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Protocol amending the Double Taxation Conventions / Agreements Preliminary Hearing

This protocol introduces amendments to the double taxation conventions/agreements between South Africa and Kuwait, and between South Africa and Luxembourg. The amendments address issues related to dividends, resident determination, permanent establishment, interest, royalties, and capital gains.

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Protocol amending the Double Taxation Conventions / Agreements Preliminary Hearing

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  1. Protocol amending the Double Taxation Conventions / AgreementsPreliminary Hearing

  2. Protocol amending the Agreement between the Government of the Republic of South Africa and the Government of the State of Kuwait for the avoidance of double taxation andthe prevention of fiscal evasion with respect to taxes on income

  3. Introduction • Amendments to the Agreement, became necessary in view of the phasing out of the secondary tax on companies and its replacement with a dividends tax. • The Article in the South Africa – Kuwait Protocol amending the Double Tax Agreement is as follows:

  4. Article 10: Dividends • In practice, withholding taxes vary widely internationally. • Dividend rate in South Africa – Kuwait Protocol: • 5% for shareholding of at least 10%; and • 10% on all other cases. • Paragraph 3 exemption – dividends paid by a company which is resident of a State and paid to the Government of the other state shall be exempt from tax in the first mentioned state.

  5. Protocol amending the Convention between the Republic of South Africa and the Grand Duchy of Luxembourgfor the avoidance of double taxation and the prevention fiscal evasion with respect to taxes on income and on capital

  6. Introduction • Amendments to the Agreement, became necessary in view of the proposed implementation of a withholding tax on interest. • Articles of interest in the South Africa – Luxembourg Protocol amending the Double Tax Convention are as follows:

  7. Article IIIArticle 4: Resident • Article 4 is deleted and replaced with a new Article 4 in line with the South African model. • Paragraph 1 provides that the term “resident of a Contracting State” also includes Collective Investment Vehicles (CIVs). • Paragraph 3 provides that if a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall by mutual agreement settle where the person is deemed to be a resident taking into account the place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors. In the absence of such agreement, the person shall not be entitled to any relief or exemption from tax except to the extent as may be agreed by the competent authorities.

  8. Article IVArticle 5: Permanent Establishment • Paragraph 3 of Article 5 is deleted and replaced with a new paragraph 3. • Permanent establishment for construction: • building site, a construction, assembly, installation or dredging project or any supervisory activity in connection therewith – more than 12 months; • Permanent establishment for services: • furnishing of services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose – period or periods aggregating more than 183 days in any 12 month period;

  9. Article V Article 10: Dividends • In practice, withholding taxes vary widely internationally. • Dividend rate in South Africa –Luxembourg DTC: • 5% for shareholding of at least 10%; • 15% on all others. • Anti-abuse treaty rule. Paragraph 6 provides that no relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares or other rights in respect of which the dividend is paid to take advantage of this Article by means of that creation or assignment.

  10. Articles VArticle 11: Interest • In practice, withholding taxes vary widely internationally. • South Africa – Luxembourg DTC: • 5% limit on source state taxation. • Exemptions added in paragraph 3 for pension funds, the State, interest paid by banks and for debt instruments listed on recognised stock exchanges. This is in line with domestic law. • Anti-abuse treaty rule. Paragraph 8 provides that no relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the debt-claim in respect of which the interest is paid to take advantage of this Article by means of that creation or assignment.

  11. Article VII Article 12: Royalties • In practice, withholding taxes vary widely internationally. • South Africa – Luxembourg DTC: • 5% limit on the source state taxation. • Anti-abuse treaty rule. Paragraph 7 provides that no relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the rights in respect of which the royalties are paid to take advantage of this Article by means of that creation or assignment.

  12. Article VIII Article 13: Capital Gains • Article 13 was deleted and replaced by a new Article 13 in line with international Models. • In particular the new paragraph 4 provides that gains derived by a resident of a Contracting State from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in the source and resident state. The paragraph does not apply to gains derived from the alienation of shares of companies listed on a recognised stock exchange, to gains derived from the alienation of shares in the course of a corporate reorganisation or where the immovable property from which the shares are derive their value is immovable property in which a business is carried on.

