OpenUCT :: Browsing by Subject "International Taxation"

Browsing by Subject "International Taxation"

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Open Access
A comparison of the substantive aspects of impermissible tax arrangements under South Africa's General Anti-Avoidance Rule and the Principal Purpose Test with specific reference to the examples found within the 2017 OECD Model Tax Convention
(2021) Zebert, Bradley Arthur; Hattingh, Johann
The Organisation for Economic Cooperation and Development released the 2017 Model Tax Convention on Income and on Capital (hereafter "Convention") which contains a Principal Purpose Test under article 29(9). The practical application of this test is explained with the use of various examples within the accompanying commentary to the Convention. However, various ambiguities both in the Convention and the accompanying commentary exist. The author raises these ambiguities and contrasts them with the general anti-avoidance rule (hereafter "GAAR") found within S80A of the Income Tax Act 8 of 1962. In doing so, the author asked which areas of the Principal Purpose Test are vague and can be interpreted in light of the South African GAAR to assist with attributing a meaning to it. The key findings from this paper identified various areas of the Principal Purpose Test where the GAAR could be used to assist in the interpretation and application of the Principal Purpose Test being the phrases "the principal purpose", "benefit" and "arrangement". Other areas of ambiguity which were also interpreted with the assistance of the GAAR related to whether the Principal Purpose Test contained a business reality test as well as the further aspects of the test relating to its interpretative aspect, subjective enquiry and burden of proof. It was argued that these areas may indicate how the South African courts may apply the Principal Purpose Test in the South African context.
Open Access
A critical analysis of South Africa’s domestic nexus requirements for the taxation of cross-border services
(2019) Dunjane, Kate; Roeleveld, Jennifer
The taxation of cross-border services has for a long time been a contentious topic of discussion across the international tax arena. The controversy of this debate stems predominantly as a result of the long held notion of the permanent establishment as a nexus requirement for source taxation; in a world where global trade, especially in services, can be significantly conducted without the need to establish a prolonged physical presence in the state of source. This is aided by digital technologies and advancements in telecommunications that enable business activities to be carried on remotely. Thus, significant economic activity can take place in a state without meeting the minimum taxable presence required to justify source-based taxation. The problem is that with cross-border transactions between developed and developing countries, where the developing country is typically a capital-importer of services, that developing country will never have the jurisdiction to tax active service-based business income, since the threshold relied on is high, relative to how global trade is conducted today, as it is predominantly dependent on satisfying a physical presence requirement. This study examines the nexus requirements contained in South Africa’s domestic legislation for the taxation of service fee income earned by non-residents. The analysis highlights how the threshold relied on to justify source-based taxation in South Africa is high, since it requires the physical presence of the service provider within the Republic. The study further highlights how South Africa’s policy choice in this regard is akin to a residence-based taxation system, by drawing parallels with the OECD model, which is renowned for its suitability to net capitalexporting and developed economies. Alternative proxies used to tax cross-border services, as noted in the United Nation’s Article 12A, the SADC Model Treaty and the domestic legislation of some BRICS member states, are introduced to the study as comparatives. The general finding hereon is that these alternative nexus requirements are predominantly akin to a policy choice slanted towards source-based taxation, contrasted by the residence-based approach evident in South Arica’s policy choice. Furthermore, the study conducts an analysis of the development of the taxation system in South Africa. The analysis reveals that South Africa’s policy choice to tax active income was largely influenced by the desire to ensure that South African tax laws were internationally compatible at the time when the South African economy was reintegrated with the global economy, postdemocratisation of the Republic. This led to the introduction of the permanent establishment 6 concept into South African domestic law, notwithstanding the knowledge of a not too distant future, where global trade would be conducted via digital technologies and telecommunications, which would render the requirement for physical presence to conduct trade obsolete. The objective of the study is to provide policy recommendations that support a gravitational pull towards more of a territorial-based taxation system. The impact thereof is envisaged to contribute to the strengthening of South Africa’s domestic source rules; the broadening of South Africa’s tax base and the enhancement of the competitiveness of South Africa’s economy.
