South Africa: Tendencies in Case Law Concerning Cross-Border Tax Disputes in BRICS Countries. Текст научной статьи по специальности «Языкознание и литературоведение»

Information for citation:

West, C. (2020) South Africa: tendencies in case law concerning cross-border tax disputes in BRICS countries. European and Asian Law Review, 3 (2), 83-98.

UDC 336.2

BISAC LAW 086000 / Taxation DOI: 10.34076/27821668_2020_3_2_83

Research Article

SOUTH AFRICA: TENDENCIES IN CASE LAW CONCERNING CROSS-BORDER TAX DISPUTES IN BRICS COUNTRIES

CRAIG WEST University of Cape Town ORCID: 0000-0002-8847-6008

This paper forms part of a series providing the opportunity for comparative analysis of the tax treaty case law of the BRICS. The comparative analysis will assist to establish whether or not there are similarities, convergences or disparities in interpretation of international tax treaties by the courts. This paper has South Africa as its focus. The author tells about interpretation of tax treaty cases in South Africa. Author notes, South Africa seems to retain a stronger affinity with drawing on foreign, mainly UK, case law than any reference to the OECD Commentary. Also evident from the case law is the need for clarity in policy when creating deviations from the model conventions, for example where, in the past, certain taxes were carved out from the non-discrimination article. There is an obvious need to develop common and clear meanings in treaty interpretation. This may become another project for legal harmonisation between the BRICS. This paper provides an overview of the current state of the South African case law on tax treaty matters. Despite only a few South African cases, when read with the reports of the other BRICS Countries it may be possible to draw some trends and patterns (and perhaps possible harmonisation of interpretation) between the BRICS.

Keywords: BRICS, cross-border taxation, tax disputes, tax treaties, double taxation treaty, UN model, OECD model

Introduction

Despite its 75 comprehensive tax treaties in force, South Africa has little case law on tax treaty matters relative to other BRICS such as India1. A number of factors may have influenced the relative sparsity of case law. Firstly, and most critically, South Africa's isolation from the world economy until the 1990s was a natural limiting factor on cross border disputes being heard in the South African courts. Secondly, since amendment to the legislation permitted the revenue authorities to settle tax matters, many cross border disputes do not reach the courts. Thirdly, the revenue authority has improved dramatically since the 1990s, however a lag in this improvement may perhaps be felt as previously the lack of capacity in the revenue authority may have resulted in potential cross border disputes not being identified and therefore not reaching the courts. That said it should be further noted that the South Africa treaty network expanded rapidly after democratic elections in 1994 and was seen as a priority by the government. It is possible that

1 Relative to its neighbours in Africa, however, South Africa would be considered to have a wealth of cross border tax

Copyright© 2020. The Authors. Published by Ural State Law University. This is an open access article distributed under the CC BY-NC 4.0. license http:llcreativecommons.orglllicenselby-ncl4.0I

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there will be an increase in the number of cross border tax disputes reaching the courts in future. A further limiting factor may be the generally lower number of judgments in common law jurisdictions relative to civil law jurisdictions. Equally, like all other matters to be heard by the courts, tax cases can take a number of years to be heard and is an expensive and formal process which adds to the low number of cross border tax cases decided.

Whatever the cause for this small volume of case law, South Africa may yet be considered to have a substantive body of case law covering an array of issues. The decided cases in South Africa are discussed below as stratified by the directives for this paper.

It is perhaps useful, before the cases are discussed below, to consider the structure and operation of the South African courts (Hattingh, 2011)1.

The High Court and Supreme Court of Appeal comprise generalist judges. While case allocation to the judges will take into account both capacity and experience, judges may be presented with cases from any branch of law. The Tax Court is presided over by a generalist judge from the High Court (who exclusively decides on matters of law) and is supported by two assessors (for other matters). The two assessors are generally an accountant member and a commercial member. For specialist industries such as mining, the commercial member may be replaced by, for example, a mining engineer. In short, South Africa does not have specialist tax judges nor specialist tax advisors such as Advocate Generals.

As most of the decided cases have elements of interpretation to them, most will be partly discussed in section 2 below. A return to the cases in made in the latter sections in the context of the particular matter in the case.

South Africa has tax treaties with each of Brazil (2006), Russia (2000), India (1997 and 2015 Protocol) and China (2001) (Chakrabati & Ghosh, 2014: 340). While there are some similarities in these treaties, there are equally differences. Just as there are differences in tax treaties, one can expect differences in interpretation of tax cases.

Materials and methods

The author used general scientific methods (analysis, synthesis) and special scientific (formal legal and comparative legal) methods.

Judicial Approaches to the Determination of the Scope of Tax Treaties and Judicial Methods of Interpretation of Tax Treaties

The scope of tax treaties

One of the fundamental issues for tax treaty purposes is whether a tax is a tax covered by the treaty for treaty benefits (Hattingh & West, 2016: 731). Of course it must be noted that:

'The answer to whether a charge qualifies as a 'tax' and/or as a 'tax on income' when suffered by a non-resident strictly depends on the view taken in the country that is requested to provide double tax relief for such a charge. It follows that the qualification given by South African courts, administrators and/or commentators is generally of a secondary nature - it may be one factor that a foreign tax administration or court may consider'.

1 'Appeals from the Tax Courts comprise a rehearing in the High Court or the Supreme Court of Appeal. Neither of these courts have specialist chambers dealing with tax cases. The judges are appointed mostly from the ranks of senior advocates with illustrious careers. They do not particularly specialize in international tax law and, when recruited as judges, must be able to fulfil a generalist role. The most exceptional legal minds were and continue to be found on the benches of the South African superior courts. The historical structure of South African courts contributes to this phenomenon. Judges tend to have exceptional analytical skills and, therefore, in the main deal with international tax cases in a competent manner, even if they do not have a great deal of tax experience or deep specialist knowledge in the field. All these factors contribute to the relatively few but high-quality international tax cases that are reported in South Africa'.

Results

The results of the author's research are stated in conclusions.

Discussion

Whether an amount is a tax or a regulatory charge (levy or other form) has been the subject matter of the South African courts before, but has more recently been decided in the South African Constitutional Court. The case of South African Reserve Bank and Another v. Shuttleworth and Another (2015) ZACC 17 ('Shuttleworth') discussed whether or not an exit levy charge on the export of capital by the South African Reserve Bank in terms of exchange control regulation was a tax or a regulatory charge. If a tax, the manner in which the tax had been raised may have been unconstitutional in that it would not have passed through the normal constitutional channels, including Parliamentary approval, for legislating a tax (Hattingh & West, 2016; Roeleveld, 2015: 654-658; Hattingh, 2018: 957-962; Roelevel & West, 2016). The court decided that the levy was not a tax. The decision was not unanimous. The majority considered the test for a tax to be one of a dominant purpose1 and as this levy was not designed to raise revenue but to reduce the frequency of the export of capital, the levy was not a tax. The dissenting judgment expressed the concern that the application of such a test did not adequately address the principle of no taxation without representation2. Equally, applying a dominant intention approach would result in charges previously considered as taxes being called into question, for example, carbon taxes, sugar taxes, alcohol and tobacco taxes / excise duties (Alton, Arndt & Davies, 2014: 344).

Taxes covered

Only two cases have actively considered Article 2 of the relevant tax treaty. However, it cannot be said that either offered a unique perspective or radical interpretation.

