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FINANCE PORTFOLIO COMMITTEE
24 August 2004
DOUBLE TAXATION AGREEMENTS WITH KUWAIT AND UKRAINE: ADOPTION
Double Taxation Conventions/ Agreements – presentation
Explanatory memorandum on the Double Taxation Convention between the RSA and the Cabinet Ministers of Ukraine
Explanatory memorandum on the Double Taxation Convention between the RSA and the State of Kuwait
The South African Revenue Service (SARS) briefed the Committee on the Double Taxation Agreements with Kuwait and Ukraine. The Committee recommended the adoption of both without amendment. The Committee also sought clarity on what would happen in cases in which South Africa does not have such an agreement with another country.
The Chair stated that the Finance Bill could not be discussed today as planned because National Treasury officials could not make it down to Cape Town, but they should be able to make it on 31 August 2004.
Double Taxation Agreement with Ukraine and Kuwait
The Chair stated that the Committee attended the briefing to the NCOP on this matter and was thus familiar with these agreements.
Mr Frans Tomasek, SARS Assistant General Manager: Legislation, stated that he would recap the essence of the agreements. The agreements were pretty standard and the variations would usually be the rate of tax imposed, which was agreed to via negotiations. Other than that there were not any unconventional provisions.
The Chair then noted that Members agreed to the Agreements, without amendments.
Ms R Taljaard (DA) requested that Members be provided with a consolidated list of all the Double Taxation Agreements that South Africa has entered into.
Mr Tomasek replied that this could be provided.
The Chair asked Mr Tomasek to indicate the number of countries South Africa has entered into such agreements with.
Mr Tomasek responded that South Africa has entered into Double Taxation Agreements with most of the major trading partners.
Ms J Fubbs (ANC) asked Mr Tomasek to explain what would happen in cases in which South Africa does not have such an agreement with another country.
Mr Tomasek replied that the treaties essentially decide which country would be entitled to the tax in cases where there was conflict as to which country would receive the tax. For example, in the case where a foreigner moves to South Africa to work, typically according to South African revenue law they were not residents so would not be taxed on that basis. Yet the source of the income was South African, and South Africa would then lay claim to the tax on that basis. Equally their host country probably worked on a residence-based tax system which deemed income earned by their citizens to be sourced in their jurisdiction, and that country would then lay claim to the tax on that basis.
The question which then arose was how that double taxation conflict would be remedied in the absence of an agreement. Several countries such as South Africa have a unilateral tax relief policy. If this was case, taxpayers could qualify for one of two kinds of relief. The first was foreign tax allowed as a deduction, which was the less generous of the two. Some countries were slightly more generous and would give a credit for the tax paid in a foreign jurisdiction, as is the case in South Africa.
Ms Taljaard sought clarity on the tax implications as far as double taxation agreements were concerned if the JSE were turned into a financial centre, because international companies could decide to move their headquarters to South Africa.
Mr Tomasek replied that the technical answer was that once the company was resident in South Africa the Double Taxation Agreement would cover them.
The Chair asked whether there were many African countries with which South Africa did not have a Double Taxation Agreement.
Mr Tomasek responded that there were a fair number that did have a Double Taxation Agreement. SARS has concentrated on the SADC countries, and as time allowed, more countries would be incorporated.
The meeting was adjourned.