Background and aim The study explores the correlation between environmental, social and governance (ESG) ratings and the extent of corporate tax transparency to investigate whether ESG ratings are ...indicative of transparent corporate tax practices. To gain more insight, the correlation exploration is extended to the ratings achieved in the governance category and the transparency and reporting subcategory included in the overall ESG rating.Setting and method The extent of corporate tax transparency disclosures in the corporate reports of 112 companies, listed on the Johannesburg Stock Exchange (JSE) on 28 February 2022, was assessed using a content analysis. The correlation between the ESG ratings and the extent of corporate tax transparency of these companies was then explored through correlation analysis.Results The study provides evidence of significant correlation between overall ESG ratings and corporate tax transparency. However, no correlation was found between the ratings achieved in the governance category, or the transparency and reporting subcategory and corporate tax transparency. The latter might, however, be explained by the negatively skewed distributions of the ratings achieved in the governance category and the transparency and reporting subcategory.Contribution and conclusion The study provides persuasive evidence that ESG ratings can be used as indicators of transparent corporate tax practices. It might provide valuable insight to boards of companies about the correlation between ESG ratings and the transparency of tax practices, encouraging them to incorporate tax governance as part of the ESG agenda. Additionally, it may be utilised by investors when making investment decisions.
Background: Following the global initiative to curb base erosion and profit shifting, South Africa introduced Country-by-Country (CbC) reporting standards for South African multinational groups with ...an effective date of 1 January 2016.
Aim: The study aims to develop and analyse indicators to investigate the impact of CbC reporting on the effective tax rate of South African multinational groups.
Setting: The research focused on a selection of Johannesburg Stock Exchange (JSE)-listed companies, using financial data retrieved from the IRESS Expert database.
Methods:Descriptive analyses were conducted on five developed measurable indicators. These indicators comprise the analysis of the average ETR of multinational groups through various approaches.
Results: A comparison of the average consolidated effective tax rate (ETR) between multinational and non-multinational groups found a higher ETR for the multinational groups. The average consolidated ETR of multinational groups with a filing obligation was significantly higher than the average consolidated ETR of multinational groups without such an obligation. A comparison was conducted on the average consolidated ETR of multinational groups with a filing obligation between two stages, namely pre- and post-CbC reporting implementation. The results of this comparison revealed a highly significant increase in the average consolidated ETR of multinational groups post-CbC implementation as opposed to the ETR pre-implementation. No significant difference was found between the average consolidated ETR of multinational groups with at least one affiliate in a tax haven, as compared to those without. A comparison of the average foreign unconsolidated ETR found a significantly lower average foreign ETR for multinational groups than the consolidated overall ETR of multinational groups. In line with the study's earlier result, namely a higher consolidated ETR for multinational groups with a filing obligation compared to their counterparts with no filing obligation, the foreign ETR of multinational groups with a CbC filing obligation was found to be significantly higher than the foreign ETR of those without a filing obligation. Similarly, the foreign ETR of multinational groups was significantly higher in the years post-CbC reporting implementation, as compared to the foreign ETR pre-implementation.
Conclusion: Based on the study's findings that reveal a general increase in the average consolidated ETR per specific indicators, a possible explanation for such findings may point to CbC reporting requirements.
Background: South Africa issued regulations implementing country-by-country (CbC) reporting standards for multinational enterprises (MNEs) on 23 December 2016. Country-by-country reporting will be ...applicable to all MNEs with a group revenue in excess of R10 billion. Aim: The aim of the study was twofold: to identify ambiguities that might influence the filing obligation and subsequent scope of CbC reporting in South Africa and to quantitatively measure the potential impact of any identified ambiguities. Setting: This study used data from Johannesburg Stock Exchange-listed companies. Methods: The study commences with a review of the relevant regulations and other applicable literature and continues with a quantitative analysis exploring alternative interpretations deduced from this review. Results: The review identified conflicting interpretations of how companies can be categorised as an MNE Group or not, as well as in measuring the revenue threshold. An analysis of the group structures and annual reports of a selected sample of 78 companies showed that the scope of CbC reporting will depend on the definitions applied to an MNE Group and revenue. Conclusion: Further guidance is needed to determine whether non-controlling entities must be considered as Constituent Entities, as well as how to measure revenue (i.e. whether only the International Financial Reporting Standards IFRS 15 revenue line item should be used or whether other income should also be included).
In line with current international sentiment which promotes greater transparency, the King Committee on Corporate Governance in South Africa updated its corporate governance framework through the ...issue of the King IV Report on Corporate Governance for South Africa, which replaced the King III Report on Corporate Governance for South Africa with effect 1 April 2017. The King IV Report on Corporate Governance for South Africa now specifically includes the formulation of a tax policy and strategy within the ambit of responsibilities of the board of directors and states that the organisation's tax policy must be 'transparent' and 'responsible'. The objective of the study was threefold: Firstly, to develop a tax reporting framework that incorporates the principles of good tax governance to ensure transparent and responsible tax policies and practices in South Africa. Secondly, to use the developed tax reporting framework to measure the tax reporting performance of the 50 largest Johannesburg Stock Exchange (JSE)-listed organisations in South Africa. Thirdly, to produce a holistic and strategic methodology for South African organisations to employ as a standard and pragmatic approach that incorporates the responsible and transparent tax policy requirements of the King IV Report on Corporate Governance. The study commences with a literature review of established international trends on good tax governance, continues by aligning these international trends with principles from the King IV Report on Corporate Governance for the South African context and concludes with descriptive statistics to measure the performance of South African JSE-listed organisations against these trends. It was found that less than half of the 50 largest JSE-listed organisations comply with more than 50 per cent of the disclosure criteria as recommended by international practice on good tax governance. Only 25 per cent of organisations complied with 65 per cent or more of the disclosure criteria. Of such organisations, 75 per cent are primarily listed on a stock exchange other than the JSE with a secondary listing on the JSE. It is evident that most primarily listed JSE-listed organisations do not meet international criteria of good tax governance. It is therefore submitted that the presented methodology may contribute to South African governance literature.
A withholding tax on interest is levied in terms of sections 50A to 50H of the Income Tax Act No. 58 of 1962 (as amended) and has been effective since 1 March 2015. In this study, certain areas of ...concern were identified regarding the scope of interest subject to withholding tax and the timing of the levying of the withholding tax. A secondary concern involved the application of section 23M of the Act. A literature review of the theoretical basis for the taxation of interest was undertaken. Relevant terms and phrases; other sections of the Act which might affect, or be affected by the application of the withholding tax on interest provisions; South African case law; international case law and the Model Tax Convention of the Organisation of Economic Cooperation and Development were analysed. Based on the findings, it is recommended that the provisions of section 50A to 50H of the Act be amended or extended to include a definition of interest subject to withholding tax and that section 50D(3) of the Act be amended to allow for interest paid in the form of an annuity to be exempt from withholding tax or for interest subject to withholding tax to be exempt from normal tax. Finally, the alignment of the wording of section 50D(3)(a) and section 10(1)(h)(i) of the Act is also recommended in order to remove contradictions in the accrual and payment of interest and to prevent the potential non-taxation of interest income.
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