The first of these cases was decided in 1972 in the Tax Court3. The case was concerned with whether or not 'blocked assets' invested in South Africa by a taxpayer that had emigrated to Switzerland created a permanent establishment for such taxpayer. This case will be discussed later. The Court raised two points with respect to article 2. Firstly, the Court addressed an issue raised by counsel for the Commissioner with respect to the application of the treaty where the result would be double non-taxation and the second with respect to the extension provided by article 2(4). In this regard, the court provided that:

'The definition of the existing taxes to which the Convention shall apply (see Art 2) does not justify an inference that exemptions expressly granted in the Convention by one of the contracting States shall be conditional upon the income in question being chargeable under one or other of those taxes of the other State which are referred to in Art 2.3. The purpose of Art 2.3 appears to me to have been simply to describe for purposes of the Convention the existing taxes in each of the two countries concerned. And Art 2.4 served to extend its scope by making provision for its applicability to any identical or substantially similar taxes imposed by either country subsequent to the conclusion of the Convention, each country undertaking to notify the other, at the end of each year, of changes in its taxation laws. The design, therefore, was to enable each of the contracting States to know that the other was about, for undisclosed alterations in the taxation law of one country might render nugatory some of the provisions of the Convention. This appears also to have been how the compilers of the 1963 Report of the OECD, saw the provisions of Art 2'4.

The court confirms (pre-BEPS) that the treaty serves to give effect to the agreed exemptions whether or not double non-taxation arises (in this case as a result of there being no permanent establishment no attribution of business profits could take place, irrespective of the fact that Switzerland would not

1 In the majority judgment, at paragraph 48, the Court states: 'There are no bright lines between the two. Of course, all regulatory charges raise revenue. Similarly, 'every tax is in some measure regulatory'. That explains the need to consider carefully the dominant purpose of a statute imposing a fee or a charge or a tax. In support of this basic distinguishing device, judicial authorities have listed non-exhaustive factors that will tend to illustrate what the primary purpose is'.

To conclude, at paragraph 52, the Court states: 'There are open-ended but helpful guidelines on how to determine the dominant purpose of legislation that tends to raise revenue for the State. In each case the factors must be weighed carefully in order to reach a correct outcome. In the end it boils down to whether the dominant object of the enactment was to raise revenue to fund the State and its public operations or to regulate public conduct by charging a fee or levy'.

2 At paragraph 99 of the judgment, Froneman J states: 'The second is that the principle of 'no taxation without representation' is not premised on a technical legal meaning of 'taxation'. The rationale for the principle is accountability to the people when the government seeks to exact money from them to raise income or revenue for the State. It matters little to citizens whether the money the State takes from them is technically a 'tax' or 'duty' or 'exit charge. What does matter is that they should have their democratic say, through elected representatives in Parliament, in approving the decision to raise revenue that will accrue to the State in an open, transparent and accountable way'.

3 Note that the Tax Court judgments apply inter partes only and therefore do not create precedent.

4 ZA: L.J. Downing vs. Secretary for Inland Revenue (1972) TC 6737, Tax Treaty Case Law IBFD.

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tax the gains from the share portfolio either). The treaty in this case was replaced in 2009. However, post-BEPS, it is submitted that further amendment to the treaty will be necessary to counteract the perceived treaty abuse in instances of double non-taxation.

The second case1 referring to article 2 was in the context of assessing whether or not Secondary Tax on Companies (STC) was similar to either a tax on dividends or a former tax in South Africa called Non-resident's shareholders tax (NRST) which was repealed in 1995. In this case, the treaty in question had been concluded with Germany in 1973 and was in force since 1975. In 1993, South Africa introduced STC. This tax was levied on resident companies on 'net' dividends declared, that is the tax was levied on the difference between the dividend declared and the dividends (subject to certain restrictions) received by the company. Clearly this tax had not been contemplated at the time of the conclusion of the treaty. Volkswagen of South Africa (Pty) Ltd sought to apply the reduced withholding rate in the dividend article of the treaty (in this treaty it is article 7) as the company was wholly owned by Volkswagen Aktiengesellschaft in Germany. The Court firstly found that STC was not a tax on dividends, but rather a tax calculated merely with reference to dividends as a component of the calculation. The company then sought to argue that STC was a tax similar to NRST and as a result, was within the scope of the dividends article. The Court make quick work of concluding that STC was not a tax substantially similar to STC for the following reasons:

STC was levied on the company and not the shareholder (like NRST);

STC was calculated with reference to dividend declared as a component of the calculation whereas NRST was a tax directly on the dividend paid to the shareholder;

STC was levied on all South African resident companies whereas NRST applied only to a select type of shareholder.

The Court could not reconcile STC with any withholding tax mentioned (particularly NRST) in the treaty with Germany and therefore did not grant the relief sought in terms of the dividend article.

Status of tax treaties

The status of the tax treaty within South African fiscal legislation has not specifically been challenged in the court. It is perhaps important to note aspects of the Constitution of the Republic of South Africa, 1996 (the Constitution) at this point. Firstly, the Constitution provides that it 'is the supreme law of the Republic; law or conduct inconsistent with it is invalid, and the obligations imposed by it must be fulfilled'2. This provision made an important change in that any Act of Parliament is subservient to the Constitution. Furthermore, the Constitution commits South Africa to international law where it provides: 'When interpreting any legislation, every court must prefer any reasonable interpretation of the legislation that is consistent with international law over any alternative interpretation that is inconsistent with international law' (De Koker & Brinker, 2010)34.

In more recent cases of the High Court and Supreme Court of Appeal, the courts have mentioned the legal standing of the treaties relative to other legislation expressly.

In four decisions5 since 2011, the court has confirmed the following from the South African interpretative position with respect to the status of tax treaties in South Africa:

Tax treaties form part of domestic law (implicit is that tax treaties remain subservient to the Constitution of the Republic of South Africa, 1996).

That a 'double tax agreement thus modifies the domestic law and will apply in preference to the domestic law to the extent that there is any conflict' (which implies a higher ranking than domestic legislation).

A tax treaty is read with the Income Tax Act as a whole to reconcile any differences.

While the third and second bullets above may appear contradictory, there is a clear application by the higher courts in South Africa that the treaty requirements override those of domestic law.

1 ZA: Volkswagen of South Africa (Pty) Ltd vs. Commissioner South African Revenue Service (2008) HC 24201/2007, Tax Treaty Case Law IBFD.

2 Section 2 of the Constitution of the Republic of South Africa, 1996.

3 Section 233 of the Constitution of the Republic of South Africa, 1996.

4 ZA: Glenister vs. President of the Republic of South Africa and Others (2008) ZACC 19.

5 ZA: Commissioner for the South African Revenue Service vs. Van Kets (2011) HC, Tax Treaty Case Law IBFD; Commissioner for the South African Revenue Service vs. Tradehold Ltd (2012) SC, Tax Treaty Case Law IBFD; AB LLC and BD Holdings LLC vs. Commissioner of the South African Revenue Services (2015) TC, Tax Treaty Case Law IBFD; Krok vs. CSARS (2015) SC, Tax Treaty Case Law IBFD.

Methods of interpretation

As a general comment, the most recent tax treaty cases in South Africa have confirmed that the courts will apply a purposive and contextual interpretation approach with respect to tax treaties1. The courts consider that the treaty must be interpreted in light of its purpose and congruent with the words used in the treaty2. As early as 1972, the courts accepted that tax treaties create an 'international tax language' and as such must be considered in context. Such purposive interpretation was demonstrated in the Van Kets3 decision in which the domestic definition of 'taxpayer' was considered implicitly extended by the treaty to cover persons from whom information was required to give effect to the exchange of information article in the Australia-South Africa tax treaty.

