South Africa ratifies MLI and develops synthesised DTAs
Adopting the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) has been an important development in the international tax landscape, having far-reaching effects on the double tax agreements entered into between countries. Even though not obliged to do so, South Africa opted to develop synthesised texts to the MLI to their respective Double Tax Agreements (DTAs). This is an essential step to ensure that application of the MLI is accurate.
On 30 September 2022, South Africa deposited its instrument of ratification in respect of the MLI with the Organisation for Economic Co-operation and Development (OECD). In terms of Article 34, the MLI enters into force on the first day following three calendar months after a jurisdiction finalises its ratification process. Consequently, the MLI entered into force for South Africa on 1 January 2023.
Even though South Africa has ratified the MLI, it will still only apply if the MLI has entered into force in both jurisdictions to which the DTA applies. The extent to which the MLI will modify a DTA will depend on the choices made by the various jurisdictions.
The MLI does not amend the text of a specific DTA but instead operates alongside it with the aim of modifying its application. On that basis, the South African Revenue Authority has gone ahead with the development of synthesised texts to the MLI to their respective DTAs. South Africa is not obligated to do so under the MLI; however, this is an important step to ensure that application of the MLI is accurate. The synthesised texts for each DTA are drafted in consultation with the relevant treaty partners but are non-binding.
These texts, which are essentially consolidated versions of the DTAs, as modified by the MLI, are aimed at facilitating the understanding of the application of the MLI to a particular tax treaty. However, it should be noted that a synthesised text does not constitute a source of law. The authentic legal texts of the tax treaty and the MLI take precedence and remain the legal texts applicable.
While the MLI entered into force in South Africa on 1 January 2023, not all provisions are effective from that date. Essentially, withholding taxes would apply to transactions on or after 1 January 2023, which is the first day of the first calendar year following the entry into force. For any other taxes, the MLI applies to taxable periods commencing on or after 1 July 2023, which is six calendar months after the entry into force date.
The synthesised text represents the following in a single document:
- The DTA text that is modified by the MLI, including the text of amending protocols where relevant.
- The provisions of the MLI that affect the tax treaty as a result of the interaction of the MLI positions of the jurisdictions, and
- The dates on which the provisions of the MLI take effect for the specific DTA.
The South African Revenue Authority has provided an easily understandable table that will be updated on an ongoing basis once a treaty partner has signed the MLI, deposited its Instrument of Ratification, and consultations have been concluded on the synthesised text.
Peru – Chile double tax treaty: new interpretation guidelines from Peru’s Tax Administration radically affect the taxation of indirect disposals of shares
Background Under Peruvian Income Tax provisions, non-residents are levied on Peruvian-source income identified based on an all-exhaustive list. Capital gains arising from an indirect disposal of shares issued by a company incorporated in Peru qualify as Peruvian-source income. According to these rules, an indirect disposal occurs when shares of a non-resident company are sold, and […]
Dutch Supreme Court opens up new possibilities to deduct costs related to the sale of participations
Under the Dutch CIT rules, profits and capital gains related to participations are exempt for tax purposes. This also limits the deductibility of costs that directly relate to the acquisition or sale of such a participation. The exact determination of what costs are related to an acquisition is therefore regularly subject to discussion with the […]
French landmark decision on the “beneficial owner” concept for tax treaty purposes
A landmark decision on beneficial ownership could significantly impact the French tax authorities’ approach to tax audits concerning royalties. In its decision on French company Sté Planet dated 20 May 2022, the French Administrative Supreme Court (Conseil d’État) ruled for the first time that when French-sourced royalties are paid to a foreign person who is […]
Tax considerations for M&A in Mexico
During 2020, the mergers and acquisitions (M&A) market underwent some challenges due to the COVID-19 contingency and plenty of transactions were put off. Nonetheless, during 2021 and 2022, the M&A market recovered, as evidenced by the number of Mexican entities across various industries and sectors being acquired. Mexico’s main market comprises small and medium-sized enterprises (SMEs), […]
French landmark decision on foreign tax credit imputation for capital gains on shareholdings: an extension to dividends?
In a decision “Air Liquide” dated 15 November 2021, the French Administrative Supreme Court (Conseil d’Etat) ruled for the first time that French resident companies realising capital gains upon the alienation of eligible participation (titres de participation – generally presumed for a 5% interest held for a minimum two-year period) in a foreign company are […]
The Anti-Tax Avoidance Directive II: Will other jurisdictions follow the UK’s lead?
ATAD II is the EU translation of BEPS Action 2, the part which is focused on the ability of taxpayers to design situations of double non-taxation or heavily reduced taxation by exploiting hybrid mismatches. They apply to mismatches between the EU Member States, the UK, Mexico, Australia, New Zealand, and third countries. This legislation has […]
Tax vendor due diligence is an attractive tool in the M&A transaction process
Background – the current market The disruptive effect of the Covid-19 pandemic and the economic recovery currently underway in many jurisdictions has driven strong momentum in the M&A market in recent months. Among the factors that drive this demand may be the need to enhance growth, diversify, raise finance or refocus on core activities. Commercial and […]
The globalisation of the German Reorganisation Tax Act through the Corporate Modernisation Act
Many countries have their own versions of tax-free or tax-neutral reorganisations. We are seeing instances where such domestic legislation now is subject to amendment with some added or bonus enhancements to these laws. What follows below are some recent changes to the German restructuring tax code provisions. We aim to continue to highlight more countries […]
Avoiding tax traps when relocating
Relocation is a factor that can drive M&A transactions and many jurisdictions use various strategies to attract or retain businesses, whether that be on tax, regulation, creation of critical business mass, or other reasons. There may be many non-tax reasons for enterprises to relocate, but there will always be tax consequences to consider. In this article, we outline the possible tax traps and opportunities for this type of activity. Main tax traps The main tax issues in business relocations, which can amount to traps if not fully taken into account in […]
DAC 6 developments, deadlines, and the question of legal privilege
While the first reporting deadlines for most EU members expired on 31 January 2021 and respectively 28 February 2021, there are still questions outstanding about whether intermediaries are obliged to report arrangements to tax authorities, or if they can use the right to waiver due to professional privilege. In 2020, countries across Europe implemented into […]
The impact of Covid-19 tax regulations on M&A transactions
In this article, we will focus on the impact of Covid-19 tax regulations in relation to M&A transactions. In particular, we will address the impact of several incentives that need to be addressed when transferring a company. Covid-19 Regulations Many countries have introduced Covid-19 related tax and other government incentives. These can – roughly – be broken into three categories: (i) extension of payment for taxes, (ii) a subsidy for wages (and sometimes […]
DAC6 tightens the reigns on M&A deals across the globe
EU Directive 2018/822 or DAC 6 (acronym of “Directive on Administrative cooperation”) is in the minds of many European tax practitioners. In this article we will set out its importance for the European M&A market. Beyond this mysterious acronym, the European Union is pursuing its efforts to prevent tax fraud and tax evasion (and thus create legal and business ” fairness […]