Tax Treaties with Sudan, Australia, United Arab Emirates and Mexico

Meeting report

The delegation comprised of Ms Yanga Mputa, Director: Tax Policy Unit: National Treasury, Mr Ron van der Merwe Senior Manager International Treaties: SARS, Ms Oshna Maharaj, Assistant Manager: International Treaties: SARS, Mr Thanduxolo Twala, Assistant Manager: International Treaties: SARS, Mr Luthando Mvovo, Deputy Director: Tax Policy Unit: National Treasury.

Ms Mputa commenced the briefing explaining the parliamentary ratification process necessary for the signed tax treaties with Sudan and Australia. Before a signed tax treaty could come into force, it had to be ratified by Parliament.

She provided reasons for the need of such a tax treaty with Sudan and Australia. For Sudan, it was improved economic relations and the matching of SA’s foreign policy into Africa. Ms Mputa also gave the Committee an indication of trade flows between SA and Sudan. Figures on imports and exports between SA and Sudan were given for the years 2005-2007. She provided an indication of investment flows between the countries. Some of the SA companies operating in Sudan were PetroSA, Transnet and MTN-Sudan.

For Australia, the reasons were that this treaty was a protocol providing changes to the existing 1999 tax treaty between SA and Australia. The changes were necessary as a result of key changes to South African tax legislation, that is, the proposed conversion of Secondary Tax on Companies (STC) to a dividend tax at shareholder level. There meant the renegotiation of tax treaties with nine countries that have a zero rate withholding tax on dividends. The revised tax treaty also addressed certain aspects that were not present in the old treaty. Figures and facts on imports and exports and investment flows between the countries were provided. Wesbank, Pick ‘n Pay, Woolworths and Murray & Roberts were some of the major SA investors in Australia. SA exported mostly finished goods like high quality motor cars.
  
Mr van der Merwe continued with a technical explanation of the treaties with Sudan and Australia. He noted that the purpose of the treaties was to remove barriers to cross-border trade and investment. This was achieved by eliminating double taxation, providing certainty of tax treatment, reducing withholding tax rates, prevention of fiscal evasion, assistance in collection and the resolution of tax disputes/interpretation.

The Sudan-SA Double Taxation Agreement closely followed the Organisation for Economic Co-operation and Development (OECD) Model Convention which formed the foundation for the vast majority of Double Taxation Agreements (DTAs) worldwide. He highlighted some of the Articles of interest contained in the Sudan-SA Tax Treaty.

Mr van der Merwe noted that the SA-Australia Protocol amended the existing Double Taxation Agreement. Again, the protocol closely followed the OECD Model Convention, which formed the foundation of the vast majority of Double Taxation Agreements worldwide. Amendments to the existing Agreement became necessary in view of the proposed phasing out of the secondary tax on companies and its replacement with a dividends tax. He highlighted some of the Articles of interest contained in the protocol.

Ms Mputa provided a very quick presentation on the preliminary hearings on tax treaties with Mexico and the United Arab Emirates. As with her previous presentations she touched on the reasons behind the treaties, the investment flows, the imports and exports.
 
Discussion
Mr D Botha (ANC, Limpopo) asked what it was that SA exported to Sudan and what was being imported from Sudan. He noted that from the figures given there was a huge discrepancy between imports from and exports to Sudan. There was an imbalance.

Ms Mputa said that there might be an imbalance but it was definitely in favour of SA.

Mr M Robertson (ANC, Eastern Cape) said that SA did a fair amount of business with Sudan and that they created jobs for South Africans.

Mr E Sogoni (ANC, Gauteng) suggested that the Committee approve the Sudan Treaty as it could only improve trade flows between the two countries.

The Chair agreed and said the Committee shared the same sentiments.

Mr Robertson asked what the mechanical appliances being exported to Sudan and being imported from Sudan were.

Ms Mputa only confirmed that the mechanical appliances being exported and those being imported were different.

Mr Ralane asked what mineral products SA was importing from Sudan. 
 
Ms Mputa replied that currently PetroSA was only doing exploration in Sudan. There was no production taking place.

Mr Sogoni asked why treaties with Mozambique and Nigeria had not been ratified.

Mr van der Merwe responded that Nigeria had ratified the treaty the previous week and that the treaty was still being considered in Mozambique’s parliamentary process.

The Committee approved the ratification of the Sudan-SA Treaty.

Mr Sogoni asked how the Australian Treaty differed from the one with Sudan. He referred to Sudanese teachers and researchers working in SA tax free and asked what the benefit for SA was. What value did they add? Mr Sogoni said that there were so many tax treaties that SA was part of and asked whether National Treasury had quantified the fiscal benefit to SA.

Mr van der Merwe replied that the Australian treaty was also based on the OECD as Sudan was. He said that the tax exemption for researchers and teachers was for visits of less than two years. Payment of these individuals should also be from a source outside of SA. The payment must come from abroad. The idea was for exchanges of expertise to take place. It additionally provided tax protection for SA citizens transferring skills to Sudan.

He noted that the treaty with Sudan did not create taxation. The treaty went beyond imposing taxation; on the contrary it could reduce it. The ultimate users of the treaty were SA citizens doing business in Sudan. How does one quantify this figure? Mr van der Merwe felt it virtually impossible to put a monetary value to it.

The Chair pointed out that the treaties were of value in all respects.

The Committee approved the ratification of the treaty with Australia.

Mr Botha commented that there was little value on the imports from Sudan.

Mr van der Merwe said the value of the treaty with Sudan was more about SA companies investing in Sudan and not about what SA could import from them.

Mr B Mkhaliphi (ANC, Mpumalanga) referred to the tax exemption in the Sudan Treaty for teachers working in SA. He asked if such a teacher had a 5-year contract, would the tax exemption be for two years and the teacher would be liable for tax for the remaining three years?

The Chair could understand the exemptions for teachers as there was a shortage of skills, especially mathematics teachers. He was puzzled as to why the tax exemption applied to researchers. Mr Ralane felt that SA had researchers. He commented that the OECD seemed to be a one size fits all model.

Mr van der Merwe replied that the OECD and the UN treaties were international models. Every treaty was a combination of OECD and UN models. He said that they had a particular structure. It allowed for consistency of trans-border taxation.  Certainty was created. Hence the one size fits all with variations depending on the policy of a particular country.

Mr Sogoni said that the WTO forum often fought for special dispensations for developing countries. He said that the one size fits all was a problem.

The Chair said that each country had its own trade tools. He said that perhaps a workshop was needed to look into the issue.

Ms Mputa responded that SA was not always a developing country. SA was considered a developed country to Sudan whereas Australia considered SA a developing country.

Mr Sogoni asked if there was actual assistance for treaty countries in Africa in the collection of taxes. He also asked why there was no taxation of dividends.

Mr van der Merwe replied that there was no actual assistance for countries in the collection of taxes. There was however an exchange of information. He explained that dividends in the hands of shareholders were not taxed.

The Chair suggested that the Committee for now not ask questions pertaining to the preliminary treaties with Mexico and the United Arab Emirates.

The Committee agreed and the meeting was adjourned.