Professorial Inaugural address: Thabo Legwaila
Multiple tax exposure to bountiful provisions all seeking to achieve the same goal of curbing tax avoidance creates uncertainty in the tax treatment of transactions. Thabo Legwaila, a Professor in Mercantile Law at the University of Johannesburg (UJ), argued that this could deter foreign investors seeking to enter South Africa, Prof Legwaila examined the impact of the rapidly increasing conundrum of curbing tax avoidance when he delivered his inaugural address in the Council Chambers, Madibeng Building, Auckland Park Kingsway Campus on Wednesday, 2 March 2016.
Prof Legwaila’s address focussed on the complexities that might have the effect of encouraging local investors to invest elsewhere, or even worse, re-domicile. In addition, the compliance burden occasioned by these multitudes of provisions is enormous.
“Most investors would not be able to determine the tax implications of interest financing without extensive assistance from the tax consultants and lawyers, he said. “In any tax system, it is undesirable to have high non-productive compliance costs in the form of tax fees to lawyers and consultants being at the forefront of investment due diligence.”
Prof Legwaila suggested that various corrective measures could be taken to limit the negative impact brought by the application of the anti-avoidance measures without compromising the integrity of the anti-avoidance nature of the provisions.
“A general corrective measure could be to unify interest deductibility rules (or tax treatment of interest as a general matter) and eliminate exposure to multiple provisions. Specific and targeted measures could also be taken in respect to certain provisions, such as by increasing the threshold for a controlling relationship to a higher percentage, for example 70% in line with connected person requirements,” said Prof Legwaila
He added that supplementary interpretative and practice resources such as interpretation notes could also be used to clarify the provisions, clearly separating the transactions to which the provisions apply, and thereby reducing reliance on tax advisors.
Abstract of the Professorial Inaugural address of Prof Thabo Legwaila – The impact of the rapidly increasing conundrum of curbing tax avoidance through the use of interest and payments economically equivalent to interest in South Africa and Internationally