Interest limitation and thin capitalisation rules: an analysis of global practices and learnings for South Africa
type: CreativeWork
description: South Africa loses approximately R7 billion a year due to profit shifting by multinational corporations amounting to about 4% of the total corporate income tax receipts. It is estimated that 98% of this tax loss can be directly attributed to the profit shifting schemes of the largest 10% of multinational enterprises. The term ‘profit shifting' refers to the transferring or shifting of profits within a multinational group of companies from a firm in a higher‐tax‐rate country to an associated company in a lower‐tax‐rate country. It can be legitimate to some degree, however this practice by multinationals is increasingly becoming a challenge for tax authorities and governments worldwide. These challenges are particularly difficult for developing countries such as South Africa as the country is more reliant on corporate tax revenues compared to more economically developed countries. The risk of South Africa's tax base eroding due to profit shifting is thus vitally important to address. It is becoming increasingly important for the South African government to protect its tax base from aggressive tax planning along with attempting to alleviate the burden on taxpayers from the administrative costs of complying with the OECD arm's length approach. Therefore, this dissertation undertook a review of South Africa's current and historic fiscal policies to address base erosion and profit shifting through excessive interest deductions. The research conducted aims to consider how various countries across the world have implemented measuresto address excessive interest deductionsso that South Africa may benefit from their lessons learnt. The review has revealed the various methods that countries have applied to address the risk of excessive interest deductions. Many countries implement interest limitation rules that largely align to the OECD BEPS Action 4 recommendations on excessive interest payments. Some countries implement thin capitalisation rules based on fixed financial stat…
abstract: South Africa loses approximately R7 billion a year due to profit shifting by multinational corporations amounting to about 4% of the total corporate income tax receipts. It is estimated that 98% of this tax loss can be directly attributed to the profit shifting schemes of the largest 10% of multinational enterprises. The term ‘profit shifting' refers to the transferring or shifting of profits within a multinational group of companies from a firm in a higher‐tax‐rate country to an associated company in a lower‐tax‐rate country. It can be legitimate to some degree, however this practice by multinationals is increasingly becoming a challenge for tax authorities and governments worldwide. These challenges are particularly difficult for developing countries such as South Africa as the country is more reliant on corporate tax revenues compared to more economically developed countries. The risk of South Africa's tax base eroding due to profit shifting is thus vitally important to address. It is becoming increasingly important for the South African government to protect its tax base from aggressive tax planning along with attempting to alleviate the burden on taxpayers from the administrative costs of complying with the OECD arm's length approach. Therefore, this dissertation undertook a review of South Africa's current and historic fiscal policies to address base erosion and profit shifting through excessive interest deductions. The research conducted aims to consider how various countries across the world have implemented measuresto address excessive interest deductionsso that South Africa may benefit from their lessons learnt. The review has revealed the various methods that countries have applied to address the risk of excessive interest deductions. Many countries implement interest limitation rules that largely align to the OECD BEPS Action 4 recommendations on excessive interest payments. Some countries implement thin capitalisation rules based on fixed financial stat…
author: Southgate, Ebrahim
language: en
keywords: finance, tax
date published: 2024
date modified: 2026-07-22T22:22:47Z
provider: University of Cape Town
publisher: Networked Digital Library of Theses and Dissertations
type: WebPage
source organization: Department of Finance and Tax

PropertyValue
property ID: Handle
value: http://hdl.handle.net/11427/41367