Double Taxation Agreements: National Treasury briefing

Meeting report

Introduction
In the absence of Mr T Mufamadi (ANC), from whom apologies had been received, Mr D van Rooyen (ANC) was elected Acting Chairperson.

Formal Ratification: South Africa-Oman Tax Treaty Protocol (Double Taxation Agreements) National Treasury briefing
Mr Lutando Mvovo, Director: Tax Policy, National Treasury, said that the background to the Oman Protocol was that the South Africa (SA)-Oman tax treaty was one of the nine tax treaties that had a zero rate withholding tax on dividends.

• It had to be renegotiated before the new dividends tax could be implemented;
• The renegotiation also addressed certain aspects that were not present in the old treaties such as the updated exchange of information provision;
• The new dividends tax, replacing the Secondary Tax on Companies (STC) would come into operation on 1 April 2012; and
• This protocol was signed on 15 November 2011in Muscat, Oman. (slide 3)

Mr Mvovo updated Members on other Dividend Protocols (please see table, slide 4).

The way forward was formal ratification and putting the administrative machinery in motion by sending
notification to Oman through diplomatic channels.

Mr Mvovo emphasised that this was an existing agreement that was being amended.

South Africa - Oman Protocol amending the Double Taxation Agreement Formal Ratification : South African Revenue Service (SARS) briefing
Mr Ron van der Merwe, Senior Manager: International Treaties, Legal and Policy Division, South African
Revenue Service (SARS) said that the purpose of such agreements was to remove barriers to cross-border trade and investment.

Mr Van der Merwe said that Amendments to the Agreement with Oman became necessary in view of the proposed phasing out of the STC and its replacement with a dividends tax. Articles of interest in the South Africa - Oman Protocol amending the Double Tax Agreement were as follows:

Article 8: international transport
As Oman was no longer a partner in Gulf Air, the provisions of the previous Agreement would no longer apply to the airline from November 2007. Oman had asked South Africa to delete that provision.

Article 10: Dividends
In practice, withholding taxes varied very widely internationally. The dividend rate in South Africa - Oman Protocol: was 5% for shareholding of at least 10%; and 10% on all other cases. South Africa's area of interest was to have the right to tax dividends flowing from South African companies to shareholders resident in Oman. Oman had agreed. In respect of that flow of dividends, South Africa, as the source state, the country where the company was paying the dividends was resident, would now have a 5% rate of withholding, if the shareholding was 10% or more; and in all other cases, 10%. It was typical in all South Africa's double taxation agreements that South Africa had a dual rate of withholding in respect of dividends, because South Africa liked to encourage greater participation and greater investment in South Africa ventures or in companies established in South Africa. The incentive was that one had to be at least a 10% shareholder in order to be eligible for the lower rate of taxation.

Discussion
Adv S Swart (ACDP) understood that the dividend rate that the Minister had recommended was 15%. What was the implication of the 10% rate in this Agreement and others like it?

Mr Van der Merwe replied that in domestic law it was a country's sovereign right to decide which rate of withholding to apply. If Parliament agreed to the 15% rate announced by the Minister, it would not affect these treaties (the Agreements) at all, since an international agreement created obligations between state I n international law. In case of a conflict between a treaty and domestic law, the treaty overrode domestic law.

Mr T Harris (DA) asked National Treasury which agreements would need to be resolved by 01 April 2012 (slide 3). Was there any risk that any protocols would not be updated by that date?

Mr Mvovo said that one could not guarantee the signing of the Agreements with Malta, Kuwait and Cyprus by 01 April 2012. South Africa had been struggling with the logistics, since, for example, with Kuwait only the Minister could sign. Therefore it could only be signed if there was a visit to Kuwait by any of South Africa's cabinet ministers or a visit by a Kuwaiti minister to South Africa.

Mr Mvovo said that there were ten treaties. There was also the treaty with the Netherlands, which was not a protocol but a renegotiation of a full treaty. The rest were protocols.

Mr Van der Merwe said that South Africa had always had a withholding rate with Australia, but there were significant changes to the Australian treaty. The other nine had zero rates, and they were renegotiated to have a withholding rate in the source state.

