Addressing Jurisdiction to Tax Challenges Posed by the Digital Economy: A Comparative Analysis of Amount A and Article 12B as Solutions for South Africa

Khodani Sengwane ()
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Khodani Sengwane: University of Pretoria

A chapter in Impacting Society Positively Through Technology in Accounting and Business Processes, 2025, pp 647-665 from Springer

Abstract: Abstract South Africa can only tax the business profits of a company if the company is a South African tax resident or the business profits are from a South African source. The determination of South African tax residency or source rules largely require companies to be “physically present” in South Africa. The advent of digital companies that can operate virtually anywhere in the world renders such tax rules inadequate to cover business profits generated by digital companies. The Organisation for Economic Co-operation and Development has proposed Pillar One Amount A (Amount A) as a global solution that provides new tax nexus and profit allocation rules that do not require the physical presence of companies. On the other hand, the United Nations developed a bilateral treaty solution in the form of Article 12B which can be used to allocate taxing rights in respect of income generated from automated digital services. The purpose of this paper was to determine what the best solution would be for South Africa to adopt between Amount A and Article 12B as solutions to address the tax challenges that the digital economy poses to South Africa’s jurisdiction to tax business profits of digital companies. The research used a qualitative methodology which involved the review of relevant existing literature and comparison of the design of Amount A and Article 12B rules. This paper argued that both solutions have their advantages and disadvantages. However, compared to each other, Article 12B (subject to a few recommended alterations as discussed in the paper such as setting a de minimis threshold and expanding its scope) is better suited for South Africa to adopt in addressing the tax challenges in the digital economy.

Keywords: Digital economy; Jurisdiction to tax; Tax challenges; Tax nexus; Article 12B; Amount A; Pillar One (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-031-84885-8_35

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DOI: 10.1007/978-3-031-84885-8_35

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