A research report submitted to the Faculty of Commerce, Law and Management, University of the Witwatersrand, Johannesburg, in partial fulfilment of the requirements for the degree of Master of Commerce (specialising in Taxation) / According to South African domestic law, the term ‘place of effective management’ is ‘one of the tests used to determine the residency of a person, other than a natural person’ (South African Institute of Tax Practitioners, 2010, p.549). The term ‘place of effective management’ is not defined in the South African Income Tax Act 58 of 1962 and there is very limited case law in South Africa which deals specifically with the matter. In an attempt to clarify the term, the South African Revenue Service issued Interpretation Note 6: Resident: Place of effective management (persons other than natural persons) (2002) where, as noted by Olivier and Honiball (2008, p.82), ‘emphasis is placed on where important decisions are implemented and not where such decisions are taken’ as the ‘place of effective management’. This is contrary to international guidelines, which typically focus on where important decisions are taken (Olivier and Honiball, 2008, p.75). Key Words: Board of directors, central management and control, control, day-to-day decisions, Discussion Paper on Interpretation Note 6, Interpretation Note 6, key decision making, OECD Model Tax Convention, place of effective management

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A research report submitted to the Faculty of Commerce, Law and Management, University of the Witwatersrand, Johannesburg, in partial fulfilment of the requirements for the degree of Master of Commerce (specialising in Taxation). / There has been significant advances in the international arena with regards to global economic growth and trade, as well as enormous competition by countries to attract inward foreign direct investment from multinational enterprises (MNEs) to ensure the sustainability of their own economies. Fundamentally the contentious issue is the possibility of double taxation (DT), due to the dual residency of the MNE. The MNE operates in various markets which results in cross-border transactions, whether physical or electronic, and this ultimately means that different tax jurisdictions will become applicable and enforceable by each relevant country. These dual resident MNEs could be seen as a tax resident in both countries and thus be liable for tax obligations in both of these countries. This would therefore lead to the same income incurring DT or double non-taxation (DNT), which would have a devastating impact on that MNE. This lead to the establishment of double taxation treaties, agreements and conventions (DTA’s), between various countries which are aimed at addressing this imbalance. As technology advances at an alarming rate, so too does the possibility of abuse of tax treaties. Two important criteria are ‘the place of effective management’ (POEM) and the ‘permanent establishment’ (PE), which are critical to the determination of the correct tax jurisdiction where the dual resident MNE will incur various tax liabilities. These concepts, POEM and PE, can be confusing but are imperative, in order to prevent DT, and which could prejudice the relevant fiscus, as well as an attempt to avoid any conflict between the taxing regimes. An interesting facet of the POEM and PE conundrum is the interpretation by the Organisation for Economic Co-operation and Development’s (’the OECD’) Model Tax Convention (MTC) compared to the interpretations by the South African Revenue Service (SARS). Another area of contention for MNEs is the current enormous global focus on the concept of Base Erosion and Profit Shifting (BEPS), which is under great scrutiny, and is of great concern for the majority of revenue authorities. These authorities are intensifying their focus on improving and enforcing anti-avoidance provisions to prevent taxation leakage in their respective tax jurisdictions. This shift in priorities opposes one of a MNE’s main business objectives which is to maximize profits, by either diverting, extracting and/or distributing profits out of a high tax paying jurisdiction into a lower tax paying jurisdiction. This will consequently create an additional business risk which emphasises the need for international tax expertise. The international tax expert is a valuable business team member, as their knowledge and expertise is imperative for the mitigation of possible tax risks, correct interpretation and application of the relevant tax legislation on the business flows of the MNEs as a result of operational expansion or any cross-border transactions or activities. Key Words: Taxation, Tax Treaties, Agreements, BEPS, Conventions; Cross-border, Double Taxation; Dual Residency; International tax, Multinational enterprises; Permanent Establishment, Place of Effective Management; OECD Model Tax Convention; Tax Intelligence, Tax Jurisdictions

The aim of this work is to evaluate the development of Article 15 Income from Employment of the OECD Model Tax Convention on Income and on Capital, especially with the accent on the Commentary of this article. Furthermore, to analyze, with the assistance of selected double tax treaties concluded by the Czech Republic, whether the Czech Republic, thus the Ministry of Finance, Ministry of Foreign Affairs and the General Directorate of Finance, follow the trend in the development of Model Tax Convention and apply it to the newly concluded double tax treaties, i.e. whether the institutions listed above accept the OECD Model Tax Convention and its Commentary as an interpretative regulation to be followed when concluding double tax treaties with both OECD member countries and with non-member countries.