Despite such approval in the higher courts, the application of a purposive approach in the tax court has appeared erratic. Most recently in a case concerning a service permanent establishment in terms of the South Africa-United States tax treaty, the tax court acknowledged the need to apply a purposive approach, but did not adequately take into account the context of the article under consideration. Rather the court looked restrictively at the words of the treaty in terms of ordinary meaning, yielding an interpretation different to that of the OECD with respect to article 5(2) (Roeleveld & West, 2016: 51-60)4. While this specific case did not go on appeal, the Supreme Court of Appeal (SCA) has later confirmed5 a number of principles of tax treaty interpretation in South Africa. The SCA has confirmed that the Vienna Convention on the Law of Treaties (VCLT) is considered customary international law in South Africa (at least as regards Articles 26 and 31-33. It further confirmed that the interpretation rules applicable to tax treaties are no different to those applicable to South African domestic law (namely a purposive interpretive approach).

Article 3(2) and 'context'. There have been a number of tax treaty cases in which, at least in part, aspects of article 3(2) (OECD MC) have been debated. In addition, with respect to a purposive interpretation approach, the 'context' of the treaty / article must be taken into account. The South African courts have referred to both or either of article 3(2) and the concept of 'context' in tax treaty cases.

The first case to consider this matter was heard in the Tax Court in 19546. In this case, the taxpayer was claiming exemption from the non-resident shareholder's tax (NRST) on the basis that its taxable income was attributable to a 'public' company in the United Kingdom. Relief was sought under the 1946 South Africa-United Kingdom tax treaty. After acknowledging that the domestic law with respect to the definition of 'public company' had changed in South Africa after the promulgation of the tax treaty, the court went on to indicate that the term 'public company' was not found in the treaty and that the renvoi clause7 was clear in this regard, namely that the meaning had to be sourced from the South African domestic law (i.e. the country from which relief in the form of exemption was claimed). No justification is given by the court in this regard, nor does the court indicate why a later meaning is immediately applicable, that is does not consider the possibility that such an interpretation may imply treaty override. The court equally does not consider it necessary to determine a reconciling third meaning for the term 'public company' (McClure, Lanis & Wells, 2018: 492).

The case was heard again in 1961 in (then) Appellate Division8, which at the time was the highest court in the land. While the decision of the Tax Court was upheld, a number of key developments appear in this

1 See Natal Joint Municipal Pension Fund vs. Endumeni Municipality (2012) (920/2010) ZASCA 13 in which the judge (Wallis J.A.) states: 'In resolving the problem the apparent purpose of the provision and the context in which it occurs will be important guides to the correct interpretation. An interpretation will not be given that leads to impractical, unbusinesslike or oppressive consequences or that will stultify the broader operation of the legislation or contract under consideration'.

2 This follows the 'contextual' approach mandated by the Vienna Convention on the Law of Treaties, 1969.

3 ZA: Commissioner for the South African Revenue Service vs. Van Kets (2011) HC, Tax Treaty Case Law IBFD.

4 This case was equally fraught with other interpretational difficulties in that the Vienna Convention on the Law of Treaties was ignored, reliance was placed on a United States unilateral instrument for interpretation of the article when no evidence existed as to its acceptance in South Africa and considered the interpretational rules of another State (Canada) too divergent from the South African rules of interpretation to be applicable to the case (when considering whether or not to accept a Canadian case as persuasive).

5 ZA: Krok vs. CSARS (2015) SC, Tax Treaty Case Law IBFD.

6 ZA: 1954 TC ITC 789,Tax Treaty Case Law IBFD.

7 In this treaty the article provided: 'In the application of the provisions of the present Agreement by one of the Contracting Governments any term not otherwise defined shall, unless the context otherwise requires, have the meaning which it has under the laws of that Contracting Government relating to the taxes which are the subject of the present Agreement'.

8 ZA: Baldwins (South Africa) Ltd vs. The Commissioner for Inland Revenue (1961) SC, Tax Treaty Case Law IBFD.

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judgment. Firstly, it should be noted that the wording of the equivalent of Article 3(2) in this treaty did not carry the restrictive wording (Jones, 2014) as contained in the 1963 OECD MC. As a result, the term 'public company' was defined on an ambulatory basis (that is, taking into account the amendment to the domestic legislation after this treaty had entered into force). Secondly, the court quoted from a decision1 of the Privy Council in the United Kingdom in which it was stated:

'Now, when the interpretation clause in a statute says that such and such an expression shall include so and so, a Court in construing a statute is bound to give effect to the direction unless it can be shown that the context of the particular passage where the expression is used shows clearly that the meaning is not in this place to be given effect to, or unless there can be alleged some general reasons of weight why the interpretation clause is to be denied its application'.

From this quote, the court considered that the 'context' must clearly show that the meaning must be diverted from domestic law before an alternate meaning is sought from the context or that general reasons of weight are required to deny the Renvoi clause. In addition, the context appears to be drawn only from the passage in which the term is used. This does not represent the broader context of the treaty. Specifically, the court considered that:

'there is at least one very good reason why no other meaning should be assigned to it, and that is otherwise the Legislature of the United Kingdom could, by altering its definition of'public company', alter the incidence of a Union tax in the Union. Such a possibility could never have entered the minds of the two contracting Governments'.

Finally, the court could find no reason to apply a third meaning as it considered the South African definition equally applicable to South African and non-South African companies in the determination of the South African tax liability.

In 1972, the Tax Court2 considered a case concerning a permanent establishment in terms of the 1967 South Africa-Switzerland tax treaty. While not strictly considering Article 3(2), in this case, the court recognised that in interpreting the treaty and having regard to its purpose, the focus should be on the words used to understand the intention of the contracting states. The court further considered that while the regular rules of interpretation were applicable, these may require modification for the interpretation of a treaty. Furthermore, and in this context for an undefined phrase, the court considered the use by tax treaties of 'an international tax language' that may be critical when considering context. However, the court indicated further that no words should be read into the treaty. The later Appellate Division decision3 upholding the decision of the Tax Court confirmed reference to the use of an international tax language and, with respect to the permanent establishment definition, that to establish the context of a paragraph of the article, the article as a whole must be examined.

From these early cases, one has to step forward significantly in time, which is unsurprising considering the economic sanctions and trade embargoes on South Africa at the time due to its race politics (West, 2016). None of the later cases consider article 3(2) specifically, but again we see some odd judgments in the Tax Court4. It is submitted that the older judgments (particularly the Downing case judgments) do reflect some sound interpretation with respect to context and article 3(2).

Acceptance of VCLT and OECD Commentaries. South Africa is not a signatory to the Vienna Convention on the Law of Treaties (VCLT). However, it is accepted that, articles 31-33 of the VCLT are uncontested as customary international law. The South African courts have only in more recent years referred directly to the VCLT at all. The Supreme Court of Appeal in the Krok case5 confirmed that for South African interpretation purposes, the VCLT represents customary international law. It is further important to note that customary international law is law in South Africa in terms of the Constitution of the Republic of South Africa, 1996. It will only not be accepted where such customary international law is inconsistent with an Act of Parliament or the Constitution.

1 The Indian Immigration Trust Board of Natal (Appeal No. 163 of 1919) vs. Vencategin Govindasamy trading as The Stamford Hill Laundry (South Africa) (1920) UKPC 97.

2 ZA: Case (1972) number 6737 TC, Tax Treaty Case Law IBFD

3 ZA: Secretary for Inland Revenue vs. Downing (1975) SC, Tax Treaty Case Law IBFD

4 One of these is ZA: 2002 TC ITC 1735, Tax Treaty Case Law, IBFD. In this case, the judge applies the domestic interpretation of the term copyright when assessing the royalties article of the 1969 South Africa - United Kingdom tax treaty. No reference is made as to why such use is appropriate in this case.

5 ZA: Krok vs. CSARS (2015) SC, Tax Treaty Case Law IBFD.

The use of the OECD Commentary has been erratic in that it often carries no reference at all in the judgments or is a mere reference to its existence. One would consider that the Commentaries would be useful, at least as a supplementary means, in consideration of the context for a contextual and purposive interpretation to be applied, but the courts have seemingly derived the context and purpose exclusively from the language used in the treaty without any reference to supplementary means to confirm the interpretation. Most recently1, the Supreme Court of appeal referenced the OECD Commentary to the extent that it had been raised by counsel in summarising the arguments presented, but later indicated that the OECD Commentary supported the court's interpretation in this instance2. It may be possible to infer that the OECD Commentary was persuasive in this case (perhaps used as a supplementary means of interpretation to confirm the contextual interpretation already determined). Shortly before this Supreme Court of Appeal case, the Tax Court3 accepted the value of the OECD Commentary, but only where the article replicated the wording of the OECD MC exactly. Even in these circumstances, the court stated: 'it would be unusual if the interpretation of similar or same terms or articles is unanimous in the various jurisdictions where these treaties operate. Peculiarities of the tax policies of each country are bound to impact upon the interpretation of a treaty, or article in a treaty', but that the Commentary was designed to minimise such deviation.

Disputes Concerning Application of the Concept of Residence

There have been limited disputes with respect to residence in the South African courts. This may be partly due to the change to a residence based system from a source based system in 2000. However, it is anticipated that in the future more cases may be seen, particularly with respect to those treaties introducing mutual agreement procedures as the mechanism for the tie-breaker in the case of dual residence of corporate entities. Those cases that have been decided are stratified by type below.

Place of effective management and corporate residence

The place of effective management was considered in the Oceanic Trust Company<4 case (albeit as obiter). In this instance, the matter had not yet been heard by the Tax Court as the Oceanic Trust Company was seeking declaratory orders that it was not a resident of South Africa nor had a permanent establishment, purporting these to be exclusively legal questions. The application was dismissed by the High Court as it considered that the partial facts before it was insufficient to issue the declaratory orders. The court went on to consider 'place of effective management' but this aspect is obiter dictum.

However, what is apparent from this case is the use of foreign precedent, in the absence of South African case law on the issue of place of effective management. In this regard, the court turned specifically to the UK case of Smallwood5. The court adopted the test from Smallwood (again noting in obiter) that:

'1. The POEM is the place where key management and commercial decisions that are necessary for the conduct of the entities business are in substance made;

2. The POEM will ordinarily be the place where the most senior group of persons (e.g. a board of directors) makes its decision, where the actions to be taken by the entity as a whole are determined;

3. However, no definite rule can be given and all relevant facts and circumstances must be examined to determine the POEM of an entity;

4. There may be more than one place of management, but only one POEM at any one time;

5. the decision was based not only on the general test for POEM but also on the specific section of the UK legislation which provided that the trustees be treated as a single and continuing body of persons who shall be treated as resident in the UK unless the general administration of the trusts is ordinarily carried

1 ZA: Krok vs. CSARS (2015) SC, Tax Treaty Case Law IBFD.

2 It is perhaps possible to infer (albeit in the obiter) from Oceanic Trust Co Ltd No vs. Commissioner for South African Revenue Service 74 SATC 127 that the approval of the UK Smallwood decision implied that reliance on the OECD Commentary was possible and acceptable.

3 AB LLC and BD Holdings LLC vs. Commissioner of the South African Revenue Services (2015) TC, Tax Treaty Case Law IBFD.

4 Oceanic Trust Co Ltd No vs. Commissioner for South African Revenue Service 74 SATC 127; IBFD; Oceanic Trust Co Ltd No vs. Commissioner for South African Revenue Service - 15 ITLR 172.

5 UK: Smallwood (Trevor Smallwood and Mary Caroline Smallwood, Trustees of the Trevor Smallwood Trust, and Trevor Smallwood, Settlor of the Trevor Smallwood Trust) vs. Commissioners for H M Revenue and Customs, Tax Treaty Case Law IBFD; Trevor Smallwood Trust, Re the; Smallwood vs. Revenue and Customs Comrs [2010] EWCA Civ 778, (2010) 12 ITLR 1002, [2010] STC 2045, 80 TC 536.

on outside the United Kingdom and the trustees or the majority of them for the time being are not resident or not ordinarily resident in the United Kingdom; and

6. the court undertook a painstaking analysis of the facts and the way the scheme was set up and was implemented in order to come to the conclusion on where the POEM of the trust in that case was'.

The court considered that insufficient facts had been presented to dismiss place of effective management in South Africa and therefore offered no ruling. It is further interesting to note that no mention is made of the interpretation note1 on place of effective management as issued by the revenue authority, however this is perhaps unsurprising as the interpretation note as issued in 2002 had been criticised extensively by the tax community and was undergoing a redraft. Finally, it should be noted that the Mauritius-South Africa treaty was recently replaced and substituted the place of effective management tie breaker with that of mutual agreement by the competent authorities. The interpretation note of the revenue authorities on place of effective management was finally reissued in 2012 and followed more of the international views on the subject2.

It is therefore unfortunate that a later Supreme Court of Appeal case3 did not consider the place of effective management when considering capital gains tax levied on change of residence (Roeleveld & West, 2013a; Seiler, 2013; Mazansky, 2012a) as it was accepted as common cause that place of effective management had changed when the board of directors relocated from South Africa to Luxembourg. This case did consider the application of a capital gains exit charge on the change of residence. However, this case has been extensively criticised for its application of the timing of the exit charge relative to the timing of the application of the treaty. The court found, briefly, that the application of the treaty could only be determined at the end of the year of assessment and therefore the application of the exit charge could also only be determined at that time. As a result, the exist charge could not be levied as by the end of the year of assessment, the corporate residence was in Luxembourg and the taxing rights resided with the residence state. This decision resulted in a change in the domestic legislation ending a year of assessment the day before the entity ceases to be resident in South Africa.

Residence of individuals

One of the only cases considering an aspect of residence for individuals concerns one of South Africa's older tax treaties still in force, namely the 1973 Germany-South African tax treaty4. The case considered temporary absences for the two year temporary residence period in terms of the professor/teacher article. The court concluded that the two-year temporary residence did not refer only to physical presence in the state but to the two years from the start of the contract period. In addition, the court (without deciding on its legal status) referred to a letter from the Federal Ministry of Finance to the South African authorities as appearing in a work referred to by the court as Carr on International Tax Treaties. From this source, the court extracts the following:

'This Letter states that both States will deny any benefit under this article if a taxpayer's contract initially provides for a period of study or teaching exceeding two years. However where a contract initially provides for a period of study or teaching for up to two years the taxpayer can benefit from article 17 for up to two years even if the contract is subsequently extended. It is unclear whether treaty benefits cease as soon as a period exceeding two years is agreed upon'.

The court did not rely on this letter as they considered the period of temporary residence longer than three years and therefore denying the treaty benefit.

Partnerships

Both the Tax Court and High Court judgments for Grundlingh5 are considered in this section. The court referred briefly to the issue of residence. This was in the context of establishing whether or not

1 This was the interpretation note as issued in March 2002 and available from: http://www.sars.gov.za/AllDocs/ LegalDoclib/Notes/LAPD-IntR-IN-2012-06 %20- %20Resident %20Place %20Effective %20Management.pdf [Accessed: 10 August 2020].

2 Available from: http://www.sars.gov.za/AllDocs/LegalDoclib/Notes/LAPD-IntR-IN-2012-006 %20- %20IN %206 %20 Issue %202 %20place %20of %20effective %20management %20companies.pdf [Accessed: 10 August 2020].

3 ZA: Commissioner for the South African Revenue Service vs. Tradehold Ltd (2012) SC, Tax Treaty Case Law IBFD; Commissioner for the South African Revenue Service v Tradehold Ltd - 14 ITLR 967; ZA: TLD Ltd vs. Commissioner or the South African Revenue Service (2010) TC 12432, Tax Treaty Case Law IBFD; TLD Ltd vs. Commissioner for the /South African Revenue Service - 13 ITLR 796

4 ZA: 1989 TC ITC 1473, Tax Treaty Case Law IBFD.

5 ZA: Grundlingh vs. Commissioner for the South African Revenue Services (2009) HC A33/2008, Tax Treaty Case Law IBFD; Grundlingh vs. Commissioner for the South African Revenue Service - 12 ITLR 638 and the earlier court ZA: TC,

the partnership was an 'enterprise' within the context of the treaty and therefore whether or not it was resident. Both South Africa and Lesotho (the other Contracting State) treat partnerships as transparent entities (despite the partnership in Lesotho being required to file a consolidated partnership return). As the partnership was not an enterprise, it could not be a resident for the purposes of the treaty. The individual partners and their individual residence was clearly of relevance. In this regard, the court (without much clarity) considered the partner to be resident in South Africa.

Disputes Concerning Procedural Aspects of and Administrative Articles in the Application of Tax Treaties

With the exponential increase in exchange of information through tax treaties and tax information exchange agreements, some of the more recent cases have considered these aspects of cross border activity. That is not to say that previous cases have not considered these matters, but merely that the trend appears to be an increasing number of administrative type cases.

Non-discrimination

Non-discrimination was considered in earlier court cases in South Africa. Two of these cases were heard in the Tax Court. The third case, while heard in the Supreme Court of Appeal, concerned the nondiscrimination article in the Ciskei-South Africa tax treaty. Ciskei was a so-called 'homeland state' created by the apartheid government in South Africa and recognised only by South Africa as a state.

The first tax treaty case1 in this regard concerns a cross border divorce. The effect of the divorce order was that the taxpayer's wife was to receive amounts net of tax in the United Kingdom. While in the United Kingdom, the taxpayer was able to deduct the maintenance payments from his UK taxable income, whereas on change of residence to South Africa, the South African calculation did not permit such a deduction. The taxpayer was aggrieved as he considered this to be an issue of double taxation as he paid tax on the earnings in South Africa before the maintenance payment was made and had to pay a grossed up amount to his former spouse (as the maintenance received was taxable in her hands in the UK), to meet the conditions of the divorce order. The taxpayer claimed that the denial of the deduction for the maintenance was discrimination in terms of the tax treaty. The court firstly confirmed that the concept of double tax as considered in the treaty was that of the same income being taxed twice for the same person. In this instance, the taxpayer was liable to tax in South Africa and his former spouse was liable to tax in the UK. As a result, no double taxation arose for this taxpayer. Secondly, the relief sought by the taxpayer was in terms of discrimination on the basis of nationality (i.e. that the taxation or other requirements were more burdensome to him as a UK national than those imposed on South African nationals). The court quickly confirmed that discrimination on the basis of nationality did not occur in this instance as South African nationals in the same circumstances would be subject to the same hardship. The non-discrimination article therefore had no application.

The second case2 was a successful challenge for the application of the non-discrimination article in the treaty. The issue concerned the levying of non-resident's shareholders tax (NRST), a tax since repealed, on a company incorporated and effectively managed in Netherlands on distributions received from its South African subsidiary. In terms of the 1971 Netherlands-South Africa tax treaty, the company was a 'national' of the Netherlands. By analogy, the court examined the application of the NRST on holding companies. In the court's example, both holding companies were resident in Netherlands, but one was a 'national' of South Africa (being incorporated under the laws of South Africa) and the other a 'national' of Netherlands (being incorporated under the law of Netherlands). As NRST was only applicable in the latter case, the court considered that the tax was discriminatory (the only differing factor being the nationality of the corporate entity). The court further pointed out that this 1971 Netherlands-South Africa tax treaty differed from those concluded with the UK and US in which NRST had specifically been excluded from the scope of the non-discrimination clause3.

8 May 2007, ITC 1819. Tax Treaty Case Law IBFD; Appellant vs. Commissioner for the South African Revenue Service -10 ITLR 446.

1 ZA: 1980 TC ITC 1364, Tax Treaty Case Law IBFD.

2 ZA: 1992 TC ITC 1544, Tax Treaty Case Law IBFD.

3 See for example article 23(5) of the 1969 South Africa-United Kingdom tax treaty, Tax Treaties IBFD

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The third case1 is mentioned only for completeness, but has little impact with respect to noting any trends or tendencies in interpretation. Much of the case concerns retrospective application of an amendment. In short, the court concluded that the amended legislation which imposed a withholding tax on companies effectively managed outside of Ciskei did not result in discrimination as contemplated in the paragraph concerning discrimination on the basis of nationality.

Exchange of information

An interesting exchange of information case in 2011(Roeleveld & West, 2013b)2 clearly demonstrated the application of the principle that the requested state need not have an interest in the information requested, but remains obliged to exchange such information. This case has been discussed in various fora (Mazansky, 2012b).

In this case, South Africa received an information request from Australia following the amendment of the 1999 Australia-South Africa tax treaty by protocol in 2008. The information requested concerned an Australian taxpayer with dealings in a Malaysian entity of which the person from whom the information was requested in South Africa (Van Kets) was a director.

The refusal by Van Kets to supply the information brought the case to the High Court. The issue turned on whether or not the definition of 'taxpayer' in the South African Income Tax Act restricted the application of Article 26 (as revised by the protocol) or whether the treaty broadened (at least for the exchange of information) the scope of the domestic definition.

The domestic law at the time restricted the collection of information in terms of the Income Tax Act to information from any person concerning a 'taxpayer'. 'Taxpayer' in turn was defined as any person chargeable to tax under the Income Tax Act or required to furnish a return. It was therefore the argument of Van Kets that the Australian taxpayer was not chargeable to tax in South Africa nor required to furnish any returns in South Africa and therefore there existed no legal means by which the South African Revenue Service could request the information from him concerning the Australian taxpayer.

The court confirmed that the treaty ranked equally with the domestic law and therefore the treaty and the Act had to be read together as a coherent whole. Conflicts had to then be reconciled. The court's view was that once read together the definition of 'taxpayer' had to be expanded to be taxpayer for the purposes of the treaty and not just the Act. As a result, Van Kets, as a person able to furnish information with respect to a taxpayer, became obliged to provide the information to the South African Revenue Service who, in turn, would supply such information to the Australian Tax Office.