Open Access
A critical analysis of statutory deeming in the context of the interaction between South Africa's controlled foreign company regime and model-based bilateral tax treaties
(2020) Daniels, Imran; Hattingh, Johann; Roeleveld, Jennifer
Fiction in domestic tax law is a peculiar legal construct. Set in contradiction, the result is plainly counter-factual. The question arises as to what the fiction means when constructed in the context of tax treaties? This minor dissertation draws a comparative analysis between the statutory construction of two opposing international tax treaty cases, one more recent than the other, in regard to the effect of one particular fiction in domestic tax law – the ‘as if'. In 1997, the United Kingdom court of appeal ruled on Bricom Holdings Limited v IRC. The finding from that decision surrounded the interpretation of the ‘as if' fiction in British Controlled Foreign Company (CFC) rules. In that case, the court found that the reference to ‘as if' was a purely notional definition based on fictional assumptions. These assumptions resulted in a product of artificial calculation, such that when constructed in CFC rules, resulted in a tax charge that was not a charge on the CFC's actual income, but a notional amount based on a notional definition of that income. The notional amount could, therefore, not be provided relief by way of tax treaties. In 2000, South Africa followed the British court's reasoning by updating its domestic Controlled Foreign Company rules with the same ‘as if' terminology. In 2018, the principle which formulated that longstanding argument appeared to be rejected by the same British court in the decision of Fowler v HMRC. The court of appeal reached the opposite result by finding that the fiction arising from the ‘as if' terminology did not represent a notional tax charge. Instead, the ‘as if' assumption created a new and exclusive taxable subject matter on the same income source, alike to statutory deeming. The fictional income arising from that fictional treatment was the substitution of one (notional) source of taxable income for another (actual, but disregarded) source. The deemed character in the computation was, therefore, retained in tax treaties, allowing tax treaty relief. This minor dissertation analyses both cases in order to posit whether or not the net income imputed from South Africa's CFC rules, using the same ‘as if' terminology, may be construed as a deeming rule on the same CFC's income. The finding in this minor dissertation is that an ‘as if' fiction may not represent a purely notional definition. The computation of CFC net income in tax treaties may, therefore, be afforded tax treaty relief akin to statutory deeming.
Open Access
A critical analysis of whether the current legislated exit tax provisions of South Africa are proportional to the legitimate purpose of those provisions
(2018) Botha, Leandi; West, Craig
When a South African taxpayer transfers his/her residence to another tax jurisdiction, exit tax is levied on certain accrued gains on the basis that a termination of residency results in a deemed disposal. This creates a fiction that the taxpayer disposes of his/her assets even though there was no change in ownership. It is likely that the levying of exit will create a cash flow disadvantage for the taxpayer, because there is a cash outflow, but no cash inflow. Moreover, the South African exit tax provisions require that exit tax is paid immediately upon emigration. The “immediate recovery” method of exit tax has raised a number of questions regarding the proportionality vis-à-vis the legitimate purpose of exit tax. Derived from Adam Smith’s first maxim, a tax is considered to be proportional to its purpose if the content and form of the tax does not go beyond what is required to attain the purpose of the tax. This principle is commonly known as the principle of proportionality. Proportionality is also one of the fundamental principles in the European Union ('EU’) and has featured in a number of European court cases concerning exit tax. This minor dissertation seeks to analyse the current legislated exit tax provisions for South Africa and evaluates whether these provisions are proportional to the purpose of exit tax or goes beyond what is necessary to achieve its purpose. The key findings arising from the research presented in this minor dissertation is that an exit tax regime which require an emigrating individual to immediately pay exit tax upon departure may restrict the mobility of that individual and prevent him/her from relocating to another tax jurisdiction. This dissertation found that such a restriction is not proportional to the purpose of exit tax. The mere imposition of exit tax may be justifiable and that it is not so much the principle of levying exit tax that cause concern, but more the timing and method of the application of exit tax. In South Africa, exit tax is due immediately upon departure. In line with the key findings in this dissertation, the current legislated exit tax provisions for South Africa is not proportional to the purpose of such provisions. Other countries have already addressed this issue by implementing alternative measures to levy and collect exit tax which is less burdensome for the taxpayer and therefore considered to be proportional to the purpose of exit tax. One such method is the deferral of exit tax until the point of actual realisation of the accrued gains. Following the analysis as described above, this dissertation finally evaluates the effectiveness of the current legal framework for information exchange and assistance in tax collection in a South African context in order to determine whether the adoption of a method whereby exit tax is deferred and collected upon actual disposal of the asset, is viable in South Africa. This evaluation found that South Africa already have the appropriate legal mechanisms in place in order to collect exit tax debt from a former resident.
