IT Lecture weeks 14, 15 and 16 - Other anti-avoidance measures

Pre-recorded lectures on anti-avoidance and CFCControlled Foreign Corporations (CFCs) are a fundamental concept in international taxation, referring to foreign companies that are under the control of domestic shareholders. Control is typically established when residents of a country, either individually or collectively, own more than a specified percentage of a foreign company’s shares, voting rights, or have the ability to exert substantial influence over its decision-making.... provisions using S.Africa as a practical example:

Lecture 14 Anti-avoidance LECTURE: https://www.dropbox.com/s/m1hzmk3ojko3h6f/Week{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e}2014_DrErasmus.mp4?dl=0 – please note that you were required to listen to this lecture to answer Tutorial question 97. If you have done so, please do the additional reading below, and only then move onto the CFCControlled Foreign Corporations (CFCs) are a fundamental concept in international taxation, referring to foreign companies that are under the control of domestic shareholders. Control is typically established when residents of a country, either individually or collectively, own more than a specified percentage of a foreign company’s shares, voting rights, or have the ability to exert substantial influence over its decision-making.... lecture. If you have not listened to this lecture and answered Tutorial question 97 please do so ASAP. Additional notes on the Tax AdministrationTax authorities are fundamental institutions within government frameworks, overseeing tax assessment, collection, and administration. Their operations ensure that tax laws are enforced and public funds are collected efficiently. This article delves into tax authorities' purpose, responsibilities, and structure, offering insights into their essential role in supporting government functions and economic stability. What is a Tax Authority? A tax authority is... Act (S.Africa) Penalty Provisions: § 7.3 TAA Penalties incl penalties on reportable arrangements. Here are more notes on Reportable Arrangements: Reportable arrangement notes.

Lecture 15 CFCsControlled Foreign Corporations (CFCs) are a fundamental concept in international taxation, referring to foreign companies that are under the control of domestic shareholders. Control is typically established when residents of a country, either individually or collectively, own more than a specified percentage of a foreign company’s shares, voting rights, or have the ability to exert substantial influence over its decision-making.... LECTURE is set out further below with points to take note of: https://www.dropbox.com/sh/a8kckgu4m7xpvu8/AAAZGrn6iDb8MVZ12krR2mqLa?dl=0

Lecture 16 – no lecture but please submit as Tutorial 16 a brief one page answer to POTENTIAL EXAM QUESTION with “guarantee member” and CFCsControlled Foreign Corporations (CFCs) are a fundamental concept in international taxation, referring to foreign companies that are under the control of domestic shareholders. Control is typically established when residents of a country, either individually or collectively, own more than a specified percentage of a foreign company’s shares, voting rights, or have the ability to exert substantial influence over its decision-making.... as set out below and in Tutorial Question 99.

Please note, that these 2 lectures 14 and 15 (anti-avoidance and CFCsControlled Foreign Corporations (CFCs) are a fundamental concept in international taxation, referring to foreign companies that are under the control of domestic shareholders. Control is typically established when residents of a country, either individually or collectively, own more than a specified percentage of a foreign company’s shares, voting rights, or have the ability to exert substantial influence over its decision-making....) use S.Africa as a practical example of the typical anti-avoidance and evasion provisions you will find in different jurisdictions. You should have read your textbook that gives you a broad overview of anti-avoidance principles and measures you will encounter in domestic and international tax lawTax laws form the backbone of any nation’s revenue system, setting the rules that govern how individuals and corporations contribute financially to support government functions. These laws define the types of taxes, the applicable rates, and the regulations regarding payment and compliance. They also outline the rights and obligations of taxpayers, ensuring a balanced and fair approach to funding public....

These lectures now focus on S.Africa as a specific example of the application of some of these principles. This serves as an example of how anti-avoidance and evasion provisions are applied in practice. We look at common law principles, and GAAR provisions, as well as reportable arrangements and aspects of the S.African Tax AdministrationTax authorities are fundamental institutions within government frameworks, overseeing tax assessment, collection, and administration. Their operations ensure that tax laws are enforced and public funds are collected efficiently. This article delves into tax authorities' purpose, responsibilities, and structure, offering insights into their essential role in supporting government functions and economic stability. What is a Tax Authority? A tax authority is... Act (TAA) that gives you pointers on how to interact with a Revenue AuthorityTax authorities are fundamental institutions within government frameworks, overseeing tax assessment, collection, and administration. Their operations ensure that tax laws are enforced and public funds are collected efficiently. This article delves into tax authorities' purpose, responsibilities, and structure, offering insights into their essential role in supporting government functions and economic stability. What is a Tax Authority? A tax authority is... in the case of an audit. As much as reference is made to the TAA and note updates, simply listen to what is being said. References are also made to other legislation. It is NOT NECESSARY for you to access the TAA or the other legislation referred to look up the sections, unless you want to do so for your own purposes. Reference is made to a textbook in the lectures. That reference is replaced by these notes that deal specifically with key anti-avoidance provisions in S.Africa: SA Anti-avoidance These notes supplement the lecture on the application of anti-avoidance principles should you require more detail – you will not be examined on these specific principles, but it is good to know about them.

