitative, descriptive nature, based on a detailed analysis and review of tax avoidance literature. This research can be classified as being pragmatic, since it seeks to evaluate the existing tax avoidance system, and suggest solutions to minimise the problem. The analysis entailed critically evaluating earlier work in the field, paying due attention to their contributions, and to any methodological problems and limitations involved. It also pays due attention to theoretical problems and controversies, and to key findings...