Abuse of tax treaties must end
08 July 2015
Posted by: Author: Moneyweb
National Treasury says the abuse of double tax agreements by multinational companies is the main reason why the agreement with Mauritius has been renegotiated.
National Treasury head of tax and financial sector policy Ismail Momoniat says companies have often used dual tax residence structures as a tax avoidance tool.
This was made possible because of the different approaches to the concept of "place of effective management”. The effective management tie-breaker test determines which country has the right to tax.
Momoniat says under the old tie-breaker tax residence could be in Mauritius because the company claims to be effectively managed from Mauritius, although the commercial activities happen in South Africa.
Tax experts are now foreseeing a move away from the traditional tie-breaker clause in double tax agreements. The new trend for future treaties is one where the two tax authorities of the treaty countries mutually agree on the tax residence of a company.
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This article first appeared on moneyweb.co.za.