This content is from: South Africa

South Africa: New tax legislation and exchange control case

Peter Dachs
South Africa's new double tax agreement (DTA) with Mauritius was published in the Government Gazette of June 17 2015. In terms of article 28 of the new DTA, the provisions thereof shall only be effective in both countries from January 1 2016.

The main changes introduced by the new DTA relate to dual residence for persons other than individuals, withholding taxes (dividends, interest and royalties) and capital gains.

Article 4 of the new DTA provides that if a person other than an individual is a resident of both South Africa and Mauritius, then the competent authorities of both contracting states shall by mutual agreement endeavour to settle the question of residency. In this regard, South Africa and Mauritius entered into a memorandum of understanding (MoU) on May 22 2015, which entered into force from May 28 2015, in terms of which both countries agreed the factors that shall be considered by the relevant competent authorities upon making such a determination.

A recent case heard by the Constitutional Court dealt with the constitutional validity of an exit charge levied by the South African Reserve Bank on the transfer of funds offshore from an emigrant's blocked account.

In 2014 the Supreme Court of Appeal found in favour of the appellant, Mark Shuttleworth, that the imposition of the 10% exit charge was invalid since the charge constituted a tax and should have been passed by Parliament as a money Bill in terms of section 77 of the Constitution. The South African Reserve Bank then took the matter on appeal to the Constitutional Court.

The Constitutional Court overturned the decision of the Supreme Court of Appeal. A majority of the Court found that the charge was not a revenue-raising mechanism which was required to be passed as a money Bill, but rather a regulatory charge. In coming to this decision the majority recognised that there is not always a clear distinction between a revenue-raising mechanism and a regulatory charge. A regulatory charge always generates revenue and a tax always has some regulatory effect. It is necessary, the majority found, to look at the dominant purpose of the charge.

Peter Dachs (
ENSafrica – Taxand Africa

Tel: +27 21 410 2500

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