South Africa has entered into a number of Agreements for the Prevention of Double Taxation ("DTA's") with other states which contain an exchange of information clause. Most of the DTA's entered into by South Africa are based on the Organisation for Economic Co-operation and Development ("the OECD") Model Tax Convention on Income and on Capital (""the MTC"). As a result, the exchange of information articles as set out in the DTA's entered into by South Africa are based on the OECD MTC's article on the exchange of information.
The OECD MTC's Article 26(1) on the exchange of information provides that the competent authorities, which are generally the revenue authorities of the respective States, shall exchange such information as is foreseeably relevant for carrying out the provisions of the DTA or the administration or enforcement of domestic tax laws of every kind imposed by the contracting States, provided that such administration or enforcement is not contrary to that DTA.
Article 26(4) of the OEDC MTC requires the State from whom information is requested to use its information-gathering measures to obtain the requested information.
In a judgment, delivered on 22 November 2011, in the matter between the Commissioner for the South African Revenue Service v Werner van Kets (Case No: 13446/2011, as yet unreported), the High Court of the Western Cape was called upon to decide on the application of the exchange of information article as contained in the DTA concluded by South Africa and Australia.
SARS had received a request from the Australian Tax Office ("ATO") in terms of the DTA entered into with South Africa and Australia, for information into the affairs of Mr Saville. The request related specifically to his possible offshore wealth and involvement in a Malaysian entity.
SARS, relying on sections 74A and 74B of the Income Tax Act No. 58 of 1962 ("the Act"), requested a third party South African resident, van Kets, to supply the information in his possession in relation to Mr Saville, in order that SARS could comply with the request from the ATO.
In terms of section 74A of the Act, the Commissioner may, for purposes of the administration of the Act, in relation to any taxpayer, require a taxpayer or any other person to furnish information, documents or things as the Commissioner may require. In addition, section 74B provides that the Commissioner may, for purposes of the administration of the Act, in relation to any taxpayer, require such taxpayer or any other person to furnish produce or make available any such information, documents or things as the Commissioner may require to inspect, audit, examine or obtain.
Van Kets sought to resist SARS' request for information relating to Mr Saville, arguing that the phrase "any taxpayer" as employed in sections 74A and 74B of the Act, refers to persons that are liable for South African income tax or other taxes under the Act, or that are required to furnish any return relating to South African income tax or other taxes levied in terms of the Act. Essentially, van Kets argued that as Mr Saville was not liable for South African tax under the Act, he was not a taxpayer and sections 74A and 74B could not be invoked by SARS to obtain information held by van Kets in relation to Mr Saville.
SARS argued that sections 74A and 74B of the Act are the means by which it invokes the power to obtain information requested by foreign tax authorities, pursuant to the DTA that South Africa had concluded and in terms of which it was obliged to provide this information. It was further contended on behalf of SARS, that in the absence of the application of sections 74A and 74B of the Act, SARS would have no legislative mechanism at its disposal to obtain the necessary information within its own jurisdiction to meet information requests from foreign authorities even though the information was found in South Africa and related to foreign taxpayers.
The court held that sections 74A and 74B of the Act may be invoked by SARS for purposes of obtaining information from van Kets and any person in South Africa for purposes of complying with its obligations under any DTA or in terms of any treaty concluded for the exchange of information.
Furthermore, that a "taxpayer", as contained in sections 74A and 74B of the Act, must be interpreted to be consistent with South Africa's obligations under any DTA for the provision of information or any treaty concluded for the exchange of information. Finally, South African residents are bound by the provisions of the DTA concluded between South Africa and Australia as amended, to furnish information pursuant to any request in terms of such DTA.
The court ordered van Kets to disclose the information in his possession in relation to the affairs of Mr Saville for onward transmission of such information by SARS to the ATO. In addition, van Kets was ordered to pay the costs of the application.
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