Mr Harris said that the implication of the Agreement was that if a South African company paid out a dividend to a company or a shareholder in Oman, and they owned more than 10% of the company, the company or shareholder in Oman paid a third of the dividend tax that taxpayers in South Africa would pay. Were there equivalent rates for those 'other ten countries'? Did all these countries receive some form of discount relative to South Africa's domestic rate of dividend tax?

Mr Van der Merwe replied in the affirmative. That preferential rate (of 5%) was something that virtually all countries used in their bilateral tax treaties. What would differ was the shareholding. Traditionally South Africa had tried to push this as low as 10%, since 10% ownership of a major company was a great deal of money. Other countries would insist on perhaps going as high as 25% shareholding. The percentage in relation to the shareholding could change from treaty to treaty. However, normally in all South Africa's treaties the lower rate would be 5%, but no lower. This applied in virtually all 70 of them. There might be one or two exceptions.

Mr Harris said that this gave incentives to foreign shareholding. What was the economic logic?

Mr Van der Merwe replied that the logic was the reason for such agreements - to encourage investment across borders. In South Africa up to now, dividends had been neutral in regard to taxation. It was first and foremost an instrument to encourage foreign direct investment. Most countries were keen to give such incentives.

The Acting Chairperson inferred that the aim was a competitive tax regime.

Adv Swart said that many people expected the dividend withholding rate to be introduced at 10%, whereas domestically it was introduced at 15%. It appeared thus that domestic investors were prejudiced to an extent.

The Acting Chairperson said that there had been an argument that the dividends tax inhibited investment. The Committee would have to debate this in future.

Mr Harris asked if South Africa had had tax agreements in respect of STC. There was now a new situation in which South Africa was penalising domestic investors. This had only happened since changing from STC to dividends tax. How would any potentially negative effects be mitigated?

The Acting Chairperson did not think that Members could expect a succinct response, because they were more prepared to answer questions on the foreign aspects.

Mr Van der Merwe replied that as the Committee was aware, STC was imposed on the company, whereas the dividend tax was being imposed on the shareholder, which of course resulted in a major difference in treatment under the agreements. STC was considered a tax on business profits. Now with a tax being imposed on shareholders, Article 10, and therefore those limitations, which South Africa had negotiated, applied. He preferred not to comment on the policy issues.

Mr Mvovo said that when these protocols were renegotiated, there was an understanding that the rate of the new dividends tax would be 10%. He did not wish to comment further.

The Acting Chairperson noted the discrepancy, which would have to be considered in due course, together with its impact on constituents.

Adoption
The Committee agreed to recommend that the National Assembly approve the formal ratification of the South Africa-Oman Tax Treaty Protocol. [Adv Swart proposed; Ms P Adams (ANC) seconded.]

SARS Tax Information Exchange Agreements (TIEA) Formal Ratification
Mr Van der Merwe said that the purpose of the agreements was to allow for the effective exchange of information between tax authorities. The aim was to create a network of treaties to ensure transparency. These had all resulted from the Group of 20 (G20) campaign which began as far back as 2008, but which for the first time gave countries like South Africa the opportunity to enter into jurisdictions where previously there was absolute secrecy and no way to find out what South African residents were doing in those jurisdictions. He referred in particular to bank secrecy. This was an enormous opportunity for countries around the world to enter into agreement with these jurisdictions in order to obtain an effective exchange of information.

One of the major methods of tax avoidance or tax evasion was through transfer pricing. Without a legal basis for exchange of information with another country, it was virtually impossible to arrive at a correct answer in a transfer pricing investigation.

A Tax Information Exchange Agreement would allow only for exchange of information on request. The Multilateral Agreement (to be dealt with later), to which there were 34 signatories, provided for full exchange of information - on request, automatic, or spontaneous.

South Africa/Dominica Tax Information Exchange Agreement
Mr Van der Merwe said that this had been presented to the Committee in October 2011, prior to its signature. The Agreement closely followed the OECD Model Tax Information Exchange Agreement (TIEA), which formed the foundation for the vast majority of Tax Information Exchange Agreements (TIEAs) worldwide. The TIEA 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.

Articles of interest in the South Africa - Dominica Tax Information Exchange Agreement were as follows:

Article 1: Scope of the Agreement
Exchange of Information that was foreseeably relevant to the enforcement of the domestic laws of the Parties concerning taxes and tax matters covered by the Agreement, including information that was foreseeably relevant to the determination, assessment, enforcement or collection of tax with respect to persons subject to such taxes, or to investigation of tax matters or the prosecution of criminal tax matters in relation to such persons. The requested Party should ensure that effective exchange of information was not unduly prevented or delayed. Delaying information had the same effect as withholding information.

