SA/Mauritius DTA changes & challenges. Celia Becker 26 & 27 March 2015

Transcription

1

2 SA/Mauritius DTA changes & challenges Celia Becker 26 & 27 March 2015

3 content background changes & challenges conclusion effective date questions and discussion

4 background

5 background current SA / Mauritius DTA entered into force on 20 June 1997 source basis of taxation no capital gains tax no dividend or interest withholding tax renegotiated DTA signed on 17 May 2013 abuse of Mauritius as offshore jurisdiction SA headquarter company regime

6 changes & challenges

7 taxes covered (A2) SA taxes included: taxes on gains from the alienation of movable or immovable property withholding tax on royalties tax on foreign entertainers and sportspersons

8 definitions (A3) business includes the performance of professional services and of other activities of an independent character enterprise applies to the carrying on of any business international traffic enterprise which has its place of effective management in a Contracting State replaced with enterprise of a Contracting State

9 corporate residency (A4) deemed to be a resident of the State in which its place of effective management is situated the competent authorities of the Contracting States shall by mutual agreement endeavour to settle the question and determine the mode of application of the Agreement to such person. In the absence of such agreement such person shall be considered to be outside the scope of the Agreement

10 corporate residency (A4) (continued) OECD definition vs Interpretation Note 6 uncertainty for dual residents two tax authorities have to reach agreement in an expeditious manner no detail re: principles to be applied administrative process if no agreement reached, not entitled to rely on DTA domestic credit provisions (6quat and 6quin)

11 corporate residence (A4) (continued) SARS response dual residence is uncommon; few companies will be affected mutual agreement is explicitly recognized by the Commentaries, indicating list of factors to be considered SA law permits tax relief, double tax will not arise mutual agreement intended to help counter abuse of treaties resulting in double non-taxation exchange of information brought up to current international best practice

12 permanent establishment (A5) building site or construction, installation or assembly project, or supervisory activities period increased from 9 to 12 months specific service provisions added furnishing of services where activities continue for period/(s) exceeding 183 days in any 12 month period performance of professional or other independent activities for a period/(s) exceeding 183 days in any 12 month period

13 permanent establishment (A5) (continued) dependent agent maintaining stock of goods belonging to the enterprise from which he regularly fills orders on behalf of the enterprise removed activities limited to purchase of goods for the enterprise replaced with unless activities of preparatory or auxiliary nature

14 shipping and air transport (A8) definition extended to include profits from rental on a bareboat basis Contracting State in which the place of effective management is situated replaced with enterprise of a Contracting State no reference to place of effective management abroad a ship

15 dividends (A10) maximum tax rate reduced from 15% to 10% (in cases where less than 10% of capital is held) Mauritius GBL1 and GBL2 companies not subject to dividend withholding tax SA STC vs dividend withholding tax

16 interest (A11) Contracting State where interest arises granted taxing right maximum tax rate of 10% if resident is beneficial owner exemption for government / political subdivision / local authority Central Bank institution or body wholly owned by government Interest in respect of debt instrument listed on recognized stock exchange (as defined) interest deemed to arise where the payer is resident or its permanent establishment is situated no Mauritius withholding tax on interest payments by GBL1 and GBL2 companies

17 royalties (A12) Contracting State where royalties arise granted taxing right maximum tax rate of 5% if resident is beneficial owner

18 capital gains (A13) Gains derived from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property in the other Contracting State may be taxed in that other State Mauritius does not levy capital gains tax Mauritius company holding shares in SA immovable property holding company SA domestic law exempts non-residents unless 80% or more of the value of shares are attributable to immovable property in SA

19 independent personal services (A14) A14 scrapped income from professional services or other independent activities taxed in other State if fixed base definition of professional services not included Independent scientific, literary, artistic, educational or teaching activities Independent activities of physicians, lawyers, engineers, architects, dentists and accountants business profits article applies

20 pensions and annuities (A18) 1997 pensions and annuities from sources within a Contracting State derived by a resident of the other Contracting State shall be exempt in the source State to the extent taxed in the other State 2013 pensions and annuities arising in a Contracting State and paid to a resident of the other State may be taxed in the source State

21 other income (A21) 1997 other income, wherever arising shall only be taxable in the residence State (except if permanent establishment in the other State) 2013 notwithstanding the above, other income arising in the other Contracting State may also be taxed in that other State

22 non-discrimination (A23) nothing contained in this article shall prevent SA from imposing on the profits of a permanent establishment a tax at a rate which does not exceed the rate of normal tax on companies by more than 5 percentage points..interest, royalties and other disbursements shall be deductible under the same conditions as if they have been paid to a resident of the State

23 exchange of information (A26) 1997 Contracting States shall exchange such information as is necessary for carrying out the provisions of the DTA or domestic tax laws 2013 latest OECD standard Contracting States shall exchange such information as is foreseeably relevant for carrying out the provisions of the DTA or domestic tax laws

24 exchange of information (A26) (continued) a Contracting State is not permitted to decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or fiduciary capacity or because it relates to ownership interest in a person

25 assistance in collection of taxes (A27) Contracting States shall lend assistance to each other in the collection of revenue claims in accordance with the provisions of its laws as if it were a revenue claim of the State

26 conclusion

27 conclusion Mauritius still attractive as hub for investment into the rest of Africa residency requirements Mauritius less attractive as hub for investment into SA Mauritius company holding shares in SA immovable property holding / mining company financing and licensing structures into SA other income alternative hubs?

28 Effective date

29 effective date initially expected 1 January 2015 ratified by SA, but not yet ratified by Mauritius Davis Tax Committee s interim report on BEPS urges finalization of DTA to prevent loss of large amounts through treaty shopping

30 questions and discussion

31 thank you