A feasibility study of group taxation in South Africa

Abstract

Group taxation has been reported by some tax analysts as being a means to attract and increase foreign investment into South Africa, which could result in an increase in South Africa’s existing tax base. South Africa tax legislation currently provides for some forms of group tax relief, which is transaction specific. However, South Africa does not have a formal group tax system in place. The purpose of this theoretical study is to understand, analyse and evaluate the integrities of group taxation to determine whether or not it is feasible for the implementation of a group system into South Africa’s tax legislation. During this dissertation the term group taxation it is found to be a complex tax legislation and no one country that has implemented a group tax system has made use of the same methods and or criteria. The basic principles of a group tax system are: the inclusion of tax losses, and the consolidation of entities within the group into one legal entity, which entails the taxing of profit and losses of the group under one entity. However, due to each countries economy begin different, additional tax legislation is added by each country to these basic principles, which then results in no one group tax system being the same. This dissertation contains a summary of the various forms of group tax relief, which countries such as Australia, United Kingdom and Spain have implemented. After having regarded the advantages and disadvantages associated with a group tax system, this dissertation will attempt to determine a best practise for implementing a group tax system from a South African perspective. A conclusion is then made that, before South Africa can consider a full tax consolidated system the concept of transferring tax losses between group companies will have to be researched and tested to obtain a complete understanding of what this concept entails, and what the economic implications would be. For instance, during and just after a recession companies will have increased losses or lower profits, i.e. it may not be good to bring in group tax at such a stage. Ultimately, the way forward in implementing a full tax consolidated system into South Africa’s tax legislation should be transitional, being that the implementation is done in segments and the inclusion of such new legislation is done over a period of time, which reflects the current economic times within South Africa. Copyright