Open Access
Characterisation for treaty purposes of manufactured dividends received in terms of securities lending arrangements
(2020) Vanlierde, Angela; West, Craig
Equity securities lending arrangements are contracts whereby a shareholder lends his shares to a borrower for a period of time. If dividends are declared during that period, these accrue to the borrower, and the borrower pays a manufactured dividend to the lender as compensation. The applicable income tax legislation deems manufactured dividends to be dividends for purposes of dividends tax. However, unless manufactured dividends are governed by Article 10 of a double tax treaty, South Africa may not have the right to tax manufactured dividends received by non-resident lenders. This would result in a loss of revenue for the South African fiscus. This paper examined the qualification or characterisation for treaty purposes of manufactured dividend income earned by lenders in terms of securities lending arrangements. This examination was done through an analysis of the ‘dividends' definition in Article 10 of the 2017 OECD model convention. It was found that manufactured dividends are not ‘dividends' for treaty purposes, and are instead business income in terms of Article 7. South African domestic tax legislation was analysed, together with publications by the South African Revenue Service and National Treasury, and demonstrated that there is a risk of taxation not in accordance with the provisions of a convention, as well as a risk of revenue losses to the South African fiscus where a non-resident lender has no permanent establishment in South Africa.
Open Access
A critical evaluation of the 1964 preferencial agreement (Labour agreement) for Mozambique mineworkers in the light of the South Africa - Mozambique DTC and the SADC treaty
(2016) Bugan, Noel Arnold; West, Craig
In 1964, a labour agreement was signed between the governments of South Africa and Portugal on behalf of its colony, Mozambique, to regulate the migration of Mozambican mineworkers to South African mines. In terms of this agreement the Mozambican mineworkers who received income on the South African mines were exempt from any taxes on their South African source income. Although outdated, the agreement is still in force today and is used by the South African mines to enter into employment contracts with Mozambican mineworkers. Many countries in the SADC region enter into double taxation agreements for the avoidance of double taxation. The 1964 labour agreement is quite unique as the income received by the Mozambican mineworkers is exempt from tax in South Africa for the duration of the contract (usually up to 18 months) entered into by the Mozambican mineworkers and their South African employers although the source of income is in South Africa. The challenge is whether this agreement should continue as an international agreement and whether it is discriminatory to exempt these mineworkers when compared to other mineworkers in the same position working in South Africa. The purpose of this study is to examine the application of this labour agreement with reference to the South African Income Tax Act and the double tax agreement with Mozambique. It further questions whether this agreement causes a revenue loss and whether or not such loss is justifiable. It further tests whether this agreement is a tax incentive and whether or not it leads to harmful tax competition in violation of the SADC agreement. Finally, the agreement is assessed in light of the discrimination article in the double tax agreement and based on section 9 of the Constitution of the Republic of South Africa. The main conclusion is whether the 1964 labour agreement should continue as an international agreement in the present circumstances as the agreement is fairly outdated and subject to various interpretations which will have an effect on revenue loss to the South African fiscus.
Open Access
Does South Africa have a coherent policy for source-based taxation based on the permanent establishment concept, and how has this policy been implemented in its bilateral tax treaties?