Ziel der vorliegenden Arbeit ist es, auf der Grundlage des OECD-Musterabkommens für einen in Deutschland unbeschränkt einkommensteuerpflichtigen Gesellschafter die steuerliche Behandlung einer Beteiligung an einer ausländischen intransparent besteuerten Personengesellschaft zu untersuchen. Auf der Grundlage dieser Ergebnisse wird geprüft, ob und gegebenenfalls unter welchen Bedingungen die Beteiligung an einer intransparent besteuerten Personengesellschaft steuerlich vorteilhafter ist als die Beteiligung an einer transparent besteuerten Personengesellschaft oder an einer Kapitalgesellschaft. Zu Beginn der Arbeit wird als Basis für den weiteren Fortgang die Auslegung von Doppelbesteuerungsabkommen und die Einordnung ausländischer Personen- und Kapitalgesellschaften im Hinblick auf die Anwendung des deutschen Steuerrechts und des Abkommensrechts untersucht. Die folgenden Kapitel beschäftigen sich mit der steuerlichen Behandlung bei der Gewinnentstehung, beim Gewinntransfer, bei Verlusten, bei Leistungsbeziehungen zwischen Gesellschaft und Gesellschafter sowie bei Einkünften aus Drittstaaten. Im Schlusskapitel werden die Ergebnisse vergleichend gegenüber gestellt und es erfolgt ein Steuerbelastungsvergleich.

Begreppet beneficial owner finns i artiklarna 10, 11 och 12 i OECD:s modellavtal och är viktigt då det krävs att en part utgör beneficial owner för att denne ska ha rätt till den skattelättnad som erbjuds i de relevanta artiklarna. Då begreppet är oklart har OECD gett ut förslag på nya kommentarer till det i avsikt att klargöra dess innebörd. Uppsatsens syfte är att utreda innebörden av beneficial owner i artiklarna 10, 11 och 12 i OECD:s modellavtal från ett tolknings och tillämpnings perspektiv. Av utredningen framkom att begreppet enbart bör tolkas enligt modellavtalet och att det ska tillämpas i situationer, i vilket en mottagare av en inkomst har en skyldighet relaterad till att vidarebefordra inkomsten till en annan part och därför agerar som en mellanhandel. Om en part har en sådan skyldighet kan denne inte utgöra beneficial owner. I nuläget är dock termen relaterad oklar och författaren anser att den bör klargöras av OECD snarast. Vid utredningen om en part utgör beneficial owner bör först ett legalt tillvägagångsätt användas för att undersöka om det finns en skyldighet relaterad till att vidarebefordra inkomsten i partens legala dokument. Om detta inte hittas bör därefter både ett legalt och faktabaserat tillvägagångsätt användas, vid utredningen av fakta och omständigheter för att se om det finns substans som visar på att parten i praktiken är bunden (som om att parten hade en kontraktuell eller legal skyldighet) att vidarebefordra inkomsten.   Författarens slutsats blev att en part för att utgöra beneficial owner måste vara den som har rätten att använda den mottagna inkomsten efter vilja och även vara den som faktiskt åtnjuter de ekonomiska fördelarna av denna. Vidare måste parten också behandlas som ägaren till inkomsten i skattehänseende i hemviststaten, då en skattelättnad inte bör ges om det inte föreligger en risk för dubbelbeskattning. / The term beneficial owner is contained in articles 10, 11 and 12 in the OECD Model Tax Convention and is of importance since it is required that a party is the beneficial owner in order to be entitled to the tax relief offered in the relevant articles. Since the term is unclear, OECD has published proposals for new comments to clarify its meaning. The purpose of this study is to investigate the meaning of the term beneficial owner in articles 10, 11 and 12 in the OECD Model Tax Convention from an interpretation and application perspective. The investigation revealed that the term should only be interpreted in accordance with the OECD Model Tax Convention and that it aims at a recipient who has an obligation related to forwarding an income to another party and who is therefore acting as an intermediary. If a party has such an obligation, then he cannot be the beneficial owner. At present the term related is unclear and the author thinks that it should be clarified by the OECD as soon as possible. When investigating whether a party is the beneficial owner a legal approach should be used first to examine whether there is an obligation related to forwarding the income in the party's legal documents. If this is not found, then both a legal and factual approach should be used when examining the facts and circumstances in order to see if there is substance to show that the party is in practice bound (as if that party had a contractual or legal obligation) to forward the income. The author's conclusion is that a part to be the beneficial owner must be the one who has the right to use the received income as they wish and also be the one who actually enjoys the economic benefits of it. Furthermore, the party must also be treated as the owner of the income for tax purposes in the State of residence, since tax relief should not be given unless there is a risk of double taxation.

