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No tax on interest? Ruling pertaining to convention between South Africa and Brazil

Monday, 07 January 2019   (0 Comments)
Posted by: Author: Louis Botha
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Author: Louis Botha (Cliffe Dekker Hofmeyr for International Law Office)

On 24 July 2006 the Convention between the Government of the Republic of South Africa and the Government of the Federative Republic of Brazil for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, came into force. The convention, similar to other double tax agreements, determines the taxing rights of each country where a resident of one contracting state earns income from a source in the other contracting state.

On 4 July 2018 the South African Revenue Service (SARS) issued Binding Private Ruling (BPR) 307, which deals with relief from the double taxation of interest in terms of the convention.


If a South African-resident company (the applicant) proposes to enter into trades in respect of bonds issued by the Brazilian government, it must:

  • enter into a purchase and resell agreement with international counterparties under which it will acquire bonds from the counterparties and agree to sell them back to the counterparties on specified dates and for specified prices which will each include an interest component; and
  • acquire bonds in the market without any associated resell arrangements.

In either case, the applicant may receive interest from the Brazilian government as the issuer of the bonds during the term of the transaction. The interest that the applicant will receive will not be subject to tax in Brazil.

In respect of the purchase and resell agreement, the applicant must pay the counterparties so-called manufactured payments calculated with reference to the interest that it will receive while holding each bond. The applicant must recognise the purchase and resell agreements and the bonds at fair value in profit or loss in terms of International Financial Reporting Standard 9. BPR 307 further states that Section 24JB(2) of the Income Tax Act (58/1962) will apply to the instruments.

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