(2019) Eksteen, Michiel Marthinus; Hattingh, Johann
The difference between South Africa’s domestic PE definition and the PE definition in its various DTCs and regional MTCs suggest some material inconsistency in South Africa’s PE policy. The research question this minor dissertation seeks to answer is whether South Africa has a coherent PE policy for source-based taxation. In addressing this question, this thesis considered what South Africa’s PE negotiating policy is and identified trends in its tax treaty practice in order to determine any inconsistency with its domestic PE definition. The key finding arising from the research of this minor dissertation is that South Africa does not have a coherent PE policy as its domestic policy is based on the OECD PE definition from time to time, whereas its tax treaty negotiating position and tax treaty practice is closely aligned with the 2006 SA MTC. Finally, this thesis provide recommendations to South Africa’s relevant fiscal authorities on how to reform the PE policy in a coherent manner.
Open Access
Is there a divergence between the OECD Transfer Pricing Guidelines and post-BEPS interpretation of the Arm?s Length Principle in OECD materials, with emphasis on the control of risk and value creation?
(2023) Ball, Gavin; Hattingh, Johann
This minor-dissertation contends that the arm's length principle is not being interpreted and applied in transfer pricing practice as intended by the OECD in its 2022 Transfer Pricing Guidelines (the TPG).1 Whether deliberate or unintentional, such a divergence has the potential to become permanent and has been exacerbated, accelerated, and entrenched by the OECD's work on digitalisation as part of the BEPS Project, with concomitant emphasis on the concept of value creation. Increased complexity in the OECD's guidance on the control of risk has also contributed to such divergence. Ultimately, there may be tacit recognition by the OECD itself of the economic reality of how MNE's operate and the challenges associated with applying the separate entity principle in group context. This has contributed, it is suggested, to increasing tolerance of and even promotion of profit-split approaches, both conceptually and in practice.
Open Access
Judicial review of revenue authority decisions in a specific tax treaty context – a study of the extent of convergence in the reasoning of different courts reviewing revenue authority decisions under model-based tax treaties
(2021) van Rensburg, Liesl Nicola; Hattingh, Johann
This minor dissertation analyses how different courts review the exercise of discretion under specific model-based tax treaty clauses that confer wide decision-making powers to officials. The aim is to identify whether there is convergence in argument that may be of relevance to other courts for the uniform interpretation of tax treaties. The research methodology adopted in this dissertation is doctrinal research. It was conducted primarily through foreign case law sourced from the International Tax Law Reports and the International Bureau of Fiscal Documentation. It is concluded in this minor dissertation that there is evidence of convergence on the justiciability of requests for the cross-border exchange of taxpayer information. The courts are recognising the principle of legality with differences in their approach to judicial review. There is an extent of convergence in respect of the interpretation of the standard of foreseeable relevance as condition to legality in this context, with most courts applying a deferential approach. There is also evidence of convergence in relation to confidentiality provisions with the courts applying principles of procedural fairness with slight divergence on issues of disclosure. It is not possible at this stage to determine convergence in respect of the model-based mutual agreement procedure and principal purpose test. Case law analysed in these contexts are however instructive and provide arguments that may be of value to other courts.
Open Access
The possibility of base erosion and profit shifting through special economic zones: A critique of the South African and Kenyan SEZ regimes based on BEPS action 5
(2016) Chimbombi, Ame Rebecca; Hattingh, Johann; West, Craig
The OECD/G20's Base Erosion and Profit Shifting (BEPS) Project has been described as the most significant international tax initiative post the 2008/2009 global economic crisis. BEPS speaks to companies engaging in aggressive tax planning strategies that exploit loopholes in tax systems to make profits 'disappear' or shift them to tax jurisdictions with little or no overall corporate tax. The BEPS Project has fifteen Actions targeting various formations, computations and permutations that could potentially give rise to BEPS. BEPS Action 5 is entitled "Countering Harmful Tax Practices More Effectively Taking into Account Transparency and Substance" and is of central importance to this minor dissertation. Special Economic Zones (SEZs) are a creature of international trade law that refers to spatially delimited areas within an economy afforded favourable administrative, regulatory and fiscal benefits when compared to the rest of the economy. The term SEZ is used as an 'umbrella' or 'label' encompassing various types of spatially delimited areas with favourable conditions. Examples of SEZs are Free Trade Zones (FTZs) and Export Processing Zones (EPZs). Although this minor-dissertation focuses mainly on tax benefits associated with SEZs, SEZs usually encompasses a wider range of benefits to the companies they host. Such other benefits could include a one-stop shop for setting up and processing work permits. This minor-dissertation examines whether South Africa and Kenya's SEZs create conducive environments for harmful tax practices in light of and as described in BEPS Action 5.
