Model Tax Conventions - Michael Honiball · 3 Model Tax Treaties • Read the introduction to the...
Transcript of Model Tax Conventions - Michael Honiball · 3 Model Tax Treaties • Read the introduction to the...
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Model Tax Conventions
© Webber Wentzel 2012
Lecture given by Professor Michael Honiball
Partner, Webber Wentzel
Presented at the University of Johannesburg
15 February 2012
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Model Tax Treaties
• Introduction;
• Model Tax Treaties:
o General;
o Types of Treaties;
o Scheme of Model Treaties;
o Taxes Covered by Treaties
o Persons Covered;
o Entry into Force and Termination;
• South African Treaties:
o Treaties in Force;
o Procedure for Entering into Treaties;
• Eligibility for Treaty Benefits.
Overview
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Model Tax Treaties
• Read the introduction to the OECD MTC Commentary;
• Need to standardise the fiscal treatment of taxpayers engaged in cross-border
transactions;
• OECD Council recommends that members conform to the OECD MTC;
• South Africa is not an OECD Member State;
• Historical background-leader and forerunner;
• Wide influence of the OECD MTC;
• Difference between bilateral and multilateral tax agreements;
• OECD MTC seeks to specify a single rule for each situation.
Introduction
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Model Tax Treaties
• OECD MTC:
o Chapter 1: Scope of the Treaty;
o Chapter 2: Some Definitions;
o Chapter 3: Distributive Rules;
o Chapter 4: Taxation of Capital;
o Chapter 5: Double Tax Relief;
o Chapter 6: Special Provisions;
o Chapter 7: Entry into Force and Termination;
• UN MTC:
o Source country is awarded taxing rights in more instances
• US MTC;
• SA MTC.
General
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Model Tax Treaties
• Avoidance of double taxation;
• Treaties containing attribution rules;
• Treaties containing distributive rules;
• Administrative/collection assistance (e.g. MLAT or MAAT);
• Other assistance, e.g. exchange of information (e.g. TIEA);
• Multilateral vs. bilateral;
• Multilateral e.g. Nordic treaty, Andean Group and Caricom (see p260);
• Limited vs. comprehensive treaties;
• Estate, inheritance and gift tax treaties.
Types of Treaties
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Model Tax Treaties
• Relief of double taxation;
• Prevention of fiscal evasion;
• Allocation of taxing jurisdiction between states;
• Facilitation of international trade and investment;
• Allocation of income and expenditure between entities;
• Assistance in the collection of taxes;
• Reduction of withholding taxes;
• Settlement of disputes through mutual agreement procedure.
Objects of Treaties
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Model Tax Treaties
• Immovable property (see discussion in Chapter 15);
• Business profits (see discussion in Chapter 4);
• Shipping, inland waterways transport, and air transport (see discussion in Chapter 14);
• Dividends (see discussion in Chapter 4);
• Interest (see discussion in Chapter 17);
• Royalties (see discussion in Chapter 13);
• Capital gains (see discussion in Chapter 15);
• Income from employment (see discussion in Chapter 16);
• Director’s fees (see discussion in Chapter 16);
• Artistes and sportspersons (see discussion in Chapter 16);
• Pensions (see discussion in chapter 16);
• Government services (see discussion in Chapter 16);
• Students (see discussion in Chapter 16); and
• Other income (see discussion in Chapter 14).
Scheme Model Treaties
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Model Tax Treaties
• South African Tax:
o the normal tax;
o CGT;
o Dividends tax;
o STC;
o normally not VAT, STT, etc.
• The Foreign Tax:
o relevant domestic tax;
o relevant withholding tax.
Taxes Covered by Treaties
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Model Tax Treaties
• Natural persons vs. legal persons;
• Person vs. resident;
• National vs. resident;
• Hybrid entities e.g. trusts, partnerships, deceased estates;
• Persons liable to tax;
• Branches are not persons covered;
• POEM vs. incorporation.
Persons Covered
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Model Tax Treaties
• Exchanging instruments of ratification (Art 30 OECD MTC);
• Domestic law (e.g. S108) vs. international treaty law;
• Doctrine of incorporation;
• Doctrine of transformation;
• Termination.
Entry into Force and Termination
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Model Tax Treaties
• Comprehensive treaties in force;
• No exemption-method treaties;
• Mainly OECD MTC (vs. US MTC and others);
• Emphasis on Africa;
• Newer treaties follow SA MTC;
• Great variance in WHT rates;
• Seven contain tax sparing clauses.
South African Treaties
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Model Tax Treaties
• US manual;
• OECD procedure;
• SA procedure;
• Negotiation procedure;
• SA constitution;
• Protocols, exchange of letters, etc.
Procedure for Entering into Treaties
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Model Tax Treaties
• Usually restricted to residents;
• Third State/triangular situations;
• Triangular example;
• Overseas case law.
Eligibility for Treaty Benefits
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Prescribed and Recommended Reading
• Olivier & Honiball : International Tax : A South African Perspective 2011
(Chapters 9 and 10) – prescribed;
• Roy Rohatgi: Basic International Taxation – 2nd Edition, Volume 1 (Richmond
2005) (Chapter 3) – recommended;
• OECD MTC and Commentary – highly recommended;
• Silke on International Tax (LexisNexis 2010) (Chapter 12) – recommended.
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Presenter’s Details:
Professor Michael Honiball
Partner, Webber Wentzel
Tel: +27 11 530 5269
Fax: +27 11 530 6269
Email: [email protected]
Websites: www.michaelhoniball.com
www.webberwentzel.com
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Legal Notice: these materials are for training purposes only and do not constitute legal or other professional advice.
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