  13. Article XIIIArticle 26: Exchange of Information • Article 26 of the Convention was deleted and replaced by the new Article on Exchange of Information. • This new Article is in line with the OECD Model and extends to taxes of every kind and description. • The new Article ensures that bank secrecy or the absence of a domestic tax interest can no longer be used to deny a request for exchange of information. • A sentence is added at the end of paragraph 2 of Article 26 which includes a further alternate OECD provision which allows information received by a Contracting State to be used for other purposes when the competent authority of the supplying State authorises such use and such use is allowed under the laws of both States.

  14. Article XIVArticle 28: Assistance in Collection • The Requested Party shall, upon request, lend assistance to the Requesting Party in the collection of revenue claims. • The term “revenue claim” as used in this Article means any amount owed in respect of taxes covered by the Convention together with interest, administrative penalties and costs of collection or conservancy related to such amount.

  15. Additional Protocol • Article 4 is clarified. • A CIV established in a Contracting State shall be considered as a resident of the Contracting State in which it is established. • The term CIV in South Africa means any portfolio of a Collective Investment Scheme (CIS) in participation bonds, in securities or a declared CIS. Follows our domestic law. • The term CIV in Luxembourg means an investment company with variable capital; an investment company with fixed capital; an investment company in risk capital; a collective investment fund. • Includes CIVs established in either Contracting State which the competent authorities of the Contracting States agree to regard as a CIV for purposes of paragraph 1 of Article 4.

  16. Additional Protocol • Article 11 and 12 is subject to a Most Favoured Nations provision: • After a period of five years from the date of entry into force of the Additional Protocol, if, and for as long as, under any convention for the avoidance of double taxation between the Republic of South Africa and a third country, South Africa limits its taxation on interest or royalties as contemplated in paragraph 2 of Article 11 and 12 of the Convention to a rate lower, including exemptions from taxation or taxation on reduced taxable base, than the rate provided for in paragraph 2 of these Articles, the same rate, the same exemption or the same reduced taxable base as provided for in the convention with that third country shall automatically apply under this Convention.

  17. Additional Protocol amending the Convention between the Republic of South Africa and the Kingdom of the Netherlandsfor the avoidance of double taxation and the prevention fiscal evasion with respect to taxes on income and on capital, with Protocol

  18. Introduction • Amendments to the Agreement, became necessary in view of the proposed implementation of a withholding tax on interest. • Articles of interest in the South Africa – Netherlands Additional Protocol amending the Double Tax Convention are as follows:

  19. Article IV • Subparagraph 1 b) of Article 3 is deleted and replaced with a new definition of the term “Netherlands” which is extended to the Caribbean part of the Netherlands. • Article 30 is deleted and replaced with a new Article 30 on Territorial Extension. The Convention may be extended to Aruba, Curacao or Sint Maarten in whole or in part provided that these territories impose similar taxes to those covered under the Convention. The normal constitutional requirements would have to be met in respect of such extension.

  20. Article V • Article VA is inserted immediately after Article V of the Protocol. If South Africa in any other double taxation convention with any other country inserts the 2010 version of Article 7 of the OECD Model Tax Convention on Income and Capital or a later version. South Africa will enter into negotiations with the Netherlands with a view of inserting the said version of Article 7. • South Africa has reserved the right not to use the 2010 version of Article 7 of the OECD Model Tax Convention on Income and Capital in any of its negotiations.

  21. Article VII: Article 10 Dividends • In practice, withholding taxes vary widely internationally. • Dividend rate in South Africa –Netherlands DTA: • 5% for shareholding of at least 10%; • 15% on all others. • Dividends paid by a company which is resident of a Contracting State to a pension fund which is a resident of the other Contracting State may not be taxed in the source state.

  22. Article VII: Article 10 Dividends • Anti-abuse treaty rule.Paragraph 8 provides that no relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares or other rights in respect of which the dividend is paid to take advantage of this Article by means of that creation or assignment. • Most Favoured Nation (MFN) provision if South Africa negotiates with a third State a lower rate than provided in subparagraph a) of paragraph 2 including exemption from taxation or taxation on a reduced taxable base, the lower rate, exemption or reduced taxable base as provided in the Convention with the third State shall automatically apply to the Convention between South Africa and the Netherlands from the date of entry into force of the Convention with that third State.