Open Access
Potential Cross-Border Double Taxation on Death Limits Global Investment Opportunities for Long Term South African Resident Investors - demonstrated through an analysis of the international tax consequences that arise for a South African resident who holds an investment in a portfolio of stock listed in the United States of America at the date of death
(2019) Wilson, Kirsty; Roeleveld, Jennifer
This dissertation examines the impact of the imposition of both estate duty and capital gains tax (CGT) by South Africa (SA) on South African resident investors at the date of death.1 The focus of this dissertation, within this chosen area of study, is the effect of the imposition of these two taxes on cross-border transactions; this study examines the international tax consequences that arise on death, should a SA resident investor hold foreign situs assets at such time. The study uses a portfolio of stock listed in the United States of America (US) to demonstrate that the imposition of both estate duty and CGT by SA at the date of death may result in unresolved double taxation or at the very least the imposition of taxes that are confiscatory, excessive or prejudicial to SA resident investors. In order to demonstrate that double taxation may exist or that confiscatory, excessive and prejudicial taxes may arise, the study outlines the current legislation in SA and the US, as well as the relevant unilateral and bilateral relief available to such an investor. The study then goes on to determine the global tax liability that would result for the investor in question at the date of death. After determining the global tax liability, the study analyses whether the relief available to the investor is sufficient in preventing double taxation or taxes that may be considered prejudicial, confiscatory and/or excessive. Where it is found that double taxation persists or prejudicial, excessive and confiscatory taxes exists, the study recommends action that should be taken by the relevant authorities to remedy such concerns.
Open Access
Practical challenges in applying The Place of Effective Management Test for Tax Residency in the context of South Africa's Headquarter Company Regime
(2022) Dumisa, Sinenhlanhla; Hattingh, Johann
It is common for residency to be determined by place of incorporation or place of effective management (‘POEM'). As a result, the place of effective management test often results in two rival claims regarding taxation based on residency. Prior to 2017, paragraph 3 of article 4 of the OECD Model expressed that a non-individual ‘shall be deemed to be a resident only of the State in which the “place of effective management” is situated.' In 2017, the term ‘POEM' was abandoned, and the revised 2017 OECD Model now expresses that ‘the competent authorities of the Contracting States shall endeavour to resolve, by mutual agreement, cases of dual residence of a person other than an individual.' Most commentators interpret POEM as the point where key and commercial and strategic decisions are made. As such, a company headquartered in South Africa with a presence in other regional countries may have senior management based in South Africa and senior management in the regions, but may find the subsidiary restricted by the interpretation of POEM. The South African-headquartered company would be resident of South Africa if the key pronouncements were made by executives in South Africa. This study explores the practical challenges in the application and interpretation of the term ‘place of effective management' in tax treaties to establish the residency of South African headquartered companies investing in selected African jurisdictions. An analysis of the Mutual Agreement Procedure (‘MAP') is conducted, including in the form of a case study of Botswana and Lesotho. One of the challenges identified in the MAP is the lack of resources and empowerment to reach a resolution. Consequently, the OECD formed a forum to address the administrative and practical challenges by providing the competent authorities with adequate resources to individual agreements under negotiating the MAP, as well as to train employees. This study concluded that the test for residency should account for where the economic nexus is strongest. Future research could be conducted on the unique challenges that multinational businesses with a significant digital (but little physical) presence encounter, as well as value creation.
