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An evaluation of interest deduction limitations to counter base erosion in South Africa

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  • Pieter Van der Zwan
  • Danie Schutte
  • Waldo Kruggel
  • Joel Seshabela
  • Hayley Reynolds
  • Londiwe Khoza

Abstract

This paper aims to describe funding structures of companies liable for tax in South Africa and how this relates to other characteristics, including ownership, of the companies. The research that the paper reports on was performed as descriptive analyses. While no clear indication of a preference for debt could be identified, the results showed that the mean net interest coverage ratio for certain foreign-owned entities differed significantly from that of domestically owned entities. This may be evidence of profit-shifting activities.

Suggested Citation

  • Pieter Van der Zwan & Danie Schutte & Waldo Kruggel & Joel Seshabela & Hayley Reynolds & Londiwe Khoza, 2017. "An evaluation of interest deduction limitations to counter base erosion in South Africa," WIDER Working Paper Series wp-2017-35, World Institute for Development Economic Research (UNU-WIDER).
    • Handle: RePEc:unu:wpaper:wp-2017-35
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    References listed on IDEAS

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    3. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
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    5. Georg Wamser, 2014. "The Impact of Thin-Capitalization Rules on External Debt Usage – A Propensity Score Matching Approach," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 76(5), pages 764-781, October.
    6. Gopalan, Radhakrishnan & Nanda, Vikram & Seru, Amit, 2007. "Affiliated firms and financial support: Evidence from Indian business groups," Journal of Financial Economics, Elsevier, vol. 86(3), pages 759-795, December.
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