Double Taxation Agreements with Malaysia, Chile, Switzerland, Mozambique & Qatar: SA Revenue Service briefing

Meeting report

FINANCE PORTFOLIO COMMITTEE
17 August 2005
DOUBLE TAXATION AGREEMENTS WITH MALAYSIA, CHILE, SWITZERLAND, MOZAMBIQUE AND QATAR: SA REVENUE SERVICE BRIEFING
 

SA Revenue Services Double Taxation Conventions/Agreements 17 August 2005
Comparison between OECD, South Africa and Malaysia Tax Convention Models
Comparison between OECD, South Africa and Chile Tax Convention Models
Comparison between OECD, South Africa and Mozambique Tax Convention Models
Comparison between OECD, South Africa and Switzerland Tax Convention Models
Comparison between OECD, South Africa and Qatar Tax Convention Models
Explanatory Memorandum on the Double Taxation Agreement between South Africa and Malaysia
Explanatory Memorandum on the Double Taxation Agreement between South Africa and Chile
Explanatory Memorandum on the Double Taxation Agreement between South Africa and Mozambique
Explanatory Memorandum on the Double Taxation Agreement between South Africa and Switzerland
Explanatory Memorandum on the Double Taxation Agreement between South Africa and Qatar
Agreement between RSA and Malaysia for Avoidance of Double Taxation and Prevention of Fiscal Evasion

SUMMARY
The Committee heard a presentation from the SA Revenue Service (SARS) regarding Double Taxation Agreements with Malaysia, Chile, Mozambique, Switzerland and Qatar. SARS confirmed that the Malaysian agreement was completed and that the remaining four agreements were preliminary arrangements. The Committee approved recommendations that all five agreements be approved by the National Assembly.

Members raised whether it would be possible to consult the Financial Intelligence Centre regarding Article 25: Exchange of Information of the South Africa-Switzerland Agreement. They also asked how it would be possible to quantify the economic benefits to South Africa that resulted from Double Taxation Agreements.

MINUTESMr R van der Merwe (SARS Manager: International Treaties) outlined the purpose of the Double Taxation Agreements as the removal of barriers to cross-border trade and investment by eliminating double taxation.

The five Double Taxation Agreements were presented with specific attention paid to the differences between the Double Taxation Agreements and the OECD Tax Convention Models.

South Africa-Malaysia Double Taxation Agreement
Article 5: Permanent Establishment
Construction sites would be taxable in the state in which the construction was taking place after a period of twelve months. This is in line with the OECD Model. Furnishing of services would be taxable after a period of 183 days in any twelve-month period. An agent who maintains a stock of goods or merchandise in the host country is deemed to be a permanent establishment.

Article 10: Dividends
The dividend rate was 5% where there was source state resident shareholding of at least 25% and 10% on all other firms.

Article 11: Interest
The withholding tax rate was 10%.

Article 12: Royalties
The withholding tax was limited to 5% on royalties.

Article 13: Fees for technical services
Technical fees may be taxed by an amount not exceeding 5% of the gross amount in the host state if the agent is a resident of the other contracting state.

Article 21: Students, Apprentices, and Business Trainees
Remittances from abroad for the purpose of that student, apprentice or business trainee’s maintenance, education, study research or training are exempt from taxation. The Committee adopted the Malaysian Protocol.

South Africa-Chile Double Taxation Agreement
Article 4: Resident
Individual partners of a partnership are taxed as opposed to the partnership as a whole.

Article 5: Permanent Establishment
Construction sites would be taxable in the state in which the construction was taking place after a period of six months. Furnishing of services would be taxable after a period of 180 days in any twelve month period.

Article 10: Dividends
The dividend rate was 5% where there was source state resident shareholding of minimum 25%. Where the minimum holding of 25% is not met the rate of tax is limited to 15%.

Article 11: Interest
The withholding tax rate was 5% of gross interest derived from bank loans, bonds/securities and sale on credit by the purchaser. The withholding tax rate was 15% on all other sources.

Article 12: Royalties
The withholding tax was limited to 5% on the gross amount for the use of industrial, commercial or scientific equipment and 10% of the gross amount for all other cases.

Article 13: Capital Gains
Capital Gains derived are taxable in both contacting states simultaneously.

Article 17: Pensions
Payments from a social security system are taxable only in the state that paid the pension.

Article 25: Exchange of Information
Information requested by a contracting state from the other contracting state shall be exchanged even if the other state has no domestic tax interest in the information.

South Africa - Mozambique Double Taxation Agreement
Article 5: Permanent Establishment
Construction sites would be taxable in the state in which the construction was taking place after a period of six months. Furnishing of services would be taxable after a period of 180 days in any twelve month period.

Article 8: International Transport
Profits from an enterprise that engages in cross-border rail and transport activities are taxable in the country of residence only.

Article 10: Dividends
The dividend rate was 8% where there was source state resident shareholding of at least 25% and 15% on all other firms.

Article 11: Interest
The withholding tax rate was 8% on all interest.

Article 12: Royalties
The withholding tax was limited to 5% of all royalties.

Article 17: Pensions
Payments from a social security system are taxable only in the state that paid the pension.

Article 19: Professors and Teachers
The salaries of visiting teachers and professors would be exempt from taxation in the host state for a period of up to two years.

Article 22: Elimination of Double Taxation
Tax paid for credit purposes are exempt if the credit is used to promote economic development in either of the contracting states.

Article 26: Assistance in Recovery
The contracting states are empowered to collect taxes on behalf of each other.

South Africa - Switzerland Double Taxation Agreement
Article 5: Permanent Establishment
Construction sites would be taxable in the state in which the construction was taking place after a period of twelve months. This is in line with the OECD Tax Convention Model.

Article 10: Dividends
The dividend rate was 5% where there was source state resident shareholding of at least 25% and 15% on all other firms

Article 11: Interest
The withholding tax rate was 5% on all interest.

Article 12: Royalties
Royalties arising in a contracting state and owned by a resident of the other contracting state shall be taxable in that other state only.

Article 18: Pensions
Payments from a social security system are taxable only in the state that paid the pension.

Article 25: Exchange of Information
An exchange of information article is introduced for the first time between South Africa and Switzerland.

Protocols

Tax Fraud
Bank secrecy does not prevent the procuring of documentary evidence if the competent authority proves a direct link between fraudulent conduct and the requested measures of administrative assistance.

Ms B Hogan (ANC) asked what the definition of a direct link was as opposed to an indirect link.

Mr van der Merwe replied that the question was difficult to answer and reiterated that the information that is sought must be part of fraudulent conduct as opposed to arbitrary linkage.

Mr K Moloto (ANC) asked how the agreement defined fraud and what steps have to be taken to prove fraud.
Mr R van der Merwe replied that tax law provide a comprehensive definition of fraudulent conduct.

South Africa - Qatar Double Taxation Agreement
Article 5: Permanent Establishment
Construction sites would be taxable in the state in which the construction was taking place after a period of six months. Furnishing of services would be taxable after a period of 180 days in any twelve month period.

Article 8: International Transport
Profits from an enterprise that engages in cross-border rail and transport activities are taxable in the country of residence only. The profits from Gulf Air are taxable in Qatar only.

Article 10: Dividends
Dividends are taxable in the state where the receiver is a resident only.

Article 11: Interest
Interest is taxable in the state where the receiver is a resident only.

Article 12: Royalties
The withholding tax was limited to 5% of all royalties.

Article 15: Directors Fees
Salaries, wages and other similar remuneration earned by a resident of a contracting state may be taxed in the other contracting state if the parent company is a resident of the other contracting state.

The meeting was adjourned.







SA Revenue Services briefing