Ziel der vorliegenden Arbeit ist es, auf der Grundlage des OECD-Musterabkommens für einen in Deutschland unbeschränkt einkommensteuerpflichtigen Gesellschafter die steuerliche Behandlung einer Beteiligung an einer ausländischen intransparent besteuerten Personengesellschaft zu untersuchen. Auf der Grundlage dieser Ergebnisse wird geprüft, ob und gegebenenfalls unter welchen Bedingungen die Beteiligung an einer intransparent besteuerten Personengesellschaft steuerlich vorteilhafter ist als die Beteiligung an einer transparent besteuerten Personengesellschaft oder an einer Kapitalgesellschaft. Zu Beginn der Arbeit wird als Basis für den weiteren Fortgang die Auslegung von Doppelbesteuerungsabkommen und die Einordnung ausländischer Personen- und Kapitalgesellschaften im Hinblick auf die Anwendung des deutschen Steuerrechts und des Abkommensrechts untersucht. Die folgenden Kapitel beschäftigen sich mit der steuerlichen Behandlung bei der Gewinnentstehung, beim Gewinntransfer, bei Verlusten, bei Leistungsbeziehungen zwischen Gesellschaft und Gesellschafter sowie bei Einkünften aus Drittstaaten. Im Schlusskapitel werden die Ergebnisse vergleichend gegenüber gestellt und es erfolgt ein Steuerbelastungsvergleich.

Thesis (LLD)--Stellenbosch University, 2014. / ENGLISH ABSTRACT: Trusts are used for a variety of purposes, both in South Africa and abroad. Like so many other entities, trusts often do not function only in one jurisdiction and may therefore be exposed to international double taxation. South Africa, like most other states, enters into bi-lateral double taxation treaties, to limit the effects of international double taxation. Most of these treaties are based on the OECD Model Tax Convention on Income and on Capital (the OECD MTC). The South African trust is a unique creature. It is not based on the dual ownership concept on which most common law trusts are based, yet, it is not a juristic person either. The question that this research aims to address is how South Africa will interpret and apply certain provisions of the OECD MTC to trusts. Although the South African position is investigated, it is compared to the positions of the United Kingdom, Canada and the Netherlands. The dissertation starts with an analysis of the trust law in each of the relevant states, followed by an overview of the taxation regime governing trusts (and the parties thereto) in each state. The status of double taxation treaties and their interpretation are examined before certain critical provisions of the OECD MTC are analysed to determine how South Africa will apply these provisions to trusts. Hence it is explored whether a trust will be regarded as a person, whether it may be a resident and a beneficial owner for purposes of the OECD MTC. Furthermore, possible solutions for conflicts of attribution in the application of double tax conventions to trusts are investigated. The dissertation concludes that South Africa will regard a trust as a person for purposes of the OECD MTC. Moreover, some types of trusts may be viewed as residents and as beneficial owners for purposes of the OECD MTC. The solution proposed in the OECD’s Partnership Report should be applied to resolve conflicts of attribution involving trusts. / AFRIKAANSE OPSOMMING: Trusts word vir ‘n groot verskeidenheid doeleindes gebruik, nie net in Suid-Afrika nie, maar ook in die buiteland. Net soos baie ander entiteite funksioneer trusts baie keer nie net in een jurisdiksie nie. Trusts word dus ook blootgestel aan internasionale dubbelbelasting. Soos die meeste ander state, sluit Suid-Afrika dubbelbelastingooreenkomste om die effek van internasionale dubbelbelasting te beperk. Die meeste van hierdie ooreenkomste is gebaseer op die OECD Model Tax Convention on Income and on Capital (die OECD MTC). Die Suid-Afrikaanse trust het ‘n unieke aard. Dit is nie gebaseer op die konsep van verdeelde eiendomsreg waarop die meeste gemeenregtelike trusts gebasseer is nie, maar tog is dit ook nie ‘n regspersoon nie. Die vraag wat hierdie navorsing probeer beantwoord is hoe Suid-Afrika sekere bepalings van die OECD MTC sal interpreteer en toepas op trusts. Alhoewel die Suid-Afrikaanse posisie ondersoek word, word dit deurgaans vergelyk met die posisie in die Verenigde Koningkryk, Kanada en Nederland. Die proefskrif begin met ‘n analise van die trustreg in elk van die betrokke state en word gevolg deur ‘n oorsig van die belastingstelsel wat trusts (en die partye daartoe) belas in elk van die state. Die status van dubbelbelastingooreenkomste en hul interpretasie word ondersoek voordat sekere kritiese bepalings van die OECD MTC geanaliseer word om vas te stel hoe Suid-Afrika hierdie bepalings sal toepas op trusts. Daar word dus ondersoek of ‘n trust beskou sal word as ‘n persoon, of dit ‘n inwoner en ‘n uiteindelik geregtigde kan wees vir doeleindes van die OECD MTC. Voorts word moontlike oplossings vir toerekeningskonflikte in die toepassing van dubbelbelastingooreenkomste op trusts, ondersoek. Die proefskrif kom tot die gevolgtrekking dat in Suid-Afrika die trust beskou sal word as ‘n persoon vir doeleindes van die OECD MTC. Verder sal sommige tipes trusts gesien word as inwoners en as uiteindelik geregtigdes vir doeleindes van die OECD MTC. Die oplossing voorgestel in die OECD se Verslag oor Vennootskappe behoort toegepas te word om toerekeningskonflikte op te los.

Den svenska CFC-lagstiftningens förenlighet med internationella åtaganden i form av skatteavtal baserade på OECD:s modellavtal har varit ett omdiskuterat ämne inom svensk lagstiftning under mer än ett decennium. Tvistigheten kring CFC-lagstiftningens förenlighet med skatteavtal förekommer också i andra medlemsstater av OECD. Den svenska CFC-lagstiftningen tillämpas sedan 1 januari 2004. Rättsföljden av lagstiftningen framgår av 39 a kap. 13 § IL. Syftet med CFC-lagstiftningen är att förhindra en erosion av den svenska skattebasen. Utan CFC-lagstiftning skulle en skattebetalare kunna etablera företag i lågbeskattde jurisdiktioner enbart i syfte att minska den totala skattebördan. Genom att tillämpa CFC-lagstiftningen beskattas en delägare löpande för sitt innehav i den utländska juridiska personen. Enligt förarbeten är CFC-lagstiftningen förenlig med de svenska skatteavtalen. Lagstiftaren lägger stor vikt vid ordalydelsen i kommentarerna till OECD:s modellavtal. OECD rekommenderar medlemsstaterna att tillämpa lagstiftningen. Uppsatsen visar att CFC-lagstiftningen är förenlig med skatteavtal baserade på OECD:s modellavtal. Syftet med skatteavtal är att förhindra juridisk dubbelbeskattning. CFC-lagstiftningen ger upphov till ekonomisk dubbelbeskattning. Diskussionen gällande CFC-lagstiftningens förenlighet med skatteavtal beror på kommentarernas rättsliga verkan samt därtill framställda anmärkningar. / The Swedish CFC legislation and its compatibility with international commitments in form of tax treaties based on OECD Model have been disputed in the Swedish legislation for more than a decade. Whether CFC legislation is compatible with tax treaties is also disputed in many other Member States of the OECD. The Swedish controlled foreign company legislation entered into force on 1 January 2004. The legal effect of the legislation is covered in chapter 39 a, section 10 of the Swedish Income Tax Act. The basic purpose of CFC legislation is to prevent an erosion of the Swedish tax basis. Without CFC regulations a taxpayer would be free to establish companies in low-tax jurisdictions for the sole purpose of reducing the overall tax burden. By applying the legislation a Swedish resident shareholder will be taxed on all the income that is attributed from a foreign subsidiary, regardless of when the income is distributed. In the preparatory works the government argues that the CFC legislation is compatible with Sweden’s tax treaties, based on OECD Model. The government’s opinion is mostly based on the statement in the Commentary to the OECD Model. The legislation is recommended by the OECD. This thesis concludes that the CFC legislation is compatible with tax treaties based on the OECD Model. The purpose with tax treaties is to avoid juridical double taxation. The CFC-legislation gives rise to economic double taxation. Therefore the legislation can be justified. The discussion of the CFC legislation compatible with tax treaties depends of the relevance of the Commentary but also on observations given to the Commentaries.

