BRICS: Potential influence in Africa of China beneficial ownership case where preferential dividend rate denied – WITH further explanations applicable to Africa
BRICS: Potential influence in Africa of China beneficial ownership case where preferential dividend rate denied – WITH further explanations applicable to Africa
Latest Chinese tax case on beneficial ownership in treaty application
Tax officials in Qinghai, China recently denied treaty benefits to a foreign holdco receiving a large dividend from China. The Chinese sub, a mining company in Qinghai province, was 90{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} owned by the foreign holdco, which was wholly owned by a Canadian parent. Although the foreign holdco had 5 directors and 5 employees locally, the PRC tax authorities considered this headcount inadequate given the size of the Chinese operation. The taxpayer’s request for the 5{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} preferential dividend withholding rate per treaty was turned down, and US$16 million of additional withholding tax was paid.
COMMENTARY BY DR. D.N.ERASMUS:
It is a fact that the Chinese have extensive capital investments throughout Africa. China and South Africa are both members of BRICS. It is most likely that Revenue Authorities through ATAF (Africa Tax AdministrationTax authorities are fundamental institutions within government frameworks, overseeing tax assessment, collection, and administration. Their operations ensure that tax laws are enforced and public funds are collected efficiently. This article delves into tax authorities' purpose, responsibilities, and structure, offering insights into their essential role in supporting government functions and economic stability. What is a Tax Authority? A tax authority is... Forum) will have access to this Chinese case and look to apply its beneficial principles to similar structures that exist in Africa. Many mining operations are owned by mining Holdco’s listed on the Canadian Toronto Stock Exchange. Many mining investments are structures through intermediate Holdco structure using Mauritius (with an extensive double tax treatyA Double Taxation Agreement (DTA), also known as a Double Taxation Treaty (or a Tax Treaty), is an international tax treaty between two or more countries that aims to prevent individuals or businesses from being taxed twice on the same income. With globalisation and the increase in cross-border economic activities, DTAs have become essential tools for promoting trade, investment, and... network). These intermediate structures reduce WHT in the African country because of a beneficial WHT rate with Mauritius. This case may affect those arrangements into the future – read together with the OECDThe Organisation for Economic Co-operation and Development (OECD) is an international organisation comprising 38 member countries, established to foster economic growth, trade, and development on a global scale. Founded in 1961, the OECD provides a forum for governments to collaborate, share policy experiences, and develop solutions to common economic challenges. The OECD's core mission is to promote policies that improve... BEPSBEPS stands for "Base Erosion and Profit Shifting". BEPS refers to tax avoidance strategies used by multinational enterprises (MNEs) to exploit gaps and mismatches in the international tax system. By shifting profits from high-tax jurisdictions to low- or no-tax locations, MNEs reduce their overall tax burden, even if little to no economic activity occurs in the low-tax jurisdictions. These practices erode... initiatives (SEE – http://iitfconnect.com/?p=116) (SEE – http://iitfconnect.com/?p=108) looking to tackle anti-avoidance and treaty shopping by multi-nationals.
MAURITIUS has a 39 country tax treatyA Double Taxation Agreement (DTA), also known as a Double Taxation Treaty (or a Tax Treaty), is an international tax treaty between two or more countries that aims to prevent individuals or businesses from being taxed twice on the same income. With globalisation and the increase in cross-border economic activities, DTAs have become essential tools for promoting trade, investment, and... network: http://www.mra.mu/index.php/taxation/double-taxation-agreements
Canada is not on the list, so another country would typically be imposed between Mauritius and Canada, such as South Africa using its beneficial Headquarter Regime provisions in the Income TaxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... Act, 1962. (See other articles in the Africa Tax Journal on the S.African Headquarter Regime beneficial provisions – ).
SOUTH Africa has over a 70 country tax treatyA Double Taxation Agreement (DTA), also known as a Double Taxation Treaty (or a Tax Treaty), is an international tax treaty between two or more countries that aims to prevent individuals or businesses from being taxed twice on the same income. With globalisation and the increase in cross-border economic activities, DTAs have become essential tools for promoting trade, investment, and... network: http://www.sars.gov.za/Legal/International-Treaties-Agreements/Pages/default.aspx
CANADA has 92 country tax treaties in force: http://www.fin.gc.ca/treaties-conventions/treatystatus_-eng.asp incl. Barbados (low tax), Cyprus (low tax), Luxembourg (low tax), Malta (low tax), South Africa, UAE (low tax), Algeria, Cameroon, Egypt, Ivory Coast, Kenya, Morocco, Nigeria, Senegal, Tanzania, Zambia, Zimbabwe with Namibia in the pipeline. This extensive list of direct African DTA’s eliminates the need to impose an intermediary Holdco in many cases where mining operations take place in those African countries.
The challenges are around mining countries such as Congo and the Democratic Republic of Congo, and other French Speaking countries in West Africa – Look at the French DTAA Double Taxation Agreement (DTA), also known as a Double Taxation Treaty (or a Tax Treaty), is an international tax treaty between two or more countries that aims to prevent individuals or businesses from being taxed twice on the same income. With globalisation and the increase in cross-border economic activities, DTAs have become essential tools for promoting trade, investment, and... network – Aruba, Bahamas, Belize, Burkina Faso, Central African Republic and many others .
FOR ACCESS TO ALL INTERNATIONAL AGREEMENTS (excl. DTA’s which can be searched via GOOGLE) IN RESPECT OF VARIOUS COUNTRIES (INCL. THE CONSTITUTIONAL SIGNIFICANCE) SEE – http://iitfconnect.com/?p=34 AND http://www.wipo.int/wipolex/en/
Prof Dr. Daniel N. Erasmus Esq. BA (Wits) BProc (UNISA) H Dip Tax LawTax laws form the backbone of any nation’s revenue system, setting the rules that govern how individuals and corporations contribute financially to support government functions. These laws define the types of taxes, the applicable rates, and the regulations regarding payment and compliance. They also outline the rights and obligations of taxpayers, ensuring a balanced and fair approach to funding public... (Wits) Ph.D law (KwaZulu-Natal), is a practicing international tax attorney, www.TaxRiskManagement.com, and adjunct Professor of International Tax LawTax laws form the backbone of any nation’s revenue system, setting the rules that govern how individuals and corporations contribute financially to support government functions. These laws define the types of taxes, the applicable rates, and the regulations regarding payment and compliance. They also outline the rights and obligations of taxpayers, ensuring a balanced and fair approach to funding public... at Thomas Jefferson School of Law, San Diego, CA, USA and it’s Africa partner http://www.IITF.net.
He can be contacted at daniel@taxriskmanagement.com
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