The decision is moot now as on consolidation of the domestic administrative provisions into a single Act in 2011 (the Tax Administration Act 28 of 2011), the definition of 'taxpayer' was extended in that Act to clarify the above position which expanded the previous definition.

Whether or not the court considered that the context of the article demanded a different meaning of 'taxpayer' is not clear nor discussed in the judgment.

Preservation of assets / Assistance in the collection of taxes

A further request from the Australian Tax Office to the South African Revenue Service concerned the assistance in the collection of taxes article as inserted by the 2008 protocol to the 1999 Australia-South Africa tax treaty (Roeleveld & West, 2016c)3. A request was received with respect to the preservation of 'blocked assets' in South Africa for the purpose of settling an Australian tax liability (Mazansky, 2016).

The Supreme Court of Appeal in this case provided a number of key interpretational points from which the current interpretational approach by the South African courts can be derived. Firstly, as considered above, the court approved the VCLT as customary law in South Africa. Secondly, the court confirmed with

1 ZA: Cohen Brothers Furniture (Pty) Ltd and Another vs. Minister of Finance (1998) SC, Tax Treaty Case Law IBFD.

2 ZA: Commissioner for the South African Revenue Service vs. Van Kets (2011) HC, Tax Treaty Case Law IBFD, Commissioner for the South African Revenue Service vs. Van Kets - 14 ITLR 977.

3 Krok and another vs. Commissioner for the South African Revenue Services - 18 ITLR 42 (Supreme Court of Appeal case); Commissioner for the South African Revenue Service v. Mark Krok (2014) HC 1319/13. Tax Treaty Case Law IBFD; Commissioner for the South African Revenue Service vs. Krok and another - 16 ITLR 838 (High Court case); also considering the High Court is Roeleveld, J., & West, C. (2016c) South Africa: Retrospectivity of Treaty Clauses Regarding Assistance in the Collection of Taxes and the Preservation of Assets. In M. Lang et al. (Eds.), Tax Treaty Case Law around the Globe 2015. IBFD; News IBFD (07 December 2011) South Africa; Australia - Treaty between South Africa and Australia - South African residents bound by treaty provisions on exchange of information.

respect to the revenue rule that (a) the rule did not exist for the protection of taxpayers and (b) the rule fell away where states concluded an assistance in the collection of taxes article. Thirdly, a temporal aspect was addressed in the case. The request for the preservation of the assets of the taxpayer was received after the entry into force of the protocol, but pertained to years of assessment preceding such protocol. The taxpayer sought to have the claim dismissed on the basis of retroactivity. The court followed the reasoning adopted in the UK decision of Ben Nevis1 indicating that the entry into force in this instance activated the right of Australia to request the preservation of the assets, but did not impact the years of assessment to which the request pertained. Complicating this case was the claim of a third party (and a third jurisdiction) over the assets subject to the preservation order. This aspect is not considered in this paper as it does not specifically concern tax treaty interpretation. Unfortunately, the clarity from this judgment with respect to tax treaty interpretation in South Africa has not been well applied by the lower courts.

Credit versus exemption method

The Tax Court2 with respect to the Botswana-South Africa tax treaty, had to decide on a matter involving the article concerning relief from double tax. The treaty provided the option for South Africa to apply either the exemption or credit method. After assessing the taxpayer initially only to the South African earnings and not the secondment earnings from Botswana, the Commissioner issued revised assessments taxing both incomes and providing a credit for the tax paid in Botswana. The taxpayer's argument appears to have been that the taxation only on South African source income implied that the Commissioner had applied the exemption method and was therefore precluded from assessing again on the basis of the credit method. Such an argument was swiftly dismissed by the court. The court seemed to indicate that for the election of relief mechanism to be applied without recourse, agreement had to be reached between the taxpayer and the Commissioner before assessment.

Disputes Concerning Application of the Anti-Avoidance Measures in Cross-Border Situations

Perhaps due to the limited number of tax treaty cases decided in South Africa, none have specifically addressed anti-avoidance measures in the context of cross-border situations. It should specifically be pointed out that one would expect that transfer pricing may have been subject to challenge in the courts, but it would appear that these instances are settled before reaching the courts.

While the double non-taxation has previously been accepted (at least in the Tax Court) as a viable contemplation of the contracting states, this may well change post-BEPS.

In addition, recent changes to South African tax treaties where corporate residence is to be decided by mutual agreement between the competent authorities and treaty benefits are denied until the decision is made, may well be subjected to a challenge in the future. While this provision is clearly inserted to prevent abuse, unless the decision is made quickly, the delay (at least) may be subject to challenge before the court on procedural grounds.

Dispute Concerning Taxation of Passive Incomes

Dividend / dividend-like income

The Tax Court decision of ITC 1544 (1992)3 was considered earlier in this paper. The case considered the interaction of the dividend article with the non-discrimination article. The court considered there to be no conflict in the application of the dividend article with the non-discrimination article seeing the non-discrimination article as a form of an overarching rule, that is that the non-discrimination article (in the absence of any limitation) must override other articles of the treaty.

The dividends article was again considered in the Volkswagen4 case (Hattingh, 2009a; Hattingh, 2009b). The case concerned the 1973 Germany-South Africa tax treaty. The case has already been considered earlier in this paper with respect to the scope of the tax treaty. Briefly, the question with respect to dividends was whether or not the secondary tax on companies was a tax on dividends. The court clarified the assumptions

1 UK: SC, 23 May 2013, [2013] EWCA Civ 578 Ben Nevis (Holdings) Limited and Metlika (Trading) Limited vs. Commissioners for H M Revenue and Customs, Tax Treaty Case Law IBFD.

2 ZA: TC, 5 Feb. 1997, ITC 1742, Tax Treaty Case Law IBFD.

3 ZA: TC, 10 Mar. 1992, ITC 1544, Tax Treaty Case Law, IBFD.

4 ZA: HC, 25 April 2008, 24201/2007 Volkswagen of South Africa (Pty) Ltd vs. Commissioner South African Revenue Service, Tax Treaty Case Law IBFD; Volkswagen of South Africa (Pty) Ltd vs. Commissioner for the South African Revenue Service - 11 ITLR 770.

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of authors and the revenue authorities that the tax was another tax on profits and not a tax on dividends. This conclusion was despite the fact that the tax was calculated with reference to dividends declared. Equally, the court concluded that the secondary tax on companies was not substantially similar to a tax on dividends.

Royalty-like income

The only case fitting this category was decided in the Tax Court1. The case concerned a golfer whose performance contract in South Africa referred to a payment of a royalty for the use of image rights (West, 2009). The court focussed only on its perception of the taxpayer's argument that the likeness and image rights were his 'copyright'. Under this limited focus, the court utilised South African domestic law and interpretation to conclude that such items were not copyright and therefore dismissed the classification of the income as a royalty. No further analysis with respect to the royalty definition was undertaken by the court. Equally the term 'athlete' was also subject to an incomplete analysis.

