n Comparative and International Law Journal of Southern Africa - Curbing 'treaty shopping' : the 'beneficial ownership' provision analysed from a South African perspective

Volume 40, Issue 2
  • ISSN : 0010-4051



Countries often enter into double taxation treaties in order to alleviate double taxation. However, a country's treaty network can be exploited by residents of a non-treaty country in order to obtain treaty benefits that are not supposed to be available to them. This is often referred to as 'treaty shopping', which entails the interposing of a conduit company in one of the contracting states so as to shift profit out of those states. This results in tremendous loss of tax revenue for the countries party to the treaty.

Despite the fiscal disadvantages of treaty shopping, not much attention has been given to this problem in South Africa. The Organisation for Economic Cooperation and Development suggests that one of the means that contracting parties can use to curb treaty shopping is by inserting a 'beneficial ownership' provision in their tax treaties. In this article, treaty shopping and its fiscal disadvantage are discussed. The limitations of the 'beneficial ownership' provision are analysed and recommendations are provided to ensure the effectiveness of this provision in curbing treaty shopping from a South African perspective. The article also addresses the validity of contentions that certain aspects of South Africa's legislation create loopholes that may render this provision ineffective in curbing treaty shopping.

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