S.Africa/Netherlands DTA judgment translated by Google – Court judgment: Dutch DWT tax to South Africa reduced from 5 to 0{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} under most favourite nation clause.

4.1.

2. However, Such dividends May ook be Taxed in the Contracting State of-which the company paying the dividends is a resident and accordion thing to the laws of That State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged Shall Not Exceed:

a. a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company-which holds at least 10 per cent of the capital of the company paying the dividends;

(…)

10. If under any convention for the avoidance of double taxation Concluded after the date of conclusion of this Convention between the Republic of South Africa and a third country, South Africa limits its taxation on dividends as contemplated in subparagraph a) or paragraph 2 of this Article to a rate lower, zoals exemption from taxation or taxation on a reduced Taxable base, than the rate provided for in subparagraph a) or paragraph 2 of this Article, the same rate, the same exemption or the same reduced Taxable base as provided for in the convention With That third State Shall automatically apply in both Contracting States under this Convention as from the date of the entry into force of the convention With That third State. “

2. Such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, may thus tax levied:

a. 5 per cent of the gross amount of the dividends if the beneficial owner is a company which holds at least 10 per cent of the capital of the company paying the dividends;

(…)

10. If South Africa pursuant to a convention for the avoidance of double taxation concluded between the Republic of South Africa and a third country, after the date on which it is closed, its tax on dividends as contemplated in the second paragraph, subparagraph a, of this article to a rate lower, including exemption from taxation or taxation on a reduced taxable base, than the rate provided for in the second paragraph, subparagraph a of this article, with effect from the date of entry into force of the treaty with the third State Automatically same same exemption or the same reduced taxable base effect in both Contracting States under this Treaty. “

4.2.

4.3.

2. Notwithstanding the Provisions of paragraph 1 Such dividends May ook be Taxed in the Contracting State of-which the company paying the dividends is a resident and accordion thing to the laws of That State, but if the recipient is the beneficial owner of the dividends, the tax so charged Shall Not Exceed 15 per cent of the gross amount of the dividends. However, if the beneficial owner is a company (other than a partnership) Which holds at least 25 per cent of the capital of the company paying the dividends, the dividends Shall –

(a) be exempt from tax in the Contracting State of-which the company paying the dividends is a resident if Such dividends are, without having regard to any tax payable in terms of this paragraph, exempt from tax in the State of-which the recipient is a resident; or

(b) be subject to tax in the Contracting State of-which the company paying the dividends is a resident at a rate not Exceeding 7.5 per cent of the gross amount of the dividends in any other case.

This paragraph Shall not affect the taxation of the company in respect of the profits out of-which the dividends are paid. “

2. However, Such dividends May ook be Taxed in the Contracting State of-which the company paying the dividends is a resident and accordion thing to the laws of That State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged Shall Not Exceed:

(a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) Which holds at least 10 per cent of the capital of the company paying the dividends; or

(b) 15 per cent of the gross amount of the dividends in all other cases.

This paragraph Shall not affect the taxation of the company in respect of the profits out of-which the dividends are paid.

6 If any agreement or convention between South Africa and a third state biedt That South Africa Shall exempt from tax dividends (Either gene rally or in respect of specific categories of dividends) Arising in South Africa, or limit the tax charged in South Africa on Such dividends (Either gene rally or in respect of specific categories or dividends) to a rate lower Than That provided for in subparagraph (a) or paragraph 2 Such exemption or lower rate Shall automatically apply to dividends (Either gene rally or in respect Of Those specific categories or dividends) Arising in South Africa and beneficially owned by a resident of Sweden and dividends (Either gene rally or in respect Of Those specific categories or dividends) Arising in Sweden and beneficially owned by a resident of South Africa, under the same conditions as if Such exemption or lower rate had been Specified in That subparagraph.

2. The Provisions of the Protocol Shall apply for amounts paid or credited on or after the date of entry into force of the South African system of taxation at shareholder level of dividends declared, However, the earliest date being the first day of the month next Following the date on Protocol-which the yearlings into force.

4.4.

4.5.Interested argues that the MFN clause, as enshrined in Article 10, paragraph 10 of the Treaty implies that the dividend is exempt from withholding tax. The MFN clause applies as South Africa, after the treaty was concluded, has signed a new treaty with Sweden, which – at the time of this dividend payment – implies that, by virtue of the MFN clause in the treaty, with interests of more than 10{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} no dividend tax may be levied by the State of which the company paying the dividends is a resident. The MFN clause in the DTC South Africa – Sweden is indeed relevant, says still interested, since the treaties that South Africa with Cyprus (1998), Kuwait (2006) