On September 9, 2016 the South African Revenue Service announced that the Convention between the Republic of South Africa and the Republic of Chile for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital, which was signed on July 11, 2012, (Hereafter: the DTA) entered into force on August 11, 2016.
Based on Article 28, Paragraph 2 of the DTA (“Entry into Force”), the fact that the DTA entered into force on August 11, 2016 means that the provisions of the Convention shall have effect:
(a) in Chile, in respect of taxes on income obtained and amounts paid, credited to an account, put at the disposal or accounted as an expense, on or after January 1, 2017; and
(b) in South Africa,
(i) with regard to taxes withheld at source, in respect of amounts paid or credited on or after January 1, 2017; and
(ii) with regard to other taxes, in respect of taxable years beginning on or after January 1, 2017.
Below we will discuss a selection of provisions included in the DTA of which we think they might interest our readers.
Taxes covered
Based on Article 2, Paragraph 3 of the DTA (“Taxes Covered”), the existing taxes to which the Convention shall apply are in particular:
(a) in Chile, the taxes imposed under the Income Tax Act, “Ley sobre Impuesto a la Renta”; and
(b) in South Africa:
(i) the normal tax;
(ii) the secondary tax on companies; and
(iii) the withholding tax on royalties;
Article 2, Paragraph 4 subsequently arranges that the DTA shall apply also to any identical or substantially similar taxes and to taxes on capital that are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes.
Residency
Article 4, Paragraph 3 of the DTA (“Resident”) determines that an item of income, profit or gain derived through a person that is fiscally transparent under the laws of either Contracting State shall be considered to be derived by a resident of a Contracting State to the extent that the item is treated for the purposes of the taxation laws of that Contracting State as the income, profit or gain of a resident.
With respect to the residency of a person other than an individual Article 4, Paragraph 4 of the DTA arranges that where by reason of the provisions of Article 4, Paragraph 1 a person other than an individual is a resident of both Contracting States, the competent authorities of the Contracting States shall by mutual agreement endeavour to determine the mode of application of the Convention to the person. In the absence of such agreement by the competent authorities of the Contracting States, the person shall not be entitled to any relief or exemption from tax provided by the Convention.
Permanent establishment
Article 5, Paragraph 3 of the DTA (“Permanent Establishment”) arranges the term “permanent establishment” shall also include:
(a) a building site, a construction, assembly or installation project or supervisory activities in connection with such site or project, but only if such site, project or activities last more than six months;
(b) the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by an enterprise for such purpose, where activities of that nature continue within the Contracting State for a period or periods exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned;
(c) the performance of professional services or of other activities of an independent character in a Contracting State by an individual, if that individual is present in that Contracting State for a period or periods exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned.
Article 5, Paragraph 6 subsequently arranges that notwithstanding the preceding provisions of this Article, an insurance enterprise of a Contracting State shall, except in the case of re-insurance, be deemed to have a permanent establishment in the other Contracting State if it collects premiums in the territory of that other State or if it insures risks situated therein through a representative other than an agent of independent status to whom paragraph 7 applies.
Immovable property
Article 6, Paragraph 1 of the DTA (“Income from Immovable Property”) arranges that income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.
With respect to immovable property Article 13, Paragraph 1 of the DTA (“Capital Gains”) arranges that gains derived by a resident of a Contracting State from the alienation of immovable property situated in the other Contracting State may be taxed in that other State.
Associated enterprises
Article 9, Paragraph 2 of the DTA (“Associated Enterprises”) contains a so-called appropriate adjustment clause.
Dividends
If the beneficial owner of the dividends is a resident of the other Contracting State, Article 10, Paragraph 2 of the DTA (“Dividends”) maximizes the withholding tax that a Source State is allowed to withhold over dividend distributions to:
(a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 25 per cent of the capital of the company paying the dividends;
(b) 15 per cent of the gross amount of the dividends in all other cases.
Article 10, Paragraph 6 of the DTA contains an anti-abuse clause which reads as follows: “The provisions of this Article shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares or other rights in respect of which the dividend is paid to take advantage of this Article by means of that creation or assignment.”
Interest
If the beneficial owner of the interest is a resident of the other Contracting State, Article 11, Paragraph 2 of the DTA (“Interest”) maximizes the withholding tax a Source State is allowed to withhold over interest payments to:
(a) 5 per cent of the gross amount of the interest derived from:
(i) loans granted by banks and insurance companies;
(ii) bonds or securities that are regularly and substantially traded on a recognised securities market;
(iii) a sale on credit paid by the purchaser of machinery and equipment to a beneficial owner that is the seller of the machinery and equipment;
(b) 15 per cent of the gross amount of the interest in all other cases.
Article 11, Paragraph 7 of the DTA contains an anti-abuse clause which reads as follows: “The provisions of this Article shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the debt-claim in respect of which the interest is paid to take advantage of this Article by means of that creation or assignment.”
Royalties
If the beneficial owner of the royalties is a resident of the other Contracting State Article 12, Paragraph 2 of the DTA (“Royalties”) maximizes the withholding tax that a Source State is allowed to withhold over royalties to:
(a) 5 per cent of the gross amount for the use of, or the right to use, any industrial, commercial or scientific equipment;
(b) 10 per cent of the gross amount of the royalties in all other cases.
Article 12, Paragraph 7 of the DTA contains an anti-abuse clause which reads as follows: “The provisions of this Article shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the rights in respect of which the royalties are paid to take advantage of this Article by means of that creation or assignment.”
Capital gains
Article 13, Paragraph 4 of the DTA (“Capital Gains”) arranges that gains derived by a resident of a Contracting State from the alienation of shares or other rights representing the capital of a company, or comparable interests or rights in any other person, that is a resident of the other Contracting State, may be taxed in that other Contracting State.
Other
Furthermore the DTA contains provisions regarding a Mutual Agreement Procedure (Article 24) and an article containing provisions regarding the Exchange of Information (Article 25).
Click here to be forwarded to the English text of the DTA as available on the website of the South African Revenue Service.
Click here to be forwarded to the Spanish text of the DTA as available on the website of the Chilean Servicio de Impuestos Internos.
Are you looking for other DTAs? Then check our section DTAs & TIEAs, a very efficient way to locate numerous DTAs.
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