THE revised double taxation agreement between South Africa and Mauritius, signed recently, will replace the original treaty signed in July 1996 with effect from January 1, 2015. There was an apprehension that South African multinational companies were abusing the tax resident provisions of the old treaty through intermediate Mauritian investment and service companies, and thus were being accused of reducing South African tax base.

As per the New Treaty, the South African Revenue Service (SARS) and the Mauritian authorities would have to accomplish mutual agreement on whether a dual resident company should be taxed only in Mauritius or only in South Africa. So in case SARS does not reach an agreement, the dual resident company could be subject to double tax. There is no objective rule in the new tax treaty in respect of which a court of law may adjudicate a taxpayer complaint. The revised DTA with Mauritius also brings unwelcome news for foreign taxpayers that hold investments in South African property rich companies. Investment in mining will be particularly affected. The 1996 DTA exemption from South African capital gains tax for such investments is repealed under the revised agreement. The new treaty will also modify the South African withholding tax on dividends, interest and royalties, and introduce the latest OECD standard for the exchange of taxpayer information.