The corporate tax structure in South Africa: an overview of alternative design options
| Date | 20 September 2021 |
| Published date | 20 September 2021 |
| Author | Tredoux, L. |
| Pages | 656-687 |
| DOI | https://doi.org/10.47348/TSAR/2021/i4a2 |
https://doi.org /10.47348/ TSAR /2021/i4a 2
TSAR 2021 . 4 [ISSN 0257 – 7747]
656
The corporate tax structure in South Africa:
an overview of alternative design options*
LIEZEL TREDOUX**
KATHLEEN VAN DER LINDE***
SAMEVATTING
DIE KORPORATIEWE BELASTINGSTRUKTUUR IN SUID-AFRIKA: ’N OORSIG OOR
ALTERNATIEWE ONTWERPSKEUSES
Belastingwet gewing kan ver skillende modelle volg ten opsigte van die verband t ussen die hef ng
van belasting o p maatskappy-in komste en die belas tingpligtig heid van aandeel houers ten opsigt e
van uitkeri ngs wat hul vanaf ’n maats kappy ontvang. Ten spyte va n die afsonderlike b estaan van
maatskappy e n aandeelhouer, word die twee vlakke v an belasting op dieselfde stro om geld algemeen
beskou as ekonomies e dubbele belasting wat op een of and er wyse uitgeskakel of verlig moe t word.
Die interak sie tussen belast ing op korpora tiewe en aandeelho uersvlak kan met ve rwysing na d rie
kernmodel le geklassiseer word: ’n kla ssieke stelsel sonder integ rasie; volle integrasie; of gedeelt elike
integrasie. Daar is ook hibriede stelsels wat nie in hierdie spesieke kategorieë geplaas kan word
nie. Integra sie behels die kombinasie va n korporatiewe en a andeelhouers belasting ten ei nde een
van die twee vlak ke van belasting u it te skakel of te verm inder. Ekonomiese dubb ele belasting kan
ook verlig word deur and er meganismes, s oos om dividende vr y te stel van belasting, aft rekkings of
belastingk rediete toe te staan, of deu r die verlaging van bel astingkoer se op een of albei vlakke. D ie
keuse van korpo ratiewe belastingst ruktuu r beïnvloed die na-belast ing opbrengs van aa ndeelhouers, die
belastinga anspreeklik heid van sowel die aandeelhoue r as die maatskappy, asook d ie belastingopbrengs
vir die skus. Die outeur s demonstreer op vergelykende grondslag die pote nsiële impak van elke stelsel
terwyl as u itgangspunt aangeneem word d at dieselfde bedrag onder elke stel sel aan die aandeelhouer
uitgekeer word en dat d ieselfde belastingkoer se in elke stelsel geld.
Suid-Afri ka het deur die jare me t verskeie van hierdie m odelle en meganisme s geëksperi menteer
en pas tans ’n hibr iede dubbele-koer s stelsel met ’n terugho ubelasting op div idende toe. Hoewel dit
dubbele belasti ng nie heeltemal uits kakel nie, bied dit ’n mate van ve rligting aan a andeelhouers .
Interessa nt genoeg het verskeie ander lande oo k tussen verskillend e modelle beweeg en is daar wein ig
konvergensie te besp eur. Die ontwerp va n ’n geskikte korp oratiewe belasti ngstruk tuur vir Su id-
Afrika h ang af van die regering se beleid sdoelstellings. Terselfdert yd moet daar by die oplegging van
belasting gest reef word na deursigtigheid en voldoe ning aan die normatiewe verei stes van billikheid,
doeltreffend heid en eenvoud.
Wat betref die prak tiese voorbeelde wat in h ierdie art ikel uiteengesit word, wor d die maksimum
na-belaste in komste vir aa ndeelhouers ger ealiseer deu r die implementer ing van ’n imputasiest elsel,
dividendvr ystelling of ’n kred ietstelsel vir a andeelhouers. Da arenteen is d ie gunstigste s telsel
vanuit die oogpu nt van ’n maatskappy ’n divide ndaftrek kingsmodel, t erwyl die hoogst e inkomste
vir die sk us ingevor der word volgens die kla ssieke stelsel. In hierdie voorbeelde bewerkstellig ’n
terughoub elasting op dividende ’n gesonde bala ns aangesien die toepassi ng daarvan ’n bogemiddelde
opbrengs vir a andeelhouers en ’n na-belaste i nkomste vir die maatska ppy laat wat goed vergelyk met
aandeelhoue rvlak-verligtingstelsels. D it waarborg ook ’n billike in komste-vordering vir d ie skus.
