The income tax resident status of internet-based companies: when is South Africa their place of effective management?

Abstract

In terms of the Income Tax Act 58 of 1962 (‘ITA’), taxpayers are liable to tax in the Republic of South Africa (‘SA’) on their worldwide revenue if they satisfy the test for residency within the meaning of the term ‘resident’ in s 1 of the ITA. Companies and other juristic taxpayers are ‘resident’ for income tax purposes in relation to a particular year of assessment if, for example, its ‘place of effective management’ is located in SA for that period. A key problem associated with the term ‘place of effective management’ which affects its application in practice, is that it is undefined in the ITA. Therefore, its meaning is open to interpretation and, possible, manipulation. The precise meaning of ‘place of effective management’ is particularly relevant to electronic commerce on the world wide web carried on by internet-based companies. To address the problem arising from the uncertainty of the scope and ambit of the term ‘place of effective management’ for ITA purposes, this thesis provides a comprehensive analysis of this term and its probable meaning in the context of the ITA.