  23. Articles VIII: Article 11 Interest • In practice, withholding taxes vary widely internationally. • South Africa – Netherlands DTA: • 5% limit on source state taxation. • Exemptions added in paragraph 3 for pension funds, the State, interest paid by banks and for debt instruments listed on recognised stock exchanges. This is in line with domestic law. • Paragraph 5 notes the recognised stock exchanges as the JSE and the Amsterdam Stock Exchange.

  24. Articles VIII: Article 11 Interest • Anti-abuse treaty rule.Paragraph 10 provides that no relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the debt-claim in respect of which the interest is paid to take advantage of this Article by means of that creation or assignment.

  25. Article IX: Article 12 Royalties • In practice, withholding taxes vary widely internationally. • South Africa – Netherlands DTA: • 5% limit on the source state taxation. • Taxation in the resident state only if the royalties are paid to the Government of other Contracting State or is paid for the consideration for the use of, or the right to use, any patent, design or model, plan, secret formula or process which is not older than three years.

  26. Article IX: Article 12 Royalties • Anti-abuse treaty rule.Paragraph 9 provides that no relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the rights in respect of which the royalties are paid to take advantage of this Article by means of that creation or assignment.

  27. Article X: Article 13 Capital Gains • Paragraph 4 and 5 of Article 13 was deleted and replaced with a new paragraph 4, 5, and 6. • Paragraph 4 provides that gains derived by a resident of a Contracting State from the alienation of shares may be taxed in the source State. • Paragraph 4 further provides that such gains are taxable only in the resident state if a) the resident owned less than 5 percent of the shares or comparable interests prior to the first alienation; b) the gains are derived in the course of a corporate reorganisation or similar transaction or c) the resident is a pension fund, provided the gains are not derived from the carrying on of a business, directly or indirectly by that pension fund.

  28. Article XIV: Article 27 Exchange of Information • A sentence is added at the end of paragraph 2 of Article 27 which includes a further alternate OECD provision which allows information received by a Contracting State to beused for otherpurposeswhen the competentauthority of the supplying State authorisessuch use and such use isallowedunder the laws of both States.

  29. Article XVI: Protocol • Article VIIIA is inserted immediately after Article VIII of the Protocol. • Most Favoured Nations (MFN) provision which provides that after five years from the entry into force of this Additional Protocol if and for as long as, under any Convention between South Africa and a third country, South Africa limits its taxation on interest and royalties as contemplated in paragraph 2 of Article 11 and 12 of the Convention to a lower rate, including exemptions from taxation or taxation on a reduced taxable base, then the lower rate, exemption or reduced taxable base as provided in the Convention with the third State shall automatically apply under this Convention between South Africa and the Netherlands.

  30. Protocol amending the Double Taxation Conventions / AgreementsPreliminary Hearing

  31. Protocol between the Republic of South Africa and the Swiss Confederation amending the Convention between the Republic of South Africa andthe Swiss Confederation for the avoidance of double taxation with respect to taxes on income and the Protocol, signed at Pretoria on 8th May 2007

  32. Introduction • Closely follows the OECD Model Convention, which forms the foundation for the vast majority of Double Taxation Agreements (DTA’s) worldwide. • A number of articles are different from the normal SA approach. These articles and other articles of interest in the South Africa – Switzerland Protocol amending the Double Tax Convention are as follows:

  33. Article IIArticle 10: Dividends • In practice, withholding taxes vary widely internationally. • Dividend rate in South Africa – Switzerland Protocol: • 5% for shareholding of at least 10%; • 10% in all other cases

  34. Article IIIArticle 12: Royalties • In practice, withholding taxes vary widely internationally. • South Africa – Switzerland Protocol: • 5% limit on the source state.

  35. Article 18: Pensions • Shared right to tax pensions and other similar remuneration. • Contributions to similar pension funds or other similar institutions providing pension schemes will be treated in the other State in the same way and subject to the same conditions and limitations as contributions made to a pension scheme that is recognised for tax purposes in that other state. Allows for reciprocal treatment of contributions paid.

  36. Article VIArticle 25: Exchange of Information • Under this Article the two States will exchange information in accordance with the standard. • Bank secrecy or the absence of a domestic tax interest cannot be used to deny a request for exchange of information. • Article IX paragraph (d) provides that it does not require the Contracting States to exchange information on an automatic or spontaneous basis.

