Curbing Tax Avoidance – Investments in Offshore ‘Protected Cell Companies and Cell Trusts’: The American and British Approach –What Is South Africa’s View?
In order to minimise their global tax exposure, taxpayers active in international trade often get involved in tax-avoidance schemes.The ensuing fiscal advantages are often achieved when investments are made in low-tax or tax-haven jurisdictions.Most of the tax-planning schemes used to avoid taxes,employ some kind of company or trust structure. One such structure that appears relatively new on the offshore-investment market, and whose characteristics and diverse use baffle many tax authorities, is the ‘protected cell company’ (the ‘PCC’).This structure can sometimes be in a trust form–‘protected cell trusts’, commonly referred to as unit trusts.In 2009, the Tax Justice NetWork,1 released a report in which it noted that investments in PCCs contributed to the global financial crisis that begun in 2007.
This article describes the development and the intricacies of offshore PCC and trust structures and how they may be used to avoid taxes.The prevalence of investments in offshore cell structures by South African residents is also analysed to determine whether this matter should be an issue of concern for the South African fiscus.In this vein, the measures, if any, that South Africa has in place to curb the ensuing tax avoidance are discussed.The article also covers a comparative study of equivalent measures, if any, in the United States of America (the ‘USA’) and the United Kingdom (the ‘UK’). These two countries have been selected because they have historically been at the forefront of devising legislation to curb off shore-tax avoidance.From the success story of these two jurisdictions, recommendations are made for the reform of South Africa’s income tax laws if found wanting in this regard.
Source: By Annet Wanyana Oguttu (University of South Africa) SA Merc LJ
Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.