Disputes Concerning Taxation of PE

Standard and dependent agent PE

The seminal cases in South Africa on permanent establishments are the 1972 Tax Court2 and 1975 Supreme Court of Appeal3 (then the Appellate Division) cases concerning L.J. Downing. The clarity of judgment in these cases does not appear to have been met in the later cases concerning permanent establishments and the attribution of business profits. The permanent establishment article in question in these cases was the application of article 5 of the 1967 South Africa-Switzerland tax treaty (since replaced). The taxpayer had emigrated to Switzerland in 1960, but due to South African exchange control at the time had to leave a large portion of his assets in South Africa. These assets consisted of a share portfolio managed by his stock broker with a broad mandate, but essentially to provide sufficient income to be remitted to Switzerland for the upkeep of himself and his family. It was accepted in the Supreme Court of Appeal that the trading in the portfolio had gone beyond the ambit of capital intent and effectively was a trade. All to be decided by the court was whether or not the trading activity fell to be taxed in South Africa if it could be established that such trading took place through a permanent establishment. The Commissioner sought first to argue that article 5(1) applied and that the business operated through the fixed premises of the stock broker or through the office of the stock broker in terms of paragraph 5(2)(c) of that article. The court dismissed this argument as they considered that should this line of thinking prevail:

'Virtually all brokers, general commission agents and other agents of independent status operate from a fixed place of business; and, consequently, if counsel's argument were accepted, it would mean that a non-resident doing business in this country through such an agent would invariably be regarded as having a permanent establishment here. This is not a tenable view'.

As 5(3) was not of application in the current case, the court turned to 5(4) and 5(5) of the article, namely the dependent and independent agent paragraphs. The dependent agent paragraph, it seems, was not argued before the court. In obiter, the court indicated:

'It is not clear to me whether Smith actually had an authority to conclude contracts 'in the name of (sic) respondent; whether art. 5 (4) requires the agent to actually conclude the contracts in question 'in the name of his principal (sic) and, if so, whether this occurred when Smith bought and sold shares on respondent's behalf. (Bearing in mind stock exchange practice, it probably did not)'.

The court found that the broker was acting in accordance with his normal business practice and therefore simply because the business was conducted through an independent agent, no permanent establishment was created. This accords with the standard interpretation of the permanent establishment article.

As a result of there being no permanent establishment, the taxpayer was exempt from tax in South Africa by virtue of the application of article 7(1).

The 2011 High Court case of Oceanic Trust Co Ltd No4 considered the definition of permanent establishment, but in a slightly different context. The definition of permanent establishment from the OECD Model has been adopted for domestic law purposes. In this case, the definition as contained in the OECD Model was analysed with reference to its use in domestic law for the purposes of a domestic

1 ZA: TC, 4 Mar. 2002, ITC 1735, Tax Treaty Case Law, IBFD.

2 ZA: TC, 27 Oct. 1972. 6737 L.J. Downing vs. Secretary for Inland Revenue, Tax Treaty Case Law IBFD.

3 ZA: Secretary for Inland Revenue vs. Downing (1975) SC, Tax Treaty Case Law IBFD.

4 Oceanic Trust Co Ltd No vs. Commissioner for South African Revenue Service 74 SATC 127; Oceanic Trust Co Ltd No vs. Commissioner for South African Revenue Service 15 ITLR 172.

exemption. Its use was therefore not in a treaty context and whether it serves any further purpose in treaty interpretation in South Africa is questionable. The court found that:

A place of business does not need to be registered in the name of the enterprise as long as the business of the enterprise is conducted through that place

The court dismissed the argument that the business was being conducted by an independent agent in the normal course of the agent's business in this instance.

While not entirely clear from the judgment, it appears the court concluded that a permanent establishment existed in terms of paragraph 5(1).

Partnership

The concept of permanent establishment was not specifically addressed by either the Tax Court or the High Court in the Grundlingh cases1. In this case, a law partnership operating in Lesotho and South Africa was considered to have created a permanent establishment in Lesotho for the South African partners (as the Lesotho office operated only in Lesotho). The argument was essentially that the partnership in Lesotho was an entity and so fell only to be taxed in Lesotho. This weak argument failed. Both jurisdictions consider partnerships as transparent entities. It appeared as common cause that a permanent establishment existed in Lesotho for the South African partners and therefore, Lesotho could tax the profits arising for the South African partner in Lesotho (and South Africa would provide the corresponding tax credit as the residence state).

Service PE

As discussed in the judicial methods of interpretation, one of the last Supreme Court of Appeal decisions, laid out key interpretation guidance for the interpretation of tax treaties in South Africa. It is therefore unfortunate that the Tax Court, while referring to aspects of the Supreme Court's interpretational approaches, did not apply these on a sound basis. In the 2015 case of AB LLC and BD Holdings LLC,2 it is submitted that the court arrived at the correct outcome but with a debatable methodological approach (Mazansky, 2015; West, 2015: 659-662; Roeleveld & West, 2016b). The case does not create precedent as the Tax Court serves more as a court of record.

This case essentially turned on whether a service permanent establishment had been created by virtue of article 5(2)(k) of the 1997 South Africa-United States tax treaty. The service permanent establishment largely followed the wording usually found as an additional type of permanent establishment in Article 5(3), that is in addition to the construction permanent establishment.

The court applied a number of strange approaches, for example:

Considering the OECD Commentary relevant for only those parts of 5(2) that mirror the OECD Model.

Accepting and relying on the US Explanatory Memorandum which is a unilateral instrument.

Made no real use of the VCLT or the historical context of article 5.

Placed significant emphasis on the phrase 'includes especially' and applied a more literal interpretation than a purposive interpretation.

However, outside of the above aspects, the court seemed to consider that the service permanent establishment in article 5(2)(k) created a special class of 'deemed permanent establishment'. There is support for such an interpretation in the literature (albeit that the court did not refer to any of it) (Arnold, 2014)3.

This case did not go on appeal and as it does not create precedent in South Africa is unlikely to create a trend. The Supreme Court of Appeal decision is binding on the lower courts.

1 ZA: HC, 17 Sept. 2009, A33/2008 Grundlingh vs. Commissioner for the South African Revenue Services, Tax Treaty Case Law IBFD; Grundlingh vs. Commissioner for the South African Revenue Service 12 ITLR 638 and the earlier court ZA: TC, 8 May 2007, ITC 1819, Tax Treaty Case Law IBFD; Appellant vs. Commissioner for the South African Revenue Service 10 ITLR 446.

2 ZA: TC, 15 May 2015, 13276, Tax Treaty Case Law IBFD.

3 Arnold states the following in this regard: 'Several tax treaties modify article 5(2) of the OECD Model to include additional examples. In some cases, it appears that the treaty negotiators intended these additions to article 5(2) of the OECD Model to operate as deeming provisions rather than as examples of fixed places of business that must meet the conditions of article 5(1) of the OECD Model. For instance, in the India-United States Income Tax Treaty (1989), article 5(2)(l) includes a provision similar to article 5(3)(b) of the UN Model that makes the furnishing of services in a state for more than 90 days a PE. This provision is clearly intended to be a deeming provision, although many of the other provisions of article 5(2) of the OECD Model are not. Such provisions create interpretive difficulties, as it is difficult to treat some examples as just examples and others as deeming provisions. On the other hand, it would be inappropriate to treat the examples all as deeming provisions or all as just examples'.

Conclusions

Interpretation of tax treaty cases in South Africa has to some extent been fairly stable. There are, of course, instances that have demonstrated an incomplete understanding of tax treaties and in some cases have been significant outliers to standard interpretational approaches. However, the Supreme Court of Appeal in more recent cases appears to have clarified a number of interpretational principles that would seem to be the clear starting point for tax treaty interpretation in South Africa. These cases provide the body of judicial precedent to guide future cases in the South African common law environment.

Firstly, the court has confirmed that the VCLT is accepted customary international law in South Africa (Janis, 2015: 507). It is apparent that following UK decisions, South Africa seems to accept the OECD Commentary as a supplementary means of interpretation. In this regard, South Africa seems to retain a stronger affinity with drawing on foreign, mainly UK, case law than any reference to the OECD Commentary.