For ease of reference here is case 198 on double jeopardy referred to in the lecture: SA Tax Board Decision No case 198

COMPULSORY ADDITIONAL READING – PLEASE ALSO read the references to Victor Thuronyi Comparative Tax Law – eBook below (Sections/Chapter 5.1 to 5.7), which explains the anti-avoidance principles in a broader context.

In essence:

Taxpayers tend to structure applying a literal interpretation of tax legislationTax laws form the backbone of any nation’s revenue system, setting the rules that govern how individuals and corporations contribute financially to support government functions. These laws define the types of taxes, the applicable rates, and the regulations regarding payment and compliance. They also outline the rights and obligations of taxpayers, ensuring a balanced and fair approach to funding public...;
Courts may disallow benefits if there is a sound legal basis for doing so. What is that sound legal basis? That is where the anti-avoidance provisions in domestic law per country and as per international tax lawTax laws form the backbone of any nation’s revenue system, setting the rules that govern how individuals and corporations contribute financially to support government functions. These laws define the types of taxes, the applicable rates, and the regulations regarding payment and compliance. They also outline the rights and obligations of taxpayers, ensuring a balanced and fair approach to funding public... in the double tax treatyA Double Taxation Agreement (DTA), also known as a Double Taxation Treaty (or a Tax Treaty), is an international tax treaty between two or more countries that aims to prevent individuals or businesses from being taxed twice on the same income. With globalisation and the increase in cross-border economic activities, DTAs have become essential tools for promoting trade, investment, and... provisions, come into play;
This usually involves a judge-made decision or statutory anti-avoidance rule;
Such a rule may allow the statutory language applied on a literal basis to substantiate the tax structure being set aside in favour of taxation based on the economic substanceEconomic substance is a foundational principle in taxation and business law, ensuring that transactions and corporate structures reflect genuine economic reality beyond their legal form. The concept aims to prevent tax avoidance by evaluating whether a transaction or arrangement has a real business purpose and economic effect other than merely achieving a tax benefit. It ensures that taxpayers cannot exploit... of the transaction;
In which circumstances do such anti-avoidance provisions apply?
Sometimes the anti-avoidance provision is applied by the court not recognizing the labeled legal transaction put forward by the taxpayer eg. a debt incurring a very high interest rate, may not be regarded in terms of commercial law as a debt in the first place, thus calling into question the interest deduction. The courts will give effect to the true nature of the legal transaction and the tax consequences that flow from that;
READ Thuronyi at the bottom of page 152 “Experience has taught legislatures and courts in most OECDThe Organisation for Economic Co-operation and Development (OECD) is an international organisation comprising 38 member countries, established to foster economic growth, trade, and development on a global scale. Founded in 1961, the OECD provides a forum for governments to collaborate, share policy experiences, and develop solutions to common economic challenges. The OECD's core mission is to promote policies that improve... countries…(onto page 153 top paragraph ending at)…and the extent of uncertainty will vary from country to country.”
Because countries have not adopted a uniform approach to tax avoidanceTax avoidance refers to the practice of legally structuring financial activities to minimise tax liability, reducing the amount of tax owed without violating laws. Unlike tax evasion, which is illegal and involves concealing income or misreporting, tax avoidance operates within the framework of the law. Multinational enterprises (MNEs) and individuals often engage in tax planning strategies that reduce tax liabilities... substantial differences between countries will continue to exist;
IMPORTANT TO NOTE: A well documented set of anti-avoidance rules have developed in the OECDThe Organisation for Economic Co-operation and Development (OECD) is an international organisation comprising 38 member countries, established to foster economic growth, trade, and development on a global scale. Founded in 1961, the OECD provides a forum for governments to collaborate, share policy experiences, and develop solutions to common economic challenges. The OECD's core mission is to promote policies that improve... Model Tax Convention commentaries (see the 2017 version in pdf, and search the text for the word “anti-avoidance” to get an idea of the extent thereof) but these interplay with domestic anti-avoidance provisions, which are applicable, depends on a careful analysis of the facts and circumstances in each case – THIS COULD BE A POTENTIAL EXAM QUESTION;
Statutory GAAR provisions are at best problematical and sometimes difficult to apply, due to their broadness and complexity. However, in their application, a set framework will exist where the Revenue AuthorityTax authorities are fundamental institutions within government frameworks, overseeing tax assessment, collection, and administration. Their operations ensure that tax laws are enforced and public funds are collected efficiently. This article delves into tax authorities' purpose, responsibilities, and structure, offering insights into their essential role in supporting government functions and economic stability. What is a Tax Authority? A tax authority is... must meet all the jurisdictional facts of the GAAR provisions, but ultimately the onus of proof tends to lie with the taxpayer. In applying common law anti-avoidance provisions, the onus of proof may lie with the Revenue AuthorityTax authorities are fundamental institutions within government frameworks, overseeing tax assessment, collection, and administration. Their operations ensure that tax laws are enforced and public funds are collected efficiently. This article delves into tax authorities' purpose, responsibilities, and structure, offering insights into their essential role in supporting government functions and economic stability. What is a Tax Authority? A tax authority is... who allege anti-avoidance. Check each jurisdiction carefully;
Common law developed anti-avoidance provisions are even more problematical, covering the following broad areas: sham transactions, simulation, and abuse of law. PLEASE READ Thuronyi 5.6 and 5.7.