Article 3: Taxes Covered
This Agreement should apply to any identical taxes imposed after the date of signature of the Agreement in
addition to or in place of the existing taxes, or any substantially similar taxes if the Parties so agreed.

Article 5: Exchange of Information upon Request
Information should be exchanged without regard to:
a) whether the requested Party needed such information for its own tax purposes - domestic tax interest.
b) whether conduct being investigated would constitute a crime under the laws of the requested Party - dual
criminality.

Article 5: Exchange of Information upon Request
Domestic law should allow for exchange of:
(a) information held by banks, other financial institutions, and any person, including nominees and trustees, acting in an agency or fiduciary capacity;
(b)(i) information regarding the legal and beneficial ownership of companies, partnerships, foundations and
other persons, including in the case of collective investment schemes, information on shares, units and
other interests;
(b)(ii) in the case of trusts, information on settlers, trustees, protectors and beneficiaries. Mr Van der Merwe noted that some of those terms, for example, protectors, were not relevant to South Africa but were to other countries.

Article 5: Exchange of Information upon Request
Did not create an obligation for a Party to obtain or provide ownership information with respect to publicly
traded companies or public collective investment schemes, unless such information can be obtained
without giving rise to disproportionate difficulties.

Article 6: Tax Examinations Abroad
Allowed for representatives of the competent authority of the requesting Party to enter the territory of the
requested Party, but to the extent permitted under its domestic laws.

Allowed for presence at interviews conducted by the requested Party. Mr Van der Merwe pointed out that If one was the requesting party, one was there as a guest.

All examinations were subject to approval of the requested Party.

Article 7: Possibility of Declining a Request
The Competent Authority might decline to assist where the disclosure of the information requested would be
contrary to public policy of the requested Party.

The Agreement did not impose any obligation to provide items subject to legal privilege, or any trade,
business, industrial, commercial or professional secret or trade process.

A request for information should not be refused on the grounds that the tax claim giving rise to the request was disputed by the taxpayer under examination or investigation.

Article 8: Confidentiality
All information provided and received by the competent authorities of the Parties should be kept confidential.
Information received should be disclosed only to persons or authorities including courts and administrative bodies concerned with the purposes specified in Article 1.

Information received might not be used for any purpose other than for the purposes stated in Article 1 without the express written consent of the competent authority of the requested Party.

Article 9: Costs
Unless the competent authorities of the Parties otherwise agree, indirect costs incurred in providing
assistance should be borne by the requested Party, and direct costs incurred in providing assistance should be borne by the requesting Party.

The Requesting Party should be notified if the costs were expected to be significant. Mr Van der Merwe said that it would then be up to the Requesting Party to decide whether to proceed with the request.

Article 10: Mutual Agreement Procedure
 Where difficulties or doubts arise between the Parties regarding the implementation or interpretation of this
Agreement, the respective competent authorities should use their best efforts to resolve the matter by mutual agreement.
(slides 35-46)

South Africa / Gibraltar Tax Information Exchange Agreement
Mr Van der Merwe said that this was basically similar to the Agreement with Dominica.
(please see slides 47-58)

South Africa/Liberia Tax Information Exchange Agreement
Mr Van der Merwe said that this was basically similar to the Agreement with Dominica.
(please see slides 59-70)

Discussion
Ms J Tshabalala (ANC) asked for clarity on the 34 signatories to the Multilateral Agreement (to be dealt with later).

Mr Van der Merwe said that the 34 signatories were those to the Multilateral Agreement to be dealt with later in the meeting. The other treaties were of course bilateral.

Adv Swart said that Section 4 of the Income Tax Act (No. 58 of 1962) provided for confidentiality of tax information. Was this reciprocated by countries with which South Africa had agreements?

Mr Van der Merwe replied, with regard to the confidentiality provisions of Section 4, that Section 108 of the Income Tax Act allowed South Africa to enter into agreements with other countries to exchange information. However, South Africa always made it subject to reciprocal confidentiality. However, if a tax issue resulted in court proceedings, it entered the public domain. Until then it was subject to those strict laws of confidentiality on a reciprocal basis.