Open Access
Seeking common deviations from South Africa’s tax treaty policy: a comparative analysis identifying trends (regional or otherwise) in treaty practice in bi-lateral tax treaties with countries in Asia, Australasia, North America and South America
(2018) Decloedt, Andre; West, Craig
South Africa experienced an unprecedented growth in its tax treaty network since 1994 as a result of an increase in global trade. In concluding these bi-lateral tax treaties with other countries, South Africa depends primarily on its national model policy during its negotiations with other contracting states. The country’s national tax treaty policy was previously defined in one document, the publication of which has since been discontinued. Apart from Professor C West’s contribution to the global tax community, there is little research information available on the current tax treaty policy of South Africa. It is submitted that the OECD Model and its positions recorded in the commentaries are now widely accepted as the national tax treaty policy of South Africa. The findings of the comparative analysis between the previously documented tax treaty policy and this new widely accepted position of South Africa, suggested that the OECD Model and its recorded positions in the commentaries, subject to a few exceptions, is a fair reflection of South Africa’s national tax treaty policy. It is submitted that South Africa accepted common deviations from its national tax treaty policy when negotiating bi-lateral treaties with countries in the Americas, Asia and Australasia. Previous research failed to provide guidance in this aspect and in an attempt to seek common deviations from South Africa’s national tax treaty policy, a comparative analysis was conducted to identify trends (whether regional or otherwise) in tax treaties with a sample of countries in Asia, Australasia, North America and South America. The findings of this comparative analysis indicated that South Africa successfully applied its national tax treaty policy to a large extend, but does accept common deviations from the policy.
Open Access
South Africa's Restrictions on Interest Deductions and Their Compatibility with the Non-Discrimination Provisions of the 2017 Version of the OECD Model
(2020) Friedman, Joshua Michael; Hattingh, Johann
This dissertation examines whether South Africa's interest deduction tax laws are compatible with selected aspects of their Double Taxation Treaties that are based on the 2017 OECD Model Tax Convention. This dissertation will outline and examine the innerworkings of three of South Africa's domestic interest deduction legislative provisions namely, sections 23N, 31 and 23M of the Income Tax Act. Thereafter, the relevant Non-Discrimination provisions of the 2017 OECD Model Tax Convention contained in Article 24 will be discussed. The exemptions to Article 24 will also be dealt with before addressing the impact of the recently added ‘Savings Clause'. The understandings gained from the above will then be used to test South Africa's interest deduction legislative provisions against the relevant Articles of the OECD Model Tax Convention. This dissertation concludes the following: section 23N does not constitute discrimination; section 31 necessarily does but falls within one of the exemptions to Article 24; and section 23M violates the non-discrimination provision contained in Article 24(4) and as such, is not compatible with any of South Africa's Doubled Taxation Treaties that contain the relevant Articles. This dissertation ends off with recommendations on how South Africa deals with the conflict, the best of which is to amend section 23M to include an arm's length requirement.
Open Access
Tackling international tax avoidance: If South Africa has general anti-avoidance rules, why does it need the principal purpose test?
(2021) Opperman, Marine; Hattingh, Johann
The OECD's MLI was tabled for signature on 7 June 2017 and South Africa was amongst the first 68 countries to sign the MLI on that date. With its signature, South Africa made the provisional selection to adopt the PPT minimum standard, which was introduced by the OECD's Final Report on BEPS Action 6. This minimum standard effectively incorporates a treaty GAAR into South Africa's treaties that are covered under the MLI. However, South Africa already has a very comprehensive and complicated domestic GAAR. In their review of the OECD's Final Report on BEPS Action 6, the Davis Tax Committee observed that the GAAR and the PPT serve a similar purpose and that the GAAR can be applied to prevent the abuse of treaties. They stated further, that one could therefore argue that there is no need for South Africa to amend its treaties to include the PPT. Nevertheless, as much as the OECD Final Report on BEPS Action 6 clearly explains that domestic law provisions can be applied to prevent treaty abuse, there could be concerns of treaty override if South Africa applies its GAAR in a treaty context. This dissertation's objective was to investigate the Davis Tax Committee's propositions noted above. An in depth analysis and comparison of the GAAR and the PPT resulted in the conclusion that the Davis Tax Committee's propositions were correct. The core purpose and functions of the GAAR and PPT are similar to the extent that the GAAR could be applied to prevent treaty abuse, instead of the PPT. The South African legal framework is further set up in such a way that the GAAR can not only be legally applied in a treaty context, but that it would trump a treaty provision in the event of an irreconcilable clash, which results in the Davis Tax Committee's concern for treaty override. Despite the conclusion that the GAAR may replace the PPT, it may not be practical for South Africa to apply its GAAR in a treaty context and it was concluded that it is highly unlikely that South Africa would substitute the PPT for the GAAR.