Lecture 15 CFCsControlled Foreign Corporations (CFCs) are a fundamental concept in international taxation, referring to foreign companies that are under the control of domestic shareholders. Control is typically established when residents of a country, either individually or collectively, own more than a specified percentage of a foreign company’s shares, voting rights, or have the ability to exert substantial influence over its decision-making.... LECTURE: https://www.dropbox.com/sh/a8kckgu4m7xpvu8/AAAZGrn6iDb8MVZ12krR2mqLa?dl=0

The reference to section 9D on CFCsControlled Foreign Corporations (CFCs) are a fundamental concept in international taxation, referring to foreign companies that are under the control of domestic shareholders. Control is typically established when residents of a country, either individually or collectively, own more than a specified percentage of a foreign company’s shares, voting rights, or have the ability to exert substantial influence over its decision-making.... in South Africa is here: cfc eg. 9D.Net income of controlled foreign companies.—(1) For the purposes of this section

When reference is made to the Tax AdministrationTax authorities are fundamental institutions within government frameworks, overseeing tax assessment, collection, and administration. Their operations ensure that tax laws are enforced and public funds are collected efficiently. This article delves into tax authorities' purpose, responsibilities, and structure, offering insights into their essential role in supporting government functions and economic stability. What is a Tax Authority? A tax authority is... Act (“TAA”) in S.Africa, there is no need to access the Act. Simply listen.

As already stated this lecture gives a practical example of applying CFCControlled Foreign Corporations (CFCs) are a fundamental concept in international taxation, referring to foreign companies that are under the control of domestic shareholders. Control is typically established when residents of a country, either individually or collectively, own more than a specified percentage of a foreign company’s shares, voting rights, or have the ability to exert substantial influence over its decision-making.... provisions in S.Africa as an example.

Skip from 33 minutes into the lecture to 43 minutes 30 secs into the lecture where there were connection issues.

Where reference is made to the textbook in the lectures, replace with this up-to-date textbook extract on S.African CFCControlled Foreign Corporations (CFCs) are a fundamental concept in international taxation, referring to foreign companies that are under the control of domestic shareholders. Control is typically established when residents of a country, either individually or collectively, own more than a specified percentage of a foreign company’s shares, voting rights, or have the ability to exert substantial influence over its decision-making.... provisions:2018 CFC textbook notes

For lecture 16 tutorial: POTENTIAL EXAM QUESTION with “guarantee member” and CFCsControlled Foreign Corporations (CFCs) are a fundamental concept in international taxation, referring to foreign companies that are under the control of domestic shareholders. Control is typically established when residents of a country, either individually or collectively, own more than a specified percentage of a foreign company’s shares, voting rights, or have the ability to exert substantial influence over its decision-making.... : Take a look at the following CFCControlled Foreign Corporations (CFCs) are a fundamental concept in international taxation, referring to foreign companies that are under the control of domestic shareholders. Control is typically established when residents of a country, either individually or collectively, own more than a specified percentage of a foreign company’s shares, voting rights, or have the ability to exert substantial influence over its decision-making.... problem below and read the supporting documentation, and determine if there is a CFCControlled Foreign Corporations (CFCs) are a fundamental concept in international taxation, referring to foreign companies that are under the control of domestic shareholders. Control is typically established when residents of a country, either individually or collectively, own more than a specified percentage of a foreign company’s shares, voting rights, or have the ability to exert substantial influence over its decision-making.... problem using the “guarantee member” structure:CFC eg. Problem with “guarantee member”