Mr D Ross (DA) asked what the current status of the transparency of information was in relation to South Africa's domestic law.

Mr Van der Merwe replied that there was an obligation to exchange information. In the past it had been more difficult because of the lack of technology. So it was only now that one was beginning to explore the possibilities of automatic exchange of information.

Mr Ross asked what the current status of combating tax avoidance was.

Mr Van der Merwe said that one of the foundations of SARS' success in a recent major tax case was its ability to exchange information. The tax bill in that case was more than R1 billion. To exchange information was worth it and was being done.

Mr Harris referred to the letter from the Office of the Chief State Law Adviser, Department of Justice and Constitutional Development, which was appended to the Agreement. According to this legal opinion, it was in the interests of both parties to insert in the agreement a provision dealing with the amendment thereof. Did SARS take on board this recommendation? If not, why not?

Mr Van der Merwe replied that when the Office of the Chief State Law Adviser, Department of Justice and Constitutional Development, examined these treaties, it made suggestions; it did not prescribe changes, since it recognised that these were agreements between two countries, and one could not be unilateral in one's approach. The international models for double taxation agreements and tax information exchange agreements had no article providing for amendments. South Africa sought to follow these international models. If one wanted to amend, one approached the other country, as was the case with dividend taxation, and no other country had refused. If another country refused to negotiate, South Africa wound have a reason to terminate the treaty.

Dr Z Luyenge (ANC) asked for clarity on Article 10. Was a 'mutual agreement' binding?

Mr Van der Merwe replied that the 'mutual agreement' article in the Tax Information Exchange Agreement merely related to any interpretations or difficulties arising from the treaty as such. It did not take away the binding effect of the fact that there was a binding obligation to exchange information on request.

Adoptions
The Committee agreed to recommend that the National Assembly approve formal ratification of the Tax Information Exchange Agreement between South Africa and Dominica. [Dr Luyenge proposed; Ms Tshabalala seconded].

The Committee agreed to recommend that the National Assembly approve formal ratification of the Tax Information Exchange Agreement between South Africa and Gibraltar. [Mr Swart proposed; Dr Luyenge seconded.]

The Committee agreed to recommend that the National Assembly approve formal ratification of the Tax Information Exchange Agreement between South Africa and Liberia. [Ms Tshabalala proposed; Mr Harris seconded.]

SARS Multilateral Convention as amended by Protocol: Formal Ratification; Multilateral Convention on Mutual Administrative Assistance in Tax Matters as amended by Protocol (in force 1 June 2011)
Mr Van der Merwe said that this was a convention which had as its basis the exchange of information and cooperation between tax authorities to ensure efficiency in collection. This had been presented to the Committee in October, prior to signature. The number of signatories had since doubled to 34. He read the list. The Purpose of the Convention as amended by the Protocol was to allow for effective exchange of information and administrative assistance between the Tax Authorities of the States which were Party to the Convention; and to increase co-operation among tax authorities to combat tax avoidance and evasion. It specifically outlawed bank secrecy and domestic tax interest. The advantage for South Africa was that there were a number of signatories with whom South Africa did not otherwise have any agreement on the exchange of tax information or on double taxation.

The Convention as amended by the Protocol closely followed the Articles on Exchange of Information
and Assistance in Collection in the Organisation of Economic Cooperation and Development (OECD) Model Tax Convention and the United Nations Model Double Taxation Agreement which was due to be released in New York on 14 March 2012. Articles of interest in the Multilateral Convention as amended by the Protocol were as follows:

Article 1 - Object of the Convention and Persons Covered - Allowed for administrative assistance which comprised of:
a. exchange of information, including simultaneous tax examinations and participation in tax examinations
abroad;
b. assistance in the recovery of taxes (this was important);
c. service of documents.
Assistance to be provided whether the person affected was a resident or national of a Party or of any other State.

Article 2: Taxes Covered
The Convention applied to the widest possible range of taxes imposed by the Parties.
This Convention should apply to any identical taxes or substantially similar taxes, which were imposed in a Contracting State after the entry into force of the Convention in respect of that Party in addition to or in place of the existing taxes listed.

