The relationship between articles 9(2) and 25(1)-(2) of OECD/UN model-based tax treaties from a South African perspective

Janse Van Vuuren, Gabriël

The relationship between articles 9(2) and 25(1)-(2) of OECD/UN model-based tax treaties from a South African perspective

Thesis / Dissertation

2026

Publisher

University of Cape Town

Department

School For Advanced Legal Studies

Faculty

Faculty of Law

Abstract

Transfer pricing is becoming an ever more important matter for tax authorities and multinational enterprises (MNEs) as the public sees low-tax-paying companies as not being good corporate citizens, even if this is achieved legally. For years, big corporations and high net-worth individuals have been using tax legislation, especially those located in tax havens such as the Isle of Man or Luxembourg, to their advantage by shifting profits to lower tax jurisdictions. Transfer pricing, as contained in the OECD Model under Article 9(1), has attempted to curb this problem, but this has also resulted in double taxation, which discourages foreign investment. The OECD has subsequently added Article 9(2) of the OECD Model – corresponding adjustments and included this as an option in the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the BEPS Multilateral Instrument or MLI) to relieve possible double taxation caused by a transfer pricing adjustment. This relief is not perfect as so-called secondary adjustments are not covered under this article, which can still leave the MNE with double taxation. Furthermore, some jurisdictions want to refuse relief if Article 9(2) is not included in the double tax treaty. This minor dissertation contents that the Mutual Agreement Procedures (MAP) under Article 25 of the OECD Model must apply to provide relief for transfer pricing adjustments, even in the absence of Article 9(2) in a tax treaty. However, not all tax treaties contain an Article 9(2). Most of the MAPs in the world relate to transfer pricing cases, which is no exception in South Africa. It is suggested that not only should SARS allow MAP to grant relief for transfer pricing adjustments to ensure the object and purpose of the tax treaty is met, but that SA could also benefit from mandatory arbitration. SA currently have only three tax treaties containing mandatory arbitration under MAP. However, implementing this could reduce the average time spent on MAP, thereby releasing scarce resources for other use by SARS.

Keywords

transfer pricing

tax

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Masters

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