  37. Tax Information Exchange AgreementsPreliminary Hearing

  38. Purpose of Agreements • To allow for effective Exchange of Information between the Tax Authorities.

  39. Agreement between the Government of the Republic of South Africa and the Government of the Principality of Andorrafor the exchange of information relating to tax matters

  40. Introduction • Closely follows the OECD Model Tax Information Exchange Agreement (TIEA), which forms the foundation for the vast majority of Tax Information Exchange Agreements (TIEAs) worldwide. • The TIEA ensures that bank secrecy or the absence of a domestic tax interest can no longer be used to deny a request for exchange of information. • Articles of interest in the South Africa – Andorra Tax Information Exchange Agreement are as follows:

  41. Article 1: Object and Scope of the Agreement • Exchange of Information that is foreseeably relevant to the administration and enforcement of the domestic laws of the Parties concerning taxes covered by the Agreement. • Includes information that is foreseeably relevant to the determination, assessment, enforcement or collection of tax with respect to persons subject to such taxes, or to investigation of tax matters or the prosecution of criminal tax matters in relation to such persons. • The requested Party shall ensure that effective exchange of information is not unduly prevented or delayed.

  42. Article 4: Exchange of Information upon Request • Information shall be exchanged without regard to: a) whether the requested Party needs such information for its own tax purposes – domestic tax interest. b) whether conduct being investigated would constitute a crime under the laws of the requested Party – dual criminality.

  43. Article 4: Exchange of Information upon Request • Domestic law should allow for exchange of: (a) information held by banks, other financial institutions, and any person, including nominees and trustees, acting in an agency or fiduciary capacity; (b)(i) information regarding the legal and beneficial ownership of companies, partnerships, foundations and other persons, including in the case of collective investment schemes, information on shares, units and other interests; (b)(ii) in the case of trusts, information on settlors, trustees and beneficiaries.

  44. Article 4: Exchange of Information upon Request • Does not create an obligation for a Party to obtain or provide ownership information with respect to publicly traded companies or public collective investment schemes, unless such information can be obtained without giving rise to disproportionate difficulties.

  45. Article 6: Possibility of Declining a Request • The Competent Authority may decline to assist where the disclosure of the information requested would be contrary to public policy of the requested Party. • The Agreement does not impose any obligation to provide items subject to legal privilege, or any trade, business, industrial, commercial or professional secret or trade process. • A request for information shall not be refused on the ground that the tax claim giving rise to the request is disputed by the taxpayer under examination or investigation. • Information need not be provided if it is related to law which discriminates against a national of the requested Party.

  46. Article 7: Confidentiality • All information provided and received by the competent authorities of the Parties shall be kept confidential. • Information received shall be disclosed only to persons or authorities including courts and administrative bodies concerned with the purposes specified in Article 1. • Information received may not be used for any purpose other than for the purposes stated in Article 1 without the express written consent of the competent authority of the requested Party.

  47. Article 8: Costs • Unless the competent authorities of the Parties otherwise agree, indirect costs incurred in providing assistance shall be borne by the requested Party, and direct costs (include costs of engaging external advisors in connection with litigation or otherwise) incurred in providing assistance shall be borne by the requesting Party. • Requesting Party should be notified if the costs are expected to be significant.

  48. Agreement between the Government of the Republic of South Africa and the Government of the Macao Special Administrative Region of the People’s Republic of Chinaconcerning the exchange of information on tax matters

  49. Introduction • Closely follows the OECD Model Tax Information Exchange Agreement (TIEA), which forms the foundation for the vast majority of Tax Information Exchange Agreements (TIEAs) worldwide. • The TIEA ensures that bank secrecy or the absence of a domestic tax interest can no longer be used to deny a request for exchange of information. • Articles of interest in the South Africa – Macao Tax Information Exchange Agreement are as follows:

  50. Article 1: Object and Scope of the Agreement • Exchange of Information that is foreseeably relevant to the administration and enforcement of the domestic laws of the Parties concerning taxes covered by the Agreement. • Includes information that is foreseeably relevant to the determination, assessment and collection of such taxes, the recovery and enforcement of tax claims, or the investigation or prosecution of tax matters. • The requested Party shall ensure that effective exchange of information is not unduly prevented or delayed.

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