On 15 May 2015, the Financial Court delivered a judgment on a question concerning the interpretation of the double taxation convention between South Africa and the United States of America (DBA). In short, the facts were that two companies came to South Africa in 2007 to provide strategic and financial advisory services to a client based in South Africa. The contract for the provision of the services was concluded on the basis of which the most controversial result of the proceedings is that the General Court concluded that after May 2008, when the taxpayer was no longer in South Africa, there was nevertheless a `permanent establishment` in South Africa which justified the right to tax the taxable person in South Africa on the royalty offset by the results, Which was won after leaving South Africa. The statement of reasons relied on by the Court was that the 183-day requirement was still met, given that the wording of the DBA relates to `each 12-month period`, which effectively allows double counting under the provisions of the DBA. The objective of the DBA is to avoid opportunities for tax evasion and the OECD commentary recognises the possibility of double counting. A DBA ensures that a taxable person is not unfairly taxed, both in South Africa and in the country concerned treated in a particular DBA. It therefore offers protection against double taxation and lays down various requirements that a taxable person must meet in order to understand where that taxable person is established as a tax resident. In July 2012, the United States introduced the possibility for a country to enter into an intergovernmental agreement that would reduce the need for financial institutions to enter into an agreement directly with the United States. The Agreement on Improving International Tax Compliance and Implementing the Foreign Account Tax Compliance Act between the United States and South Africa is a mutual agreement that ensures that financial institutions in South Africa report information on U.S.
account holders to the South African Revenue Service (SARS). SARS will in turn transmit this information to the IRS through the Automatic Exchange of Information (AIA) under the current double taxation treaty between the United States and South Africa. . . .