Open Access
The effect of the Coca-Cola transfer pricing cases and selected shifts in the international tax regime on the determination of an arm's length price
(2022) Gutsche, Janet; Hattingh, Johann
An era of legal loopholes and opportunities for double non-tax, along with economic, social and political developments in modern history have driven significant changes in the international tax environment facing taxpayers with cross border interests. Transfer pricing and the arm's length calculation is central to this issue. The proposition is that corporate tax evasion scandals and demanding government budget deficits have led to global shifts in the international tax environment. This has redefined the future of tax planning and may pose a threat to the rights of ethical and responsible international taxpayers intending to pay, only, their fair share of taxes. The Coca-Cola Company is one of the most prominent and best known international organisations. Its vast and intricate international business structure and transfer pricing challenges are universal, relatively easy to understand, and relatable to other corporate taxpayers. The company has a significant presence in South Africa and 2 out of the 8 subsidiaries that were involved in the transfer pricing cases are African (Lesotho and Egypt).1 These cases that have been proceeding since before 2017 are useful examples for anyone attempting to understand how the arm's length principle will be applied in the modern international tax era. There is insufficient transfer pricing case law, specifically in South Africa, where the prevailing transfer pricing guidelines are contained in a practice note2 that has remained unchanged since its introduction in 1999.3 The lack of precedent makes decisions regarding an appropriate arm's length price uncertain. It is necessary to analyse pertinent foreign case law that may provide guidance on how tax authorities and practitioners in South Africa may apply transfer pricing regulations. The aim is to adopt the case study method to analyse the Coca-Cola transfer pricing cases in light of selected shifts in the international tax regime to explore what effect will be had on the determination of an arm's length price going forward.
Open Access
The legal status of memoranda of understanding in relation to treaties for the avoidance of double taxation and information exchange
(2020) Masilo, Phuthehi; Hattingh, Johann
It has been suggested by international lawyers that Memoranda of Understanding (MOUs) are instruments concluded between States which they do not intend to be governed by international law (or any other law) and, as a result, are not legally binding. The question as to what legal status MOUs have in the context of international tax law, particularly in relation to treaties for the avoidance of double taxation and information exchange has, to a greater extent, not been asked or answered in academic literature. This minor dissertation seeks to address that. Based on a review of the legal framework for treaties and MOUs, analyses of cases dealing with tax MOUs, and taking into consideration doctrinal work of various commentators, it is evident that the legal status of tax MOUs is determined by the role they play in the interpretation and application of tax treaties. The key finding arising from the research presented in this minor dissertation is that the roles of tax MOUs are to complete the treaty or modify or clarify substantive provisions of the treaties they are based on. If they complete or modify the treaty, such MOUs have legal consequences. On the other hand, if they only clarify substantive treaty provision, they do not have direct legal consequences but can be considered for interpretation purposes. Although MOUs have been viewed historically as non-legally binding agreements not governed by international law or any other law, evidence seem to suggest a contrary view in the context of international tax treaty law. If an MOU is concluded pursuant to a treaty article, through the powers given to Competent Authorities (CAs) under articles 25(1)-(3) of the OECD Model Tax Convention (MTC) to conclude, for example, an interpretive instrument, then arguably such an MOU is intended to be governed by international law as the treaty authorises its conclusion. MOUs of this kind concluded by CAs have binding effects.

Browsing by Subject "International Taxation"

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