South Africa has signed a new tax treaty with Mauritius, accounting firm PriceWaterhouse Cooper (PwC) said
The abuse of the old, 1996 treaty was the main reason for the new treaty, said PwC international tax senior manager Johan Hatting (SUBS: CORR).
Some had feared the SA Revenue Service and the National Treasury would simply terminate the treaty because it was being abused by South African multinationals, he said.
“In essence, the good news is that South Africa will still have a tax treaty with Mauritius in the future.”
Hatting said the negotiations on the new treaty were officially finalised on May 17, and it would comes into force on January 1, 2015.
He said South Africa’s total investment in Mauritius was R35.5 billion in 2006, R35.1bn in 2007, R46.8bn in 2008 and R53.5bn in 2009.
Mauritius’s investments in South Africa totalled R6bn in 2006, R5.1bn in 2007, R6bn in 2008, and R5.9bn in 2009.
“The most significant deviation in the new treaty concerns companies that are tax resident in both Mauritius and South Africa,” said Hatting.
Under the new treaty, Sars and the Mauritian authorities had to reach mutual agreement on whether a dual resident company be taxed only in Mauritius or only in South Africa.
“If Sars does not reach an agreement, the dual resident company will be subject to double tax,” he said.
Hatting said it was clear South Africa held the upper hand during the renegotiation, which was overshadowed and driven by tax avoidance concerns harboured by the South African authorities.
The question was whether South African multinationals would relocate their international investment, finance and group services from Mauritius to South Africa when the new tax treaty came into effect.
“It may be that other countries that have been competing in this space far longer than South Africa may be the real benefactors,” he said.