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FINANCE SELECT COMMITTEE
12 November 1999
RATIFICATION OF DOUBLE TAXATION AGREEMENT
1. Convention between the Republic of South Africa and the Republic of Tunisia for the Avoidance of Double Taxation and the Prevention of Fiscal evasion with respect to taxes on income.
2. Agreement between the Government of the Republic of South Africa and the Government of Australia for the avoidance of Double Taxation and the Prevention of Fiscal evasion with respect to taxes on income.
3. Convention between the Hellenic Republic and the Republic of South Africa for the Avoidance of Double Taxation and the Prevention of Fiscal evasion with respect to taxes on Income and on Capital.
4. Convention between the Republic of South Africa and the Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal evasion with respect to taxes on income and on Capital.
The Committee agreed to the ratification of the four treaties.
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.
Greece tax ships according to size and not profit, therefore once ship is registered tax would become payable.
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.
Dr E Conroy (NNP, Gauteng) noted that in Article 2 of all the treaties reference is made to the application of the treaties to `income tax' for other countries and `normal tax' for South Africa. He then asked whether this `normal tax' covers income tax in South Africa. Mr van der Merwe responded that in South African income tax legislation `normal tax' is the term used to cover income tax on individuals and legal persons and therefore the reference to normal tax.
Mr M Sulliman (ANC, Northern Cape) asked how many treaties are currently operating in South Africa. Mr van der Merwe said that at the moment 41 treaties are operating, at the end of the year, with the inclusion of these treaties, 45 treaties would be in operation. He went on to say that there are 15 other treaties, which have either been re-negotiated or are new treaties, that should still be ratified by Parliament.
Dr E Conroy (NNP, Gauteng) asked who normally signs the treaties. Mr van der Merwe said normal procedure is that either it will be signed by a Minister or by the ambassador in that country.
Mr A Marais (ANC, Free State) noted that two of the treaties were signed late last year, one early this year and the other in July this year. He then asked, considering the different times, why these treaties are only ratified now.
Mr van der Merwe said that the treaties signed last year were signed too late to be ratified in Parliament last year and therefore they were only tabled this year. Whether these treaties were ratified earlier this year or now, would make no difference, as ratified treaties will only come into effect on 1 January following the year of the ratification.
Dr E Conroy (NNP, Gauteng) asked whether the function of this committee is only to "rubberstamp" the agreements, since they have already been signed. Mr van der Merwe said prior to signature the treaties could easily be provided to this committee, as is done to the Portfolio Committee. The fact that treaties are already signed does not mean that no objections could be made. If there are objections to the treaties such objections could be communicated to the other contracting country.
Dr E Conroy (NNP, Gauteng) asked whether it would not save embarrassment if the committee is briefed, like the Portfolio Committee, before the signing of a treaty. Mr van der Merwe said that there is no problem in briefing this committee, as well, before ratification. He then made an undertaking to brief this committee on new treaties before signature.
In response to a question by Mr A Marais (ANC, Free State) on the problems encountered in the 45 treaties signed, Mr van der Merwe said he could not pinpoint any problems.
Dr E Conroy (NNP, Gauteng) asked why so many ships prefer to register in Panama. Mr van der Merwe said that it is likely that the rules pertaining to registration are not so stringent and most probably the taxes are lower.
Mr M Sulliman (ANC, Northern Cape) asked whether these treaties are generally to the advantage of South Africa. Mr van der Merwe said the treaty with Luxembourg has more of an advantage to people who wish to invest in South Africa, which in effect means that more people would invest in South Africa. The treaty with Australia benefits both countries, as there is trade between both countries. Generally the treaties are advantageous to South Africa in their own different ways.
Members agreed to the ratification of all four treaties.
Since there were no further matters for discussion the meeting was adjourned.
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