Forms of Assistance
Section I - Article 4 - Exchange of Information
General provision allowing Information of information, that was foreseeably relevant to the enforcement of the domestic laws of the Parties concerning taxes covered by the Convention.

Article 5 - Exchange of Information on request
At the request of the applicant State, the requested State should provide the applicant State with any information as contemplated in Article 4 which concerned particular persons or transactions.
If information available in the tax files of the requested State was not sufficient to enable it to comply with the
request for information, that State should take all relevant measures to provide the applicant State with the
information requested.

Article 6 - Automatic Exchange of Information
With respect to categories of cases and in accordance with procedures which they should determine by mutual agreement, two or more Parties should automatically exchange the information referred to in Article 4. (This was something that revenue authorities were striving for.)

Article 7 - Spontaneous Exchange of Information
A Party should, without prior request, forward to another Party information of which it had knowledge.

Article 8 - Simultaneous Tax Examination
At the request of one of them, two or more Parties should consult together for the purposes of determining cases and procedures for simultaneous tax examinations. Each Party involved should decide whether or not it wished to participate in a particular simultaneous tax examination.

Article 9 - Tax Examinations Aboard
At the request of the competent authority of the applicant State, the competent authority of the requested State might allow representatives of the competent authority of the applicant State to be present at the appropriate part of a tax examination in the requested State.
All decisions with respect to the conduct of the tax examination should be made by the requested State.
A Party might inform the Depositories of its intention not
 to accept, as a general rule such requests.

 Assistance in Recovery
Article 11 - Recovery of Tax Claims
At the request of the applicant State the requested State should, subject to the provisions of Article 14 (Time Limits) and 15 (Priority), take the necessary steps to recover tax claims of the first mentioned State as if they were its own claims.

It might be agreed between the Parties that the requests applied only to tax claims which formed the subject of an instrument permitting their enforcement in the applicant State and which were not contested.

Article 12 - Measures of Conservancy
At the request of the applicant State the requested State should, with a view to the recovery of an amount of tax, take measures of conservancy even if the claim was contested or was not yet the subject of an instrument permitting enforcement.

Article 17 - Service of Documents
At the request of the applicant State the requested State should serve upon the addressee documents, including those related to judicial decisions, which emanated from the applicant State and related to a tax covered by the Convention.
The requested State should effect the service of documents:
a. by a method prescribed by its domestic laws for the
service of documents of substantially similar nature;
b. to the extent possible, by a particular method
requested by the applicant State or the closest to
such method available under its own laws.

Mr Van der Merwe pointed out that South Africa had reserved its position on this Article, since the Mutual Legal Assistance Treaty already provided for service of documents.

Article 21 - Protection of Persons and Limits to the Obligation to provide Assistance
The Convention did not impose an obligation on the requested state to provide assistance in the following
circumstances:
a. to carry out measures at variance with its own laws or administrative practices;
b. to carry out measures which would be contrary to public policy;
c. to supply information which was not obtainable under its own law or its administrative practice or under the laws of the applicant State or its administrative practice;
d. to supply information which would disclose any trade, business, industrial, commercial or professional secret, or trade process, or information the disclosure of which would be contrary to public policy;
e. to provide administrative assistance if and insofar as it considered the taxation in the applicant State to be
contrary to generally accepted taxation principles or to the provisions of a Convention for the avoidance of
double taxation, or of any other Convention which the requested State concluded with the applicant State;
f. to provide administrative assistance for the purposes of administering or enforcing a provision of tax law of
the applicant State, or any requirement connected therewith, which discriminated against a national of
the requested State as compared with a national of the applicant State in the same circumstance;
g. to provide administrative assistance if the applicant State had not pursued all reasonable measures
available under its laws or administrative practice unless this gave rise to disproportionate difficulties;
h. to provide assistance in recovery in those cases where the administrative burden for that State was
clearly disproportionate to the benefit to be derived by the applicant State.
⚫Bank secrecy or the absence of a domestic tax interest could not be used to deny a request for exchange of information.

Article 22 - Secrecy
⚫Any information obtained by a Party should be treated as secret and protected in the same manner as information obtained under the domestic law of that Party.
⚫Information received should be disclosed only to persons or authorities including courts and administrative bodies or supervisory bodies. The information could be disclosed in a public court proceeding or in judicial decisions relating to such taxes.

