The United States passed the Foreign Account Tax Compliance Act (FATCA) in 2010 to combat tax evasion at sea, promoting transparency and obtaining information about the accounts of U.S. citizens in other countries. FATCA requires foreign financial institutions to provide the U.S. Internal Revenue Service (IRS) with information about U.S. account holders on an annual annual. Otherwise, the foreign financial institution will be subject to a 30% withholding tax on certain U.S. source payments, such as interest. However, withholding tax is eliminated when foreign financial institutions enter into disclosure agreements with the U.S. Treasury. 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. The amended South African Tax Act is now fully applicable from 1 March 2020. If you have international economic interests, your income may be taxable both in South Africa and abroad, resulting in double taxation. A widespread misunderstanding we see among South African expats is that they think they are “automatically exempt” simply because there is a double taxation treaty between the two countries. This is completely false and there are several factors that must be considered and demonstrated objectively, and you are still legally required to file a tax return and “claim” an exemption as part of the contract relief. Agreements between the two tax administrations of two countries should enable administrations to eliminate double taxation. The navigation area above allows you to access the texts of the corresponding agreements.
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. Double taxation treaties (“DBA”) are internationally agreed laws between South Africa and another country. South Africa has dozens of such agreements with different countries and the main purpose of a DBA is to ensure that each country subject to the agreement knows what its tax rights are vis-à-vis taxpayers. Pretoria: South African Finance Minister Nhlanhla Nene and U.S. Ambassador to South Africa Patrick H. Gaspard today signed an intergovernmental agreement to improve international tax compliance and implement the Foreign Account Tax Compliance Act. This agreement promotes tax transparency between the two nations and also highlights the growing international cooperation to end tax evasion worldwide.
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 directly into an agreement with the United States. . . .