The suitability of a system of group taxation for South Africa, with specific reference to the recommendations of the Katz Commission

[摘要] ENGLISH ABSTRACT:The current South African tax dispensation does not make provision for a system ofgroup taxation, which gives rise to various tax anomalies. The Katz Commissionrecommended the implementation of a consolidation system of group taxation in theirthird interim report. This study investigates the issue of group taxation with theobjective of commenting on the Katz Commission's recommendation.Chapter 1 explains the purpose of a system of group taxation and discusses thedifferent forms of group taxation. Furthermore, the theoretical norms or canons aredescribed which can be used to evaluate the current tax treatment of groups as well asthe different forms of group taxation.Chapter 2 investigates the current tax treatment of groups by focussing on the taximplications of various intra-group transactions. It is found that the current taxtreatment of groups does not satisfy the canons of equity, neutrality, efficiency of taxcollection, low administration cost and certainty. Although the absence of a system ofgroup taxation may contribute to technical simplicity, such an absence also leads tocomplex tax schemes that attempt to exploit favourable tax anomalies or avoidunfavourable anomalies.Chapter 3 exammes certain Issues which may render a system of group taxationunnecessary or undesirable, even if such a system leads to better compliance with thecanons of taxation. The conclusion is reached that none of these issues will cause sucha result. With regard to the issue of divisionalisation as an alternative to grouptaxation, it is found that section 39 of the Taxation Laws Amendment, No. 20 of 1994does not provide an accessible mechanism for divisionalisation. Furthermore, groupsmay be preferred over divisionalised companies for various commercial and legalreasons. With regard to the issue of limited liability of individual group companies (abenefit which is not available to individual divisions of a single company) it is foundthat group companies rarely abuse this benefit. In addition, a system of group taxationwill complement the concept of limited liability in promoting economic growth. Withregard to the issue of concentration of economic control and ownership, the conclusion is reached that group taxation will not lead to further concentration ofeconomic control, as the intra-group shareholding required for group tax treatmentwill greatly exceed the intra-group shareholding necessary for economic control. Asystem of group taxation may even lead to the broadening of economic ownership byenabling minority shareholdings in group companies which would otherwise bestructured as divisions of existing companies due to tax considerations.Chapter 4 compares the loss transfer system of group taxation with the consolidationsystem, using the canons of taxation as a reference framework. Because a loss transfersystem is similar to the current tax treatment of groups, in the sense that bothdispensations treat individual group companies as separate taxable entities, the currenttax treatment of groups is included in the above mentioned comparison byimplication. It is found that a consolidation system will satisfy the canons of taxationthe best. Although such a system carries the risk of undue complexity, it should bepossible to design and implement a specific system which will fall within theadministrative capabilities of both taxpayers and tax authorities.Chapter 5 examines key recommendations of the Katz commission with regard togroup taxation. The writer expresses his agreement with the commission's conclusionthat a consolidation system of group taxation should be implemented gradually.Certain adjustments to the commission's recommendations are suggested, which willfacilitate quicker implementation and increased simplicity.The current tax treatment of groups leads to tax anomalies which are highlyunsatisfactory. From a theoretical as well as a practical perspective, theimplementation of a consolidation system of group taxation will represent asignificant improvement to the South African tax dispensation.

[发布机构] Stellenbosch University