<p>Den svenska CFC-lagstiftningens förenlighet med internationella åtaganden i form av skatteavtal baserade på OECD:s modellavtal har varit ett omdiskuterat ämne inom svensk lagstiftning under mer än ett decennium. Tvistigheten kring CFC-lagstiftningens förenlighet med skatteavtal förekommer också i andra medlemsstater av OECD.</p><p>Den svenska CFC-lagstiftningen tillämpas sedan 1 januari 2004. Rättsföljden av lagstiftningen framgår av 39 a kap. 13 § IL. Syftet med CFC-lagstiftningen är att förhindra en erosion av den svenska skattebasen. Utan CFC-lagstiftning skulle en skattebetalare kunna etablera företag i lågbeskattde jurisdiktioner enbart i syfte att minska den totala skattebördan. Genom att tillämpa CFC-lagstiftningen beskattas en delägare löpande för sitt innehav i den utländska juridiska personen.</p><p>Enligt förarbeten är CFC-lagstiftningen förenlig med de svenska skatteavtalen. Lagstiftaren lägger stor vikt vid ordalydelsen i kommentarerna till OECD:s modellavtal. OECD rekommenderar medlemsstaterna att tillämpa lagstiftningen.</p><p>Uppsatsen visar att CFC-lagstiftningen är förenlig med skatteavtal baserade på OECD:s modellavtal. Syftet med skatteavtal är att förhindra juridisk dubbelbeskattning. CFC-lagstiftningen ger upphov till ekonomisk dubbelbeskattning. Diskussionen gällande CFC-lagstiftningens förenlighet med skatteavtal beror på kommentarernas rättsliga verkan samt därtill framställda anmärkningar.</p> / <p>The Swedish CFC legislation and its compatibility with international commitments in form of tax treaties based on OECD Model have been disputed in the Swedish legislation for more than a decade. Whether CFC legislation is compatible with tax treaties is also disputed in many other Member States of the OECD.</p><p>The Swedish controlled foreign company legislation entered into force on 1 January 2004. The legal effect of the legislation is covered in chapter 39 a, section 10 of the Swedish Income Tax Act. The basic purpose of CFC legislation is to prevent an erosion of the Swedish tax basis. Without CFC regulations a taxpayer would be free to establish companies in low-tax jurisdictions for the sole purpose of reducing the overall tax burden. By applying the legislation a Swedish resident shareholder will be taxed on all the income that is attributed from a foreign subsidiary, regardless of when the income is distributed.</p><p>In the preparatory works the government argues that the CFC legislation is compatible with Sweden’s tax treaties, based on OECD Model. The government’s opinion is mostly based on the statement in the Commentary to the OECD Model. The legislation is recommended by the OECD.</p><p>This thesis concludes that the CFC legislation is compatible with tax treaties based on the OECD Model. The purpose with tax treaties is to avoid juridical double taxation. The CFC-legislation gives rise to economic double taxation. Therefore the legislation can be justified. The discussion of the CFC legislation compatible with tax treaties depends of the relevance of the Commentary but also on observations given to the Commentaries.</p>