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Will South Africa Implement A Group Taxation System?

South Africa
Over recent years, the South African Government has taken significant steps to improve the competitiveness of the tax system for South African businesses.

However, unlike many other countries, South Africa does not have a formal system to consolidate the tax reporting of a group of companies or to offset the profits and losses of the members of a group of companies. Taxand South Africa explores the pros and cons of the full group taxation system.

The introduction of a group taxation regime as part of the South African tax system could offer some tangible benefits to companies in the country. However in order to achieve such benefits careful planning is required in formulating the correct group taxation regime.

A formalised system of group taxation or some form of consolidated group reporting could improve the functions of the current tax system and provide significant benefits for companies within a group. A system of group taxation would, for example, lead to increased economic efficiency by better aligning the unit of taxation with the economic reality of economically integrated companies within a group. It would reduce compliance costs for taxpayers and the cost the Government incurs in administering the tax system.

However at the same time, a system of group taxation would introduce new rules and consequential changes to ensure the integrity of the tax system, which could further increase the complexity of an already complex tax system. It would also result in additional compliance costs and obligations being imposed.

If the Government were to introduce a formal system of group taxation, an important consideration would be what to do about the existing approach to the utilisation of losses. The existing corporate rules do not provide companies within a group with any flexibility to transfer losses. A group taxation system should ensure that all groups have access to at least some form of loss utilisation.

Discover more: Will South Africa implement a full group taxation system?

Your Taxand contact for further queries is:
Bernard Du Plessis
T. +27 11 269 7891

Taxand's Take

It is clear that many decisions would need to be made in South Africa before the implementation of a group taxation regime. For example, which model would be most appropriate? What would constitute a group? Under what circumstances would a group qualify for election? It would also need to be decided whether it would apply only to group companies within South Africa, or whether foreign group companies would fall within the regime as well. Until final decisions are made multinationals should keep a careful watch of any developments.

Taxand's Take Author

Bernard Du Plessis
Taxand Board member
South Africa
Sub-Saharan Africa