Article 26 - Costs
Unless otherwise agreed bilaterally by the Parties concerned:
a. ordinary costs incurred in providing assistance should be borne by the requested State;
b. extraordinary costs incurred in providing assistance should be borne by the applicant State.

Article 27 - Other International Agreements or Arrangements
The assistance provided by this Convention did not limit, nor was it limited by, assistance contained in existing or future international agreements or other arrangements between the Parties or other instruments which related to co-operation in tax matters.

Article 30 - Reservations
In accordance with paragraph 1 (a) to (f) of Article 30 a State might enter into Reservations relating to taxes
covered, tax claims, service of documents and the entry into force date.

States must enter into declarations in terms of the Taxes Covered; the meaning of the term “competent authority”; and the meaning of the term 'national'.

South Africa’s Formal Ratification Instrument which would be sent to the Depository, would advise that the South African Parliament, in accordance with the requirements of South African law, had approved the ratification of the Convention, subject to the following notifications, declarations and reservations:

 - Taxes to which the Convention would apply:
• income tax;
• withholding tax on royalties;
• tax on foreign entertainers and sport-persons;
• turnover tax on micro businesses;
• secondary tax on companies, terminated as from 31 March 2012;
• dividend tax, effective date 1 April 2012;
• withholding tax on interest, effective date 1 January 2013;
• capital gains;
• estate duty;
• donations tax;
• transfer duty;
• value-added tax;
• excise tax; and
• securities transfer tax.

As in all South Africa's tax treaties, the Competent Authority was the Commissioner for the SARS or an authorised representative of the Commissioner.

Definition of the term “national” for the purposes of the Convention: Any individual possessing the nationality or citizenship of South Africa and any legal person, partnership, association, or other entity deriving its status as such from the laws in force in South Africa.

South Africa's Reservations
South Africa had entered a reservation and would not provide any form of assistance in relation to the taxes of the other Parties included in the following categories of Article 2, paragraph 1:
• taxes on income, profits, capital gains or net wealth which were imposed on behalf of political subdivision or
local authorities of a Party;
• compulsory social security contributions payable to general government or to social security institutions
established under public law;
• taxes on the use or ownership of motor vehicles;
• taxes on the use or ownership of movable property other than motor vehicles ; and
• taxes in categories referred to in sub-paragraph iii. Taxes in other categories, except customs duties, imposed on behalf of a Party, above which were imposed on behalf of political subdivisions or local authorities of a Party.

South Africa had entered a reservation and would not provide assistance with regard to the service of documents as described in Article 17 of the Convention, since the Mutual Legal Assistance Treaty already provided for service of documents. This reservation did not apply to the service of documents by post, as described in Article 17, paragraph 3 of the Convention.
(slides 5-32)

Mr Van der Merwe said that South Africa was otherwise very happy with the Convention.

Discussion
Adv Swart alerted SARS to the provisions of the Promotion of Access to Information Act (No. 2 of 2000) (PAIA). Clearly the provisions of the Protocol were subject to South Africa's domestic legislation. He noted that the State Law Adviser had accepted SARS' view.

Mr Van der Merwe said that when the State Law Advisers had raised the above issue, the last thing that SARS wanted was for South Africa to be labelled as a jurisdiction with bank secrecy - such was not the intention of Parliament or those concerned with drafting the legislation at that stage. SARS had consulted the South African Law Reform Commission, which was at that time busy with the Promotion of Access to Information Bill. The Commission had advised SARS that the Promotion of Access to Information legislation presented no problem to SARS. In fact there were exemptions which were allowed in relation to exchange of information, which one would be obliged to give under international treaties, provided that they were subject to sufficient standards of confidentiality.

He continued that the Commission had asked SARS what standards of confidentiality it applied. SARS had replied that it used the standards of confidentiality set out in South Africa's domestic law and in the OECD Model Convention on Taxation of Income and Capital. The Commission had replied that this was more than enough and would meet with the exceptions provided for under that law. On that basis SARS had returned to the Department of Justice and Constitutional Development, where the State Law Advisers had pointed out that Article 4 'of your domestic law' would not allow the exchange of information across borders. SARS had pointed out to them that in terms of Section 108 of the Income Tax Act SARS was specifically authorised to enter into agreements, bilateral or multilateral, which enabled SARS to exchange information. With that explanation, the State Law Advisers at the Department of Justice and Constitutional Development were happy, and SARS had since had no issues with them. This was indeed one of the preliminary areas that SARS had addressed, and SARS was confident. The South African Law Reform Commission had even agreed to tweak the words in such a way as to make it absolutely clear that exchange of information under these agreements would present no issues. Subsequently, SARS had been subjected to its peer review by the Global Forum on Transparency in Exchange of Information, and it had no issues in relation to the relationship between 'that law' and the exchange of information.

