An analysis of options for reform of South Africa’s unilateral income tax exemption of foreign pensions, with an emphasis on the cross-border interaction with pensions derived from the United Kingdom and Germany

Oliver, Ashley

An analysis of options for reform of South Africa’s unilateral income tax exemption of foreign pensions, with an emphasis on the cross-border interaction with pensions derived from the United Kingdom and Germany

Master Thesis

2018

Publisher

University of Cape Town

Department

Department of Commercial Law

Faculty

Faculty of Law

Abstract

South Africa, recently reformed the tax policy regarding the taxation a South African resident’s foreign employment income and is in the process of reviewing the tax policy of foreign pensions. The unilateral foreign pension exemption was only meant to be on a temporary basis, but yet uncertainty existed ever since its introduction in 2000 of whether, and for how long, the exemption would be retained that is until 2016. South Africa’s Treasury proposed various reforms to South Africa’s unilateral exemption of foreign employment income in the last two years. The prevalent nexus between the foreign employment income and foreign pension exemptions, is a strong indication that the various reforms considered for the foreign employment exemption may be considered in regards to South Africa’s tax policy reform of foreign pensions. This minor dissertation seeks to answer is what the impact of the proposed future reforms are on the income tax consequences of a SA tax resident’s foreign pension, in light of the recent international trends in the mitigation of double non-taxation. The key finding arising from the research in this minor dissertation is that South African residents currently benefit from double non-taxation of UK pension annuities, UK pension lump sums and lump sums, and a German lump sum arising from a pension commitment prior to 1 January 2005. The enactment of the proposed future reforms would result in United Kingdom pension annuity becoming taxable in South Africa. German pension benefits in the form of an annuity arising from a pension commitment prior to 1 January 2005 and after 31 December 2004 will be taxed either in Germany or South Africa, or both. In the case of a SA resident’s UK lump sum or German lump sum arising from a pension commitment prior to 1 January 2005, a SA resident will continue to benefit from double non-taxation under the proposed future reforms under both the 1973 and 2008 SA-Germany DTC. In the case of a SA resident’s lump sum arising from a pension commitment after 31 December 2004 it will still be taxed in Germany under both the 1973 and 2008 SA-Germany DTC, regardless of the proposed future reforms. Following the analysis of the impact of the proposed future reforms on the income tax consequences of a South African tax resident’s German or United Kingdom pension benefits, this dissertation finally aims to provide recommendations in relation to issues identified in respect of the proposed future reforms, if any.

Keywords

Law

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