FORMAL RATIFICATION: TAX TREATY WITH CAMEROON,

LESOTHO, HONG KONG, QATAR AND CYPRUS

PRELIMINARY BRIEFING: ZIMBABWE,SINGAPORE,

NETHERLANDS AND LUXEMBOURG Standing Committee on Finance

Presenter: Lutando Mvovo | Director, Tax Policy, National Treasury | 19 May 2015

Purpose of tax Treaties

Three main purposes from a policy point of view

Prevent double taxation of the same income

limit the right of a source country to tax passive income by reducing tax to

a lower rate and residence country must provide credit or exemption or

giving the residence country exclusive right to tax the passive income

Create Fiscal Stability

termination made by giving 6 months notice to the other treaty partner

provides for dispute resolution mechanism (MAP)

Prevent tax avoidance and evasion

exchange of information and

assistance in tax collection

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Interaction between tax treaties and

domestic law

The Constitution

S 231(1)-Signing and negotiation of all international agreements

responsibility of the National Executive

S 231 (2)- Binds the Republic once approved by Parliament (NA

and NCOP)

S 231 (4)-Becomes law in the Republic when it is enacted into law

by national legislation

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Interaction between tax treaties domestic

law

Income Tax Act

• Section 108 (2):

– Agreement approved by Parliament

– Published in the government gazette

– Have effect as if enacted in the Income Tax Act

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CONSIDERATIONS FOR TAX TREATY

• Treaty country identification (New Treaties):

– Investment flows (inbound and outbound);

– Main corporate players making cross border investments in either country;

– Political relations, in some cases;

– Trade flows (mere indication of economic activity)

– Gateway to Africa’s strategy;

– Potential economic and political advantages against risk of compromising the domestic tax base;

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TAX TREATY BENCHMARK

• Country tax profile:

– Tax system [basis of tax, domestic tax rates, domestic and treaty withholding tax rates]

– Special tax vehicles and instruments [effective tax rates, tax on interest, dividends, royalties, capital gains etc.]

– Treaty network and variations [common trends + common treaty partners]

– Interrelationship between the tax systems of two countries [whether distort economic activity].

– Potential tax avoidance [e.g. transfer pricing] and treaty shopping

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SOUTH AFRICA-LESOTHO DTA

ricaLesotho

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Reasons for the Lesotho Treaty

• Renegotiation of the old tax treaty;

• First tax treaty between South Africa and Lesotho came into force in

1997;

• During that time, South Africa was still on source based system of

taxation and did not have capital gains tax system;

• Hence, the current tax treaty between South Africa and Lesotho does not

cover certain aspects;

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Reasons for the Lesotho Treaty

• Growing presence of South African companies in the construction, retail,

transport, tourism, communication and financial sectors;

• Lesotho is also important from a Regional perspective (Lesotho is a

member of SADC;

• The renegotiation of the old treaty became necessary due to changes in

South African domestic law (e.g. change from source system to

residence system, introduction of capital gains tax etc) and international

trends;

• The renegotiations were concluded in 2013;

• The renegotiated tax treaty was signed on 18 September 2014.

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SOUTH AFRICA-CAMEROON DTA

The South Africa – Cameroon Tax Treaty

• This is a new tax treaty;

• Aim is to enhance economic relations between South Africa and

Cameroon;

• Growing presence of the South African companies in Cameroon

especially in the mining, aviation, telecommunications and financial

sectors;

• Expand South Africa’s tax treaty network in Africa;

• To promote South Africa as a gateway to Africa;

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The South Africa – Cameroon Tax Treaty

• In terms of bilateral relationship between the two countries, this is the

third bilateral agreements;

• The other two bilateral agreements are:

– The General Co-operation Agreement (which opens the way for co-

operation in all government sectors);

– A Bilateral Trade Agreement and a Memorandum of Understanding

on Economic Co-operation

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SOUTH AFRICA-QATAR DTA

The South Africa – Qatar Tax Treaty

• This is a new tax treaty;

• The SA–Qatar tax treaty was initiated by South Africa;

• To strengthen economic relations between South Africa and Qatar;

• Expand South Africa’s tax treaty network in the Middle East;

• Growing South African community in Qatar, evidenced by the

establishment of South Africa Social Committee (SASCOM) which

assists new comers to Qatar;

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The South Africa – Qatar Tax Treaty

• Qatar is important to South Africa as it has oil reserves of 15,21 billion

barrels and natural gas reserves measured at approximately 25.4 trillion

cubic metres;

• Presence of South African companies in the Aviaition,construction and oil

industries.

• The negotiations were concluded in 2013.