HYBRID COMPANIES – read about this interesting type of company that ‘acts’ like a trustA comprehensive look at trusts in international tax law, including definitions, practical examples, key cases, and synonyms., but is not a trustA comprehensive look at trusts in international tax law, including definitions, practical examples, key cases, and synonyms., and could be useful to side-step certain anti-avoidance provisions (eg. CFCControlled Foreign Corporations (CFCs) are a fundamental concept in international taxation, referring to foreign companies that are under the control of domestic shareholders. Control is typically established when residents of a country, either individually or collectively, own more than a specified percentage of a foreign company’s shares, voting rights, or have the ability to exert substantial influence over its decision-making.... rules) aimed at passive income receipts by trustsA comprehensive look at trusts in international tax law, including definitions, practical examples, key cases, and synonyms.. Look at this and think about what anti-avoidance rules may apply.

cfc eg. 9D.Net income of controlled foreign companies.—(1) For the purposes of this section— with relevant highlighted sections relevant to the “problem with a guarantee member” referred to above. Read this with an explanation of such a “guarantee member” in HYBRID COMPANIES immediately above.

QUESTION TO ANSWER: Would the guarantee member have “participation rights” as envisaged in section 9D? one-page only.

Follow curriculum – Reading:

7 Chapter Anti-avoidance Measures – Chapter 7

OECD Income and Capital Model Convention and Commentary 2017 ARTICLES 24 and 26, and commentaries

UN Model Double Taxation Convention and Commentaries 2011 Update ARTICLES 24 and 26, and commentaries

http://www.oecd.org/ctp/beps-2015-final-reports.htm – Action 3 – CFCControlled Foreign Corporations (CFCs) are a fundamental concept in international taxation, referring to foreign companies that are under the control of domestic shareholders. Control is typically established when residents of a country, either individually or collectively, own more than a specified percentage of a foreign company’s shares, voting rights, or have the ability to exert substantial influence over its decision-making....

International Tax- Tax Havens and Tax Avoidance report – look at:

Where Are the Tax Havens? ……………………………………………………………………………………………… 3

Methods of Corporate TaxCorporate Tax refers to the tax imposed by governments on the income or capital of corporations. Corporations, considered separate legal entities, are taxed on their profits, meaning the income generated from their operational activities, investments, and other financial undertakings. This tax is generally a key revenue source for governments, helping to fund public services, infrastructure, and other essential functions. The...Tax AvoidanceTax avoidance refers to the practice of legally structuring financial activities to minimise tax liability, reducing the amount of tax owed without violating laws. Unlike tax evasion, which is illegal and involves concealing income or misreporting, tax avoidance operates within the framework of the law. Multinational enterprises (MNEs) and individuals often engage in tax planning strategies that reduce tax liabilities... ………………………………………………………………………………… 9

Methods of Avoidance and Evasion by Individuals …………………………………………………………….. 24

Narrower Provisions Affecting Multinational Profit ShiftingProfit Shifting is a strategic practice employed by multinational enterprises (MNEs) to reduce their global tax liability by shifting profits from high-tax jurisdictions to low- or no-tax jurisdictions. The primary method involves transferring income-generating activities, intangible assets, or other high-value components within the group to countries with favourable tax regimes. Profit Shifting is a critical concern for tax authorities and... …………………………………………. 32

Options to Address Individual Evasion …………………………………………………………………………….. 34

Victor Thuronyi Comparative Tax Law – eBook, especially:

5.1 In General 133

5.2 Conflicting Maxims 136

5.3 Country Practice 137

5.4 Tax AvoidanceTax avoidance refers to the practice of legally structuring financial activities to minimise tax liability, reducing the amount of tax owed without violating laws. Unlike tax evasion, which is illegal and involves concealing income or misreporting, tax avoidance operates within the framework of the law. Multinational enterprises (MNEs) and individuals often engage in tax planning strategies that reduce tax liabilities...: Introduction 150

5.5 Tax AvoidanceTax avoidance refers to the practice of legally structuring financial activities to minimise tax liability, reducing the amount of tax owed without violating laws. Unlike tax evasion, which is illegal and involves concealing income or misreporting, tax avoidance operates within the framework of the law. Multinational enterprises (MNEs) and individuals often engage in tax planning strategies that reduce tax liabilities... and Evasion 154

5.6 Sham Transactions, Simulation, and Abuse of Law 157

5.7 General Anti-Avoidance Rules 160

Additional supplementary reading – some required to answer tutorial questions:

Basic International Taxation Vol I by Roy Rohatgi – eBook – Chapter 4.8

14 16 2018 Anti abuse legislation The Importance of Substance in a Private Equity Fund Context – good summary of current general anti-avoidance issues

14 16 anti-avoidance how robust is a Structured Finance Deal

14 16 BEPS OECD Harmful Tax Practices ‑ 2017 Progress Report on Preferential Regimes

14 16 2018 Anti abuse legislation The Importance of Substance in a Private Equity Fund Context