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24 Potchefstroom Elec. L.J. 1 (2021)

handle is hein.journals/per24 and id is 1 raw text is: Pioneer in peer-reviewed, open access online law publications Authors Liezel Tredoux Kathleen van der Linde Affiliation University of South Africa University of Johannesburg, South Africa Email classlg@unisa.ac.za kevdlinde@uj.ac.za Date Submission 2 August 2019 Abstract Tax legislation traditionally distinguishes between returns on investment paid on equity and debt instruments. In the main, returns on debt instruments (interest payments) are deductible for the paying company, while distributions on equity instruments (dividends) are not. This difference in taxation can be exploited using hybrid instruments and often leads to a debt bias in investment patterns. South Africa, Australia and Canada have specific rules designed to prevent the circumvention of tax liability when company distributions are made in respect of hybrid instruments. In principle, Australia and Canada apply a more robust approach to prevent tax avoidance and also tend to include a wider range of transactions, as well as an unlimited time period in their regulation of the taxation of distributions on hybrid instruments. In addition to the anti-avoidance function, a strong incentive is created for taxpayers in Australia and Canada to invest in equity instruments as opposed to debt. This article suggests that South Africa should align certain principles in its specific rules regulating hybrid instruments with those in Australia and Canada to ensure optimal functionality of the South African tax legislation. The strengthening of domestic tax law will protect the South African tax base against base erosion and profit shifting through the use of hybrid instruments. Date Revised 15 December 2020 Date Accepted 15 December 2020 Date published 12 January 2021 Keywords Hybrid instrument; hybrid equity instrument; hybrid debt instrument; third-party backed share; non-equity share; non- share equity; term preferred share; guaranteed share; collateralised share; dividend rental agreement; taxable preferred share; taxation of equity investment; taxation of debt instruments; debt bias; economic double taxation; tax avoidance. Editor Dr G Viljoen How to cite this article Tredoux LG and Van der Linde KE The Taxation of Company Distributions in Respect of Hybrid Instruments in South Africa: Lessons from Australia and Canada PER / PELJ 2021(24) - DOI http://dx.doi.org/10.17159/1727- 3781/2021/6781 Copyright DOI http://dx.doi.org/10.17159/1727- 3781/2021 /v24i0a6781

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