• The agreement was signed on 6 March 2015

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SOUTH AFRICA-HONG KONG DTA

The South Africa – Hong Kong

• Hong Kong is a Special Administrative Region of the People's Republic

of China with a high degree of autonomy in all matters except foreign and

defence affairs;

• This is a new tax treaty;

• Aim is to promote economic relations between South Africa and Hong

Kong by providing certainty for cross –border investments and trade;

• Initiated by Hong Kong, aimed at expanding its tax treaty network;

• Hong Kong is regarded as the world’s gateway to Mainland China and

other parts of Asia;

• Hong Kong’s Stock Exchange is the sixth largest stock exchange in the

world and Asia's third largest in terms of market capitalisation after Tokyo

Stock Exchange and Shanghai Stock Exchange

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The South Africa – Hong Kong

• Major SA companies with presence in Hong Kong include companies in

companies in the aviation, shipping, construction, oil, consumer products,

engineering, banking and travel;

• A large number of Hong Kong companies have presence or offices in

South Africa;

• This made it necessary that a tax treaty between the two countries be

negotiated;

• Negotiations were concluded in 2013.

• The agreement was signed in 16 October 2014

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SOUTH AFRICA-CYPRUS PROTOCOL TO

THE DTA

SOUTH AFRICA-CYPRUS PROTOCOL

• The South Africa-Cyprus tax treaty into force was signed on 8 December

1998;

• At that time South Africa was still on source system of taxation;

• Changes to Article 10 dealing with dividends in this tax treaty became necessary as a result of key changes to South African Domestic Tax legislation : Conversion of Secondary tax on Companies (“STC”) to a dividends tax at shareholder level;

• Implementation of the proposed STC conversion was subject to renegotiation tax treaties had a zero rate withholding tax on dividends;

• Cyprus was one those tax treaties;

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SOUTH AFRICA-CYPRUS PROTOCOL

• The negotiations also updated the exchange of inform article in the old

tax treaty;

• Negotiations were concluded in 2012;

• The Protocol amending the tax treaty was signed on 1 April 2015

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PRELIMINARY HEARINGS: ZIMBABWE, SINGAPORE,

NETHERLANDS AND LUXEMBOURG

Standing Committee On Finance

Presenter: Lutando Mvovo | Director, Tax Policy, National Treasury |19 May 2015

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South Africa-Zimbabwe Tax Treaty

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Double Tax Agreement: SA-Zimbabwe

• Renegotiation of the old tax treaty;

• First tax treaty between South Africa and Zimbabwe came into force on 3

September 1965;

• At that time Zimbabwe was still called Southern Rhodesia;

• During that time, South Africa was still on source based system of

taxation and did not have capital gains tax system;

• The renegotiation of the old treaty became necessary due to changes in

South African domestic law (e.g. change from source system to

residence system, introduction of capital gains tax etc) and in

international trends

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Double Tax Agreement: SA-Zimbabwe

• Increased presence of South African companies in Zimbabwe in all

sectors;

• Zimbabwe is also important from a Regional perspective because it is a

member of SADC;

• The renegotiations were concluded in 2014;

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South Africa-Singapore Tax Treaty

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Double Tax Agreement: SA-Singapore

• Renegotiation of the old tax treaty;

• The tax treaty between South Africa and Singapore came into force on 5

December 1997.

• During that time, South Africa was still on source based system of

taxation and did not have capital gains tax system;

• Hence, the current tax treaty between South Africa and Singapore does

not cover certain important aspects such as an article dealing with

taxation of capital gains;

• Modernisation of the tax treaty in line with latest international model;

SOUTH AFRICA-SINGAPORE

• The negotiation also addressed areas that were identified to be

weakness in the old tax treaty such as potential for dual residence

structures, zero, rate on interest, absence of capital gains articles,

exchange of information etc

• Negotiations have now been concluded;

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South Africa-Netherlands Protocol

to Tax Treaty

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SA-Netherlands Tax Treaty Protocol

• The current tax treaty between South Africa and Netherlands

came into force on 28 December 2008;

• Renegotiation of the Protocol to the tax treaty became

necessary due to the introduction of witholding tax on

interest;

• The DTA also had zero rates interest, royalties;

• It did not have a provision dealing with the taxation of capital

gains on property rich companies which resulted in double

non-taxation;

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South Africa- Luxembourg Tax

Treaty Protocol

The South Africa – Luxembourg Tax

Treaty Protocol

• DTA between SA and Luxembourg first came into force in 8 September

2000;

• At that time SA was still on a source-based system of taxation, did not

have withholding taxes on dividends and interest nor capital gains tax;

• The DTA also had zero rates interest, royalties;

• It did not have a provision dealing with the taxation of capital gains on

property rich companies which resulted in double non-taxation;

• The change in South Africa’s policy such as the introduction of witholding

tax on interest and the above weakness in this tax treat were the reason

for the renegotiation of some articles in this treaty

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The South Africa – Luxembourg Tax

Treaty Protocol

• The negotiation also addressed potential dual residence by changing the

tie–breaker clause from the place of effective management to mutual

agreement on a case-by-case basis;

• It also addressed other issues such as exchange of information and

assistance in tax collection issues

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THANK YOU

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