Shifting the 'place of effective management' offshore: a comparison of the 'exit tax' provisions applicable to companies migrating from South Africa, Canada and EU member states

Abstract

The emergence of global markets, e-commerce and cross-border corporate structures in recent times caused many government departments and tax authorities to rethink their strategies to protect the national tax base. Internationally the trend has emerged to condone the migration to and abuse of tax havens or low tax jurisdictions by large corporations that are involved in international trade. Exit tax serves as an anti-avoidance measure to protect the national tax base of the country from which the taxpayer emigrates. Recent court decisions in South Africa, the European Union and Canada found exit tax not to be payable in circumstances where a company shifted its ‘place of effective management’ and resultant tax residency offshore. This article will examine the exit tax provisions applicable to companies in terms of South African, Canadian and selected EU member states’ tax legislation and suggest manners in which the taxpayer’s right to freedom of establishment can be balanced with the right of the state to protect its national tax base against erosion.