The significance of South Africa signing multilateral convention to prevent BEPS in terms of pension funds
On 7 June 2017, South Africa was one of more than 70 countries that signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI”). The MLI is the result of certain of the Organisation for Economic Co-operation and Development’s action points aimed at preventing base erosion and profit shifting (“BEPS”). It is aimed at facilitating swift, coordinated and consistent implementation of treaty-related BEPS measures in a bilateral context. In particular, it is intended to function as a mechanism to facilitate agreement to changes to treaties without the need for time consuming bilateral renegotiation. The MLI applies to the signatories thereof that have taken the necessary steps to ratify it. Each party that has signed or will sign the MLI has provided or will provide a list of reservation and notifications, in terms of which it notifies:
Provided that South Africa and the other Contracting State are both parties to the MLI and have both deposited notifications that the agreement is covered by the MLI (“Covered Agreement”), the MLI may, depending on the reservations and notifications of each Contracting State, amended the existing provisions of the Covered Agreement. The MLI contains certain provisions that apply and cannot be opted out of, as well as certain optional provisions. The manner in which these optional provisions will apply is dictated by each country’s list of reservations and notifications. For example, article 7(8) of the MLI contains certain Simplified Limitation on Benefits (“SLB”) provisions. This means that if a party qualifies as a resident under a treaty but does not qualify as a “qualified person” under article 7(9) of the MLI, it is not entitled to certain benefits provided by the Covered Agreement, as determined in terms of the SLB provisions. Article 7(14) states that the SLB provisions shall apply in place of or in the absence of provisions of a Covered Agreement that would limit the benefits of the Covered Agreement. Although a party may reserve the right that the SLB provisions do not apply to a Covered Agreement that already contains such provisions, South Africa has not done so in respect of any of its treaties. As such, from South African perspective, the SLB provisions apply to Covered Agreements. The question is whether the MLI is relevant to South African pension funds that are exempt from South African income and capital gains tax.
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