The Acting Chairperson was concerned about the relationship between these treaties and other law enforcement provisions internationally, for example, Interpol operations, and domestically, for example, the work of the Financial Intelligence Centre (FIC).

Mr Van der Merwe replied that the exchange of information under these treaties could only be done by competent authorities - in South Africa the competent authority was the Commissioner of SARS. Moreover, information could be exchanged only for the purposes clearly spelled out in the agreement and were subject to the agreement's confidentiality provisions. These purposes would relate to tax processes. However, there would be no problem if one wanted to charge somebody criminally, under the tax code.

Mr Harris asked if the list of signatories to the Multilateral Convention included any countries where bank secrecy was prevalent, like Switzerland, Singapore, or Luxembourg. His question related to that of Adv Swart.

Mr Van der Merwe replied that his concern when he had first visited the Committee was whether the tax information exchange agreements went far enough. He had seen these agreements as the first step in an international process, because under tax information exchange agreements there could be changes only on request, and that was rather limiting. What was really required was automatic and spontaneous exchange of information. In Cape Town the previous week there had been a meeting of the African Tax Administrative Forum Council, which he had attended as an observer and where he had asked the new head of the OECD centre for tax policy administration where the OECD saw the direction of the drive for exchange of information and for transparency. The latter had replied that the traditional areas where there was so much bank secrecy were beginning to apply to sign this Multilateral Convention. Such jurisdictions were seeking to move beyond the exchange of information on request, and there was beginning to be significant cooperation from a number of those jurisdictions. It might be more difficult with one or two of those that Mr Harris mentioned, but the Multilateral Convention was to be regarded as the first step in achieving complete transparency, and the international bodies sought to reach that position in due course.

Mr Harris regretted that Members had not been provided with a list of the signatories to the Multilateral Convention. He had asked whether Switzerland, Singapore, or Luxembourg were signatories.

Mr Van der Merwe replied that none of them were signatories, as yet.

Mr Harris said that, hypothetically, it had been intended that those countries where bank secrecy had been codified into their law were to be encouraged to apply to sign the Multilateral Convention, and South Africa was to be able to request information that was secret on their side. He thought that the State Law Advisers had been concerned that South Africa, having obtained secret information from a party to the Multilateral Convention, would be required to share it further and whether the Multilateral Convention was compatible with the Promotion of Access to Information Act. Mr Harris had intended his words more as a comment than as a statement, but, if a country such as Switzerland were to sign, then he would have a serious concern around possible conflict with the provisions of the Multilateral Convention and the Promotion of Access to Information Act.

Adv Swart was satisfied with this explanation. He noted the 'domestic law' referred to was, in the case of South Africa, the Promotion of Access to Information Act. However, he did not think that the South African Law Reform Commission could have 'tweaked' the legislation subsequently. He did not expect Mr Van der Merwe to comment.

The Acting Chairperson observed that tax laws were as good as administrative provisions. This approach was a step in the right direction.

Adoption
The Committee agreed to recommend that the National Assembly approve formal ratification of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters as amended by the Protocol. [Dr Luyenge proposed; Mr Harris seconded.]

South Africa Samoa Tax Information Exchange Agreement SARS preliminary briefing
Mr Van der Merwe gave a preliminary briefing on the South Africa Samoa Tax Information Exchange Agreement. This Agreement was similar to the TIEAs, for formal ratification of which the Committee had already recommended approval.

Discussion
There was no discussion on this Agreement.

The Chairperson noted that Members were in consensus.

Committee programme
The Acting Chairperson asked Members to take copies of the draft programme for the second term 2012.
He thanked the National Treasury and SARS team and wished it success in a mission which, in this competitive world, was not plain sailing.

Mr Van der Merwe thanked the Acting Chairperson for his kind words and the Committee for its assistance.

The Acting Chairperson adjourned the meeting.