Ratification of Double Taxation Agreements: briefing

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Finance Standing Committee

08 November 1999
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Meeting Summary

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Meeting report

9 November 1999

Documents handed out:
Avoidance of Double Taxation Agreements with Australia
Avoidance of Double Taxation Agreements with Tunisia
Avoidance of Double Taxation Agreements with Luxemborg
Avoidance of Double Taxation Agreements with Hellenic Republic

The Committee was briefed on the treaty agreements with Australia, Tunisia, Luxembourg and the Hellenic Republic. They agreed that the National Assembly should ratify the agreements.

Mr van der Merwe, Director at South African Revenue Services (SARS) presented the briefing. He said the treaty agreements are important to the strategies of increased investment. The goals of the treaties are to promote investment and trade, to allocate taxing rights, to eliminate double taxation, to exchange information between taxing authorities and to create certainty in tax areas in other countries. The format of the treaties is very much like that of laws.

Mr van der Merwe said that most of the articles in the treaties are modeled on international practice, but there are several changes made to suit the parties to the treaty. Some of these changes were outlined:

Treaty with the Government of Australia
Article 4(2) sets out the procedure when faced with a situation where a person could be resident in both South Africa and Australia. The general approach is that where all else fails, nationality would be the final step in the process. This approach is not preferred by Australia, therefore the provision of a different approach.

Article 6 provides for "Real property" with "Immovable" in brackets, because Australia refers to immovable property as real property.

Article 8: South Africa has opted for the Australian position instead of the general approach, which is that where an international journey is embarked on, the resident state will do the taxing. An example being that where a ship travels around the world making stops and off-loading passengers at harbours around the globe, the general practice is that the resident state of the ship would do the taxing. The Australian approach is where such a ship stops and any passengers or cargo embarks at any Australian harbour that portion is taxable in Australia.

Article 12: South Africa dropped its royalties from 12% to 10%.

Article 22: The provision is in bilateral language, but will be applied unilaterally as Source Income does not apply in South Africa.

Treaty with the Hellenic Republic
Article 8 will only be found in treaties with the Hellenic Republic.

Article 20 has included provisions dealing with researchers and teachers. Where such research or teaching does not exceed two years and the income is coming from the resident state, it is exempted from tax in the contracting state.

Article 22 makes provision for wealth tax, which is not applicable in South Africa. This provision is included to protect South African citizens who might have capital in the Hellenic Republic.

Treaty with the Grand Duchy of Luxembourg
Article 22 makes provision for the very same wealth tax protection as in the treaty with the Hellenic Republic.

Article 23 caters for the exemption method applied by Luxembourg as opposed to the credit method applied by South Africa.

Luxembourg has a class of companies that are exempt from tax and therefore Article 23 provides for this situation.

Treaty with the Republic of Tunisia
Article10 places the limit on dividends at 10% and the limit to interest at 12%.

Article 22 provides for tax bearing done on a bilateral basis.

Prof Turok (ANC) asked what effect the oversees listing of a company would have on taxation. Mr van der Merwe said that listing would not have affect taxation. South Africa does not have any taxation on dividends at this stage and therefore there would be no effect.

The Chairperson asked Dr Luyt (FA) and Dr Woods (IFP), who were given the task to study the treaties, whether they had any comments. Both Dr Luyt and
Dr Woods were satisfied with the treaties and made no further comments.
On that note the Committee agreed that the National Assembly should ratify the agreements.


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