Abstract:
Base erosion and profit shifting are a growing international concern, that was again ushered to the forefront following the 2008 financial crisis. In order to address this issue, the Organisation for Economic Co-Operation and Development (‘OECD’), as mandated by the G20, developed the Action Plan on Base Erosion and Profit Shifting (‘BEPS’). BEPS has identified 15 Actions (‘the Actions’) to address base erosion and profit shifting issues. Action 6 is titled: ‘Preventing the granting of treaty benefits in inappropriate circumstances’.
To give effect to BEPS, the OECD drafted the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (‘MLI’). On 7 June 2017, South Africa was one of more than seventy countries that signed the MLI.
There has been criticism against Action 6 of BEPS and the MLI, which ranges from a lack of participation by non-OECD members to the manner in which the MLI was drafted. Action 6 of BEPS must be considered from a South African perspective, by considering how Action 6 will likely affect the rights and obligations of developing countries. This consideration is motivated by observing the historical impact of the OECD Model Convention with regards to Taxes on Income and Capital (‘MTC’), which has historically favoured developed countries over developing countries, by largely limiting sourced based taxation.
Accordingly, this perspective must consider whether Action 6 and the relevant sections of the MLI, which was drafted to address the purpose of Action 6, will be beneficial to South Africa and other developing countries.
The rationale for entering into a double taxation agreement (‘DTA’) might be wholly different from the perspective of a developing country. Despite the OECD’s intention to address BEPS, the question arises whether the OECD is set on fairly and adequately addressing the BEPS issue.
