Topic 8:

Ethics in Taxation
Agenda

▪ Tax evasion vs Tax avoidance (Monday)

▪ Connected persons in Tax (Monday)
▪ Tax case study (Wednesday)
▪ “The Ethical Dilemma” VR case study (Friday)
 BUS100 2023 Content
Technical competencies framed in organisation’s value
creation process S1

BUS100 RRP100
Topic 1: The broader accounting landscape (Mrs van Oordt) Maintain an accounting information system that
Topic 2: The purpose of accounting (Mrs van Oordt) is manual, automated or a combination of both.
- Accounting equation
Topic 3: The governance landscape, including ethics, - Accounting cycle
citizenship and governance (Prof Plant) - Trial balance
Topic 4: The taxation landscape (Prof du Preez) - SFP, SPLOCI
Topic 5: Organisations (Mr Chetty)
Case study based
Topic 6: The strategy landscape (Mrs van Oordt and Mr Seda)
Topic 7: Relational acumen (Mrs van Oordt)
Topic 8: Ethics (Prof Plant & Mrs Hill)
Topic 9: Business value creation (SDG)
Topic 10: Internal control (Mr Fouche)
 Risk Management & Internal

Responsible Reporting
Legal Environment

Financial Decision
Governance

Assurance
Taxation
Strategy

Making

Control
Ethics

Financial Financial

Manufactured Manufactured
Business
Inputs Activities Outputs & outcomes
Intellectual Intellectual
Six Capitals
Human Human

Social and relationship Social and relationship

Natural Natural

Ethical Influencer
Tax evasion vs tax avoidance
Tax evasion??

▪ Illegal activities undertaken by a

taxpayer to free himself from a tax
burden

▪ Fraud & deceit

▪ Non-compliance with tax legislation
▪ e.g. “cash” business
Tax evasion vs tax avoidance
Tax avoidance??

▪ Arranging tax affairs in a legal /

lawful manner

▪ Protect property & unnecessary

erosion by tax
▪ Specific anti-avoidance rules &
general provisions in Income Tax Act
But is it ethical???
Ethical decision making tools
TOOLS to help us improve ethical decision-making:
• Normative frameworks / guidelines
• What if no guidelines exist?

P POLICY?

L LAW?

U UNIVERSAL?

S SELF? Mirror test: DISCLOSURE: if it becomes publicly

known will you be able to hold your head up high?
Connected persons in Taxation
Say what??
▪ Definition in Income Tax Act and
Value Added Tax Act
▪ Similar but differences

But why?
▪ Related-party transactions are more likely to be open to
manipulation
Connected persons (s1 of Income Tax Act)

Different taxpayers:
(a) Natural persons
(b) Trusts
(bA) Connected persons in relation to a trust
(c) Members of partnerships or foreign partnerships
(d) Companies and close corporations
(a) Natural persons

▪ Any relative
o Spouse
o Or spouse person you are related to
o 3rd degree on kinship (consanguinity)
o Including adopted children / adoptive parents
✓ “Of the same blood”
✓ Count number of steps to
??? common ancestor
Natural persons EXAMPLES
o Children (including adopted children)
o Grandchildren
o Great-grandchildren
o Parents
o Grandparents
o Great-grandparents
o Brother and sisters
o Nephews and nieces
o Uncles and aunts
Natural persons EXAMPLES

A B C D

ab cd

Are A and B connected to C and D?

Natural persons EXAMPLES

Wife 1 Dad Wife 2

Child A Child B

Are Child A and Child B connected?

Natural persons EXAMPLES

Dad Step-mom

Child A

Are Child A and the Stepmom related?

Natural persons EXAMPLES
Divorced Divorced

A B C D

ab cd

Are ab and cd connected?

Natural persons EXAMPLES
Divorced Divorced

A B C D

ab cd
What if ab is adopted by C and cd is adopted by B.
Are ab and cd NOW connected?
(a) Natural persons
▪ A trust of which the natural person
or relative is a beneficiary

Example:
▪ If a grandfather is a beneficiary to Trust ABC:
▪ The grandfather is connected to the Trust;
▪ And the grandchildren are also connected to the Trust
(b) Trust
▪ any beneficiary of the trust
▪ any connected person in relation to a beneficiary

Same example as above would apply, this is just from the point
of view of the Trust
(bA) Connected person in relation to a trust
▪ any other person who is a connected person in relation to
the trust

Example:
▪ Joe and Maxi are beneficiaries of a trust (they are not related)
▪ Joe’s relatives are connected to the trust
▪ AND Maxi’s relatives are connected to the trust
▪ NOW Joe’s relatives and Maxi’s relatives are CONNECTED
(c) Members of partnership or foreign partnership

▪ any other member

▪ any connected person in relation to any member of the
partnership or foreign partnership

Explantion:
▪ Partners are connected to each other
▪ They are also connected to the other partners connected persons
(d) Company
▪ any other company in the same group of companies
(50% of equity or voting rights)
▪ any person (excluding companies) alone or together with connected
persons holds 20% or more of a company’s equity shares or voting
rights
▪ any company holds 20% or more of a company’s equity shares or
voting rights (but only if no majority holding)
▪ any other company, if the company is managed or controlled by
a connected person
(d) Close corporation
▪ any member
▪ any relative of the member or trust that is a connected
person
▪ any other close corporation which is a connected person to
✓ one of the members
✓ or relative
✓ or connected trust
 E R
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E A
M S
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Source: Critical Thinking Competence Standards (Paul & Elder, 2005)