Ethereum

Double tax agreements are bilateral (between two countries) agreements which outline which country is entitled to levy taxation on income which may fall into the taxation ambit of either nation1. South Africa currently has bilateral DTA’s with 87 countries2 (SARS, 2018).

The model tax convention published by the OECD serves as a guideline for the creation of DTA’s between countries, with the DTA’s themselves being the legally binding legislation. In these DTA’s the two contracting states outline the scenarios and circumstances under which each is entitled to levy taxation on members of the other contracting state.

Once published in the Government Gazette following its approval by Parliament, a double tax agreement (DTA) has the effect of law (s 108(2)). Where there is a conflict between The Income Tax Act and the double tax agreement, the double tax agreement enjoys preference over the Act3_.

Below is article 14 (Which outlines the treatment for “Income from Employment”) from the DTA between South Africa and the United Kingdom and Northern Island.

Convention between the government of the republic of South Africa and the government of the United Kingdom of Great Britain and Northern Ireland for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes

on income and on capital gains Article 14

Income from Employment

1 _{Egger, P., Merlo, V., Ruf, M., & Wamser, G. (2015). Consequences of the New UK Tax Exemption}

System: Evidence from Micro-level Data. The economic journal : the journal of the British Economic Association., Vol.125(589), 1764-1789.

2 _{SARS. (2018, Febraury 12). DOUBLE TAXATION AGREEMENTS (DTAS) & PROTOCOLS.}

Retrieved from SARS: http://www.sars.gov.za/Legal/International-Treaties-Agreements/DTA- Protocols/Pages/default.aspx

3 _{Stiglingh, P. M., Koekemoer, P., van Heerden, P., Wilcocks, P., de Swardt, R., & van der Zwan, P.}

17 1. Subject to the provisions of Articles 15, 17 and 18 of this Convention, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived there from may be taxed in that other State.

2. Notwithstanding the provisions of paragraph 1 of this Article, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

(a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned, and

(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and

(c) the remuneration is not borne by a permanent establishment which the employer has in the other State.

3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic may be taxed in the Contracting State of which the enterprise operating the ship or aircraft is a resident.

The effect of paragraph one above is that if a South African tax resident works in South Africa, any remuneration earned will only be taxable in South Africa. If they work in the United Kingdom or Northern Ireland (UK), the DTA states that remuneration earned while in the UK may be taxed in the UK.

The DTA does not impose any methods on how South Africa or the UK own residents, it only outlines the scenarios in which each may tax the residents of the other, and not specifying the nature of how that taxation must be effected either.

Paragraph two adds further to this by saying that a South African resident who earns remuneration the UK may only be taxed in South Africa (and not in the UK) if:

18

 The recipient is present in the UK for a period less than or equal to 183 days in any twelve-month period during the fiscal year concerned, and

 The remuneration is paid by, or on behalf of, an employer who is not a tax resident of the UK, and

 The remuneration is not borne by a permanent establishment which the employer has in the UK.

Requirement one states that if less than half the year is spent in the UK then they will possibly not have the right to tax that remuneration. If more than 183 days are spent in the UK then they will have the right to tax that income.

In conjunction with requirement one, requirements two and three deal with the issue of who incurs or bears the remuneration paid to the South African Tax resident. If the remuneration is paid by a tax resident of the UK or through a permanent establishment in the UK then they will have the right to tax the remuneration.

It can be seen that the double tax agreement matches in content almost exactly to the OECD model, and this is true for most of South African DTA’s1. The key take away from the above is that given the circumstances in which s10(1)(o)(ii) would apply to a South Africa tax resident, applicable DTA’s would provide no actions or effects as the proposed change to s10(1)(o)(ii) and SARS’s desire to take residents on foreign source income in within their rights as a tax authority in terms of South Africa’s applicable DTA’s