Aangesien Suid-Af rika bykomende belasti nginkomste nodig het om sy u itgawes te dek, armoede te
verlig en gelykheid in d ie belastingstelsel te verbet er, blyk dit dat sy dubbele-koers stels el tesame met
die hefng van ’n terug houbelasting op dividende goed opweeg teen onla ngse hervormi ngsvoorstelle
van vooraans taande geleerdes op die i nternasionale front.
* This article is partially based on extracts from the rst author’s unpublished doctoral thesis Aspects of
the Taxation of Company Distributions in South Africa (2018 thesis UJ) which was supervised by the
second author.
** Senior lecturer, University of South Africa.
*** Professor of Law, University of Johannesburg.
2021 TSAR 656
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THE CORPOR ATE TAX STRUCTURE I N SOUTH AFRICA 657
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https://doi.org /10.47348/ TSAR /2021/i4a 2
1 Introduction
While companies are recognised as taxpayers in their own right , taxable on the
income they earn, they can be expected to dist ribute some of that income to
their shareholders, who are separate t axpayers. States differ in their approach
to the taxation of i ncome earned by companies and of dis tributions received by
shareholders.1 In South Af rica, income tax is rst levied on the compa ny in respect
of the income it earns, while secondly, upon distribution to shareholders, either
income tax, dividends tax or capital gains tax is levied depending on the nature
of the distribution made by the company to its shareholders.2 The imposition of
this second layer of t ax could constitute economic double ta xation in that the same
income is taxed twice i n the hands of two different recipients.3
International ly, several different models for the design of domestic tax legislation
to reg ulate the i nteraction between these two levels of tax have been developed.4
Some countries integrate corporate and personal taxes or grant relief from economic
double taxation of corporate prots, while others do not.5 Integration involves the
combination of corporate and sha reholder ta x, which eliminates or reduces one of
the levels of taxation.6 Economic double taxat ion can also be alleviated by other
mechanisms such as exempting dividends from tax, granting deductions or t ax
credits, or redu cing the tax rates levied on one or both levels. These other methods
do not amount to integrat ion but could even be included in integrated systems. The se
choices determine the nature of the corporate tax system. Corporate and shareholder
tax integrat ion is considered advantageous in a tax sy stem,7 as it can attract foreign
direct investment, reduce the tax on corporations and encourage growth while still
ensuring t he collection of a sustain able level of income tax.8
1 Harris Corporate/Shareholder Income Taxation and Allocating Taxing Rights between Countries A
Comparison of Imputation Systems; Book I The Theory of Corporate/Shareholder Income Taxation
(1996) 49-50; Lent “Corporation income tax structure in developing countries” 1977 IMF Staff Papers
724; Van Raad “In a world where classical and integration systems co-exist, article 10 of the OECD
Model should not disregard the underlying corporation income tax” 1995 Intertax 15-16.
2 Stiglingh et al Silke South African Income Tax 2021 (2021) 706.
3 Messere Tax Policy in OECD Countries Choices and Conicts (1993) 330; Harris (n 1) 54-56; Olivier
and Honiball International Tax A South African Perspective 2011 (2011) 6-7; Thuronyi II Tax Law
Design and Drafting (1998) 812; Rasmussen International Double Taxation (2011) 2; Teixeira Taxing
Corporate Prots in the EU A Comparison of the Portuguese, British and Dutch Systems (1997) 1;
Norr The Taxation of Corporations and Shareholders (1982) 43. In contrast, Messere, De Kam and
Heady Tax Policy Theory and Practice in OECD Countries (2003) 118-119 do not view the different
activities to which different types of tax apply (namely corporate tax at the rst tier of taxation and
personal tax at the second tier) as economic double taxation but consider this a term used as propaganda
in tax literature.
4 OECD “Overall statutory tax rates on dividend income – Table 11.4” (2021) https://stats.oecd.org/
Index.aspx?QueryId=59615 (19-06-2021); Saavedra “Tax system: integrated or disintegrated?” (2020)
https://www.ciat.org/ciatblog-sistema-tributario-integrado-o-desintegrado/?lang=en (19-06-2021).
5 For the different regimes followed in different states in 2020, see OECD (n 4); Saavedra (n 4). Mintz
“Cashing out prots: international approaches to dividend taxation” 2003 Tax Notes International 255
257; Harris (n 1) 49-50; Norr (n 3) 1.