Secondly, the court will adopt a contextual and purposive interpretation approach congruent with the words used in the treaty. In applying such an approach, the court appears to consider the international legal principles as the same as those applicable in domestic situations.

Lastly, also evident from the case law is the need for clarity in policy when creating deviations from the model conventions, for example where, in the past, certain taxes were carved out from the non-discrimination article.

While it is clearly difficult to draw any substantive conclusions as to the tendencies in the South African tax treaty case law, there is an obvious need to develop common and clear meanings in treaty interpretation. This may become another project for legal harmonisation between the BRICS.

In this regard, South Africa perhaps offers the following contribution:

Albeit only a few cases, South Africa has an established body of case law in cross border matters that provides a fairly stable and clear basis for interpretation of tax treaties (Dharmapala, 2016: 29).

There are clear aspects from the case law providing precedential value for the future.

With regard to the case law analysed above, the following broad treaty aspects are evident:

Tax treaties are capable of considering both actual and legislatively deemed transactions1.

Taxes covered are to be considered in terms of their incidence2.

Clear guidance on the temporal application of treaty provisions exists (Roeleveld & West, 2016c)3.

A treaty cannot be assumed to not permit double non-taxation4.

Questions of permanent establishments and place of effective management are mainly questions of fact5.

References

Alton, T., Arndt, C., Davies, R., Hartley, F., Makrelov, K., Thurlow, J. & Ubogu, D. (2014) Introducing carbon taxes in South Africa. Applied Energy, 116, 344-354. https://doi.org/10.10167j.apenergy.2013.11.034

1 See ZA: SC, 8 May 2012, Commissioner for the South African Revenue Service vs. Tradehold Ltd, Tax Treaty Case Law IBFD; Commissioner for the South African Revenue Service vs. Tradehold Ltd 14 ITLR 967; ZA: TLD Ltd vs.. Commissioner for the South African Revenue Service (2010) TC, 12432, Tax Treaty Case Law IBFD; TLD Ltd vs. Commissioner for the South African Revenue Service 13 ITLR 796.

2 ZA: Volkswagen of South Africa (Pty) Ltd vs. Commissioner South African Revenue Service (2008) HC 24201/2007, Tax Treaty Case Law IBFD; Volkswagen of South Africa (Pty) Ltd vs. Commissioner for the South African Revenue Service 11 ITLR 770.

3 ZA: Krok and another vs. Commissioner for the South African Revenue Services 18 ITLR 42 (Supreme Court of Appeal case); Commissioner for the South African Revenue Service vs. Mark Krok (2014) HC 1319/13, Tax Treaty Case Law IBFD; Commissioner for the South African Revenue Service vs. Krok and another 16 ITLR 838 (High Court case); also considering the High Court is Roeleveld, J., & West, C. (2016c) South Africa: Retrospectivity of Treaty Clauses Regarding Assistance in the Collection of Taxes and the Preservation of Assets. In M. Lang et al. (Eds.), Tax Treaty Case Law around the Globe 2015. IBFD; News IBFD (07 December 2011) South Africa; Australia - Treaty between South Africa and Australia - South African residents bound by treaty provisions on exchange of information.

4 ZA: L.J. Downing vs. Secretary for Inland Revenue (1972) TC 6737, Tax Treaty Case Law IBFD and Secretary for Inland Revenue vs. Downing (1975) SC, Tax Treaty Case Law IBFD.

5 ZA: Oceanic Trust Co Ltd No vs. Commissioner for South African Revenue Service 74 SATC 127; Oceanic Trust Co Ltd No v Commissioner for South African Revenue Service 15 ITLR 172 and Secretary for Inland Revenue vs. Downing SC (1975), Tax Treaty Case Law IBFD.

Arnold, B.J. (2014). Article 5: Permanent Establishment. In: R. Vann et al (Eds.), Global Tax Treaty Commentaries. IBFD.

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Janis, M. W. (2015) International Law and Treaties. International Encyclopedia of the Social and Behavioral Sciences. (2nd ed.) Oxford, Elsevier, pp. 507-510.

Hattingh, P. J. (2011) An overview of the court system of South Africa with Emphasis on the Resolution of Tax Disputes. Bulletin for International Taxation, 65 (3), 110-141.

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Hattingh, P. J. (2009b) The Vokswagen Case and the Secondary Tax on Companies: Part 2 - The Effect on the Taxation of dividends with emphasis on Deemed (constructive) dividends. Bulletin for International Taxation, 63 (11), 116-147.

Hattingh, J. & West, C. (2016) The notion of tax and the elimination of international double taxation or double non-taxation. In: Helminen, M. (ed.). Cahiers de droit fiscal international, 101b.

Mazansky, E. (2012a) Court enforces exchange of information request in respect of a Non-Taxpayer. Bulletin for International Taxation, 66 (2), 58-72.

Mazansky, E. (2012b) South Africa's exit charge overridden by the Luxembourg - South Africa income and capital tax treaty (1998). Bulletin for International Taxation, 66 (7), 34-51.

Mazansky, E. (2015) South African Tax Court Departs from Commentary on Article 5 of the OECD Model in Finding a Permanent Establishment. Bulletin for International Taxation, 69 (9).

Mazansky, E. (2016) South African Supreme Court of Appeal Confirms Application of Protocol to a Tax Treaty to a Period before Signature Date, Bulletin for International Taxation, 70 (4).

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Roeleveld, J. (2015) South African Reserve Bank v Shuttleworth: exchange control exit tax -a regulatory charge or a tax? British Tax Review, 5, 654-658.

Roeleveld, J. & West, C. (2013a) Chapter 4: South Africa: Transfer of Seat and Exit Taxation: Treaty Override? In: Kemmeren E.C.C.M. et al. (eds.). Tax Treaty Case Law around the Globe 2012. IBFD.

Roeleveld, J. & West, C. (2013b) Chapter 26: South Africa: Exchange of Information under an Income Tax Treaty. In: Kemmeren E.C.C.M. et al. (eds.). Tax Treaty Case Law around the Globe 2012. Amsterdam, IBFD & Linde, pp. 289-294.

Roeleveld, J. & West, C. (2016a) South Africa: Is an exit levy a tax? In: Kemmeren E.C.C.M. et al. (eds.), Tax Treaty Case Law around the Globe 2016. Amsterdam, IBFD & Linde, pp. 51-60.

Roeleveld, J. & West, C. (2016b) South Africa: The curious case of the service PE? In: E.C.C.M. Kemmeren et al. (Eds.), Tax Treaty Case Law around the Globe 2016. Amsterdam, IBFD & Linde, pp. 51 -60.

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West, C. (2016) From Colonialism to Apartheid: International influence on tax treaties in South Africa (1932-1990). In J. Hattingh, J. Roeleveld, & C. West (eds.), Income Tax in South Africa: The First 100 Years: 1914-2014. Juta & Co Ltd.

Information about the author

Craig West - is the Associate Professor of the Tax Institute for Fiscal Research, Head of Department of Finance and Tax, University of Cape Town (Private Bag X3, Rondebosch, Cape Town, 7701, South Africa; e-mail: craig.west@uct.ac.za).

© C. West, 2020

Date of Paper Receipt: September 5, 2020

Date of Paper Approval: November 5, 2020

Date of Paper Acceptance for Publishing: December 1, 2020