An assessment of offshore tax structure opportunities for South African companies

Abstract

Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is no duty, not even a patriotic duty to increase one's taxes. ̃Learned Judge Hand (UK) Tax avoidance had recently encountered scrutiny from government officials, wilfully misinterpreting the rights and responsibilities of big corporates to support their own tax collection agendas and counter their fiscal deficits (Wilson, 2015). To this end the study investigates the real duty imposed on directors to maximise profits of shareholders by unlocking a strategic advantage over its competitors by utilising foreign tax jurisdictions and international holding structures. The focus of the paper is based on dynamic management principles with the objective of utilising all resources and opportunities as efficiently as possible. The international holding jurisdictions Malta and Mauritius were compared, using the weighted average tax model presented herein, comparing both tax opportunities and non-tax factors which would add to its business appeal as preferred tax jurisdiction. A hypothetical company structure connected to an international holding company was used to test the advantages presented by the respective holding jurisdictions of Malta and Mauritius. This study implements a cross-sectional qualitative approach by reviewing the latest legislation and academic opinions to construct a tax model to evaluate the tax framework at hand, based on weighted principles identified in practice as key tax structure considerations. Capital sensitive issues and bottom line taxes received the greatest weight as the reduction of a company’s tax footprint was the primary objective. Strategic business and non-tax related concerns were also identified and weighted according to the overall strategic advantage presented to the hypothetical company. Using the weighted average tax model, Mauritius and Malta preformed equally well and reached a tie at 61.5 points. Although not indicating a clear winner the model provided great insights as to the strengths and weaknesses of each jurisdiction. The board of the hypothetical company however chose to establish itself in Mauritius due to its bottom line tax advantage supporting its growth objections as well as jurisdictions ease of obtaining credit. Malta boast with its effective tax rate of 5%, this effective rate is however only applicable should the imputation system be applied. The application can only be activated if funds are distributed to shareholders. Any residual funds that remain in the company will be taxed at a flat rate of 35%;. As such Malta is a great shareholder jurisdiction but does not necessarily support the growth needs of a new company.