6 Harris (n 1) 50; Bird and Scott-Wilkie “Designing tax policy: constraints and objectives in an open
economy” 2013 eJournal of Tax Research 284 298-299; see also McLure “International aspects of
dividend relief” 1980 The Journal of Corporate Taxation 137; Norr (n 3) 41; Breslin “Corporate
integration” 1995 Taxes 622-629.
7 Hardman “Corporate tax reform: the key to international competitiveness” 1993 Vanderbilt Journal of
Transnational Law 509 530; Brauner “Integration in an integrating world” 2005 NYU Journal of Law
and Business 51 68-76; Mintz (n 5) 266.
8 Harris (n 1) 50. Bird and Scott-Wilkie (n 6) 298-299; see also McLure (n 6) 137; Norr (n 3) 41; Breslin
(n 6) 622-629.
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https://doi.org /10.47348/ TSAR /2021/i4a 2
TSAR 2021 . 4 [ISSN 0257 – 7747]
658 TREDOUX A ND VAN DER LINDE
In November 1995 the Third Interim Report of the Katz Commission came
out in favour of an imputation system9 as an alternative corporate tax str ucture
for South Africa, but the quest ion of its implementation was not considered by
national treasury.10 In 2013, the Davis Tax Committee was also ma ndated to assess
the efcacy of the cor porate tax structure and evaluate its alignment with the
developmental objectives as expressed i n the South African government’s National
Development Plan (N DP) as well as international tax policy trends.11 The need
to prevent “base erosion a nd prot shifti ng” (BEPS) in cross-border trans actions,
was also expressed as a goal i n the reform of South African domestic corpor ate tax
law.12
Although certai n of the design options for the corporate tax struct ure were
explained briey in its nal report in 2018, the Davis Tax Committee did not
analyse alternat ive corporate t ax structures in any det ail.13
This contribution a nalyses the desig n of the corporate tax st ructure wit h
specic reference t o the integration of corp orate-level and shareholder-level tax on
distributions made to shareholders. It contain s a brief explanation of the models of
corporate tax that contain no integration, those that fu lly integrate corporate and
shareholder-level t ax and explains partial integration systems as well as hybrid
models. It investigates the ideal design of the cor porate tax struct ure from a South
African perspective by illustrating the effect of different systems on the overall
tax collected by the sc us, as well as the after-tax income available to t axpayers.
Lastly, it critically analyses the South African corporat e tax system to deter mine its
suit abilit y in prote cting t he tax bas e agains t base ero sion and pr ot shift ing (BEP S).
9 An imputation system combines the corporate and the shareholder level taxes and eliminates double
taxation within the corporate tax structure. The terms integration and imputation are often used
interchangeably.
10 Katz et al Third Interim Report of the Commission of Inquiry into Certain Aspects of the Tax Structure
of South Africa (1995) 85 and 94; Van Blerck “Company-shareholder taxation in South Africa: single
or double taxation?” 2003 Bulletin for International Fiscal Documentation 567 569.
11 Davis Tax Committee Second and Final Report on the Macro Analysis of the Tax System and Inclusive
Growth in South Africa An Analytical Framework for the Davis Tax Committee (2016) 111-112. The
purpose of this committee is to make recommendations to the minister of nance for possible inclusion
in budget announcements and the amendment of legislation; Oguttu International Tax Law Offshore
Tax Avoidance in South Africa (2015) 55. Specic objectives included the promotion of accelerated
inclusive growth and investment, the creation of more employment opportunities, the promotion
of development, and scal sustainability. See too Davis Tax Committee 111-113. Broader socio-
economic policy objectives include revenue raising to fund government expenditure, the creation of an
inclusive society in which resources are redistributed, the correction of market failures, encouragement
of changes in the behaviour of taxpayers to encourage savings, discouragement of other behaviour, and
the creation of a competitive tax regime.
12 Davis Tax Committee (n 11) 67 and 114. Base erosion refers to the loss in tax revenue suffered
by the state in which the value (prot) is created. This undermining or erosion of the tax base is
a direct result of moving prot, income, or distributions to a different jurisdiction from the one in
which it was created. Base erosion and prot shifting can be prevented by tightening the application of
anti-avoidance provisions or designing new specic anti-avoidance provisions.
13 Davis Tax Committee Report on the Efciency of South Africa’s Corporate Income Tax System (2018)
28-85.
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