The Deputy Director: Tax Policy; International Tax of the National Treasury briefed the Committee on the requirements and process of ratifying a tax treaty. Ratification could only take place after the signing of the tax treaty which was done in
The presentation included details of the South Africa-Ireland general investment flows for the period 2005-2008. During 2008, Irish investment totalled R1.9 billion and South African investment in
Details of the South Africa-Sweden general investment flows for the period 2005-2008 were presented. During 2008, Swedish investment in
The Manager: International Treaties, South African Revenue Services briefed the Committee on the amendments to the International Protocols in order to phase out the secondary tax on companies and its replacement with a dividends tax. Articles of interest in the South Africa-Ireland Protocol included amendments to Article 4 (that included a definition of ‘resident’) and Article 10, dealing with dividends. The dividend rate for both the South Africa-Ireland Protocol and the South Africa-Sweden Protocol was 5% for a shareholding of at least 10% and a rate of 10% applied to all other categories of shareholding. Article 26 was deleted and replaced by a new article on Exchange of Information to ensure that bank secrecy or the absence of a domestic tax interest could no longer be used to deny a request for exchange of information.
The Members of the Committee asked questions concerning Section 108(2) of the Income Tax Act; the accuracy of information on the investment made by companies; the implementation of taxation on dividends; whether the protocol came into effect on the date of signing or the date of ratification; the delay in submitting the signed protocols to Parliament; the reason for importing products that could be manufactured locally; whether the protocols had been ratified by the other parties; the monitoring of the ratification process and the provision to prevent legal challenges until such time as both countries had ratified the protocol.
The Committee approved the amendments to the protocols with
Presentation on Tax Treaty Protocols with
Mr Lutando Mvovo, Deputy Director: Tax Policy; International Tax made the presentation to the Committee (see attached document).
The tax treaty ratification process dictated that treaty had to be ratified by Parliament before it came into force. Ratification could only take place after the tax treaty was signed. In
The tax treaty protocols focused on the renegotiation of nine treaties, which included a zero withholding tax rate on dividends. The South Africa-Ireland general investment flows for the period 2005-2008 were highlighted. For the period 2008, a total amount of R1.9 billion was invested into
Mr Mvovo presented the general investment flows between
The South Africa-Sweden trade flow for the period 2005-2009 was highlighted. During 2009, exports from
South African Revenue Services briefing on South Africa-Ireland protocol amending the Double Taxation Convention
Ms Oshna Maharaj, Manager: International Treaties, South African Revenue Services, submitted the presentation to the Committee (see attached document).
The presentation included an explanation of the reason for the amendments to the Convention. The amendments became necessary in view of the proposed phasing out of the secondary tax on companies and its replacement with a dividends tax. Articles of interest in the South Africa-Ireland Protocol amending the Double Tax Convention included the update of the definition of ‘resident’ and the exclusion of a Common Contractual Fund in Ireland from the definition as it was fiscally transparent and therefore not regarded as an entity for tax purposes (Article 4) as well as Article 10, which dealt with dividends. The amendment applied to the South Africa-Sweden Protocol as well.
Ms Maharaj explained that in practice, international withholding tax rates varied widely. The dividend rate for both the South Africa-Ireland Protocol and the South Africa-Sweden Protocol was 5% for a shareholding of at least 10% and a rate of 10% on all other categories of shareholding. Article 26 of the South Africa-Ireland Protocol was deleted and replaced by a new article on Exchange of Information. The new Article 26 was in line with the OECD Model and ensured that bank secrecy or the absence of a domestic tax interest could no longer be used to deny a request for exchange of information.
Mr B Mashile (ANC,
Mr Charles Makala Director International Tax, National Treasury replied that Section 108 stated that a treaty once in effect would become legally enforceable. A treaty was therefore as binding on the country as the Income Tax Act.
Mr A Lees (DA,
Mr Makala replied that international investments occurred in various formats. Investments were channelled through a country for particular reasons, such as tax. The National Treasury could not confirm which countries Alexkor actually invested in or had merely routed its investment through.
Mr Lees asked how tax on dividends would be implemented. The protocol suggested that taxation on dividends had to be implemented but this had not yet occurred in
Mr Makala replied that the dividend tax could not come into effect until such time that the protocol was in place. This avoided applying a zero rate to dividends. The tax liability for dividends was being moved from the company to the individual.
Mr T Chaane (ANC,
Mr Mvovo replied that the protocol had to be signed before it was ratified by Parliament. Section 108 stated that after ratification by Parliament, the arrangements made in terms of any agreement as contemplated in Section 231 of the Constitution had to be gazetted and would be effected as if it had been enacted.
Mr Chaane asked why it had taken so long to bring the protocols to Parliament after they were signed.
Mr Makala replied that the process of arranging for the necessary signatures required an opportune time for both parties, which was not always easy.
The Chairperson observed that
Mr Lees asked for clarity on a dividend tax rate of 5% applicable on a shareholding of 10%.
Mr Makala explained that there a tax rate of 5% was applicable if 10% of the equity share capital was held.
Mr B Mashile (ANC,
Ms Maharaj replied that the other party had not yet ratified the protocol as notice had not yet been received through the diplomatic channels.
Mr Mashile asked what would happen if the other party declined the protocol that had been ratified and was already part of legislation applicable in
Ms Maharaj replied that
The Chairperson asked how the National Treasury monitored the process of ratification occurring in the other country.
Ms Maharaj replied that the Department of International Relations and Co-operation was involved in discussions on bi-lateral agreements and followed up on the status of agreements.
Mr Mashile asked which country was driving the implementation of the protocols.
Mr Mvovo replied that
Mr Lees asked if there was a provision in Section 108 that prevented a legal challenge should the other party fail to ratify the protocol in time.
Mr Mvovo replied that the protocol had to be published in the Government Gazette before it became law and this was only done after notification from the other party had been received that the protocol had been ratified.
The Chairperson proposed that the Committee approved the protocols read out the proposal for approval in terms of Section 231(2) of the Constitution on the amendments to the South Africa-Ireland Protocol and the South Africa-Sweden Protocol. The Members of the Committee unanimously approved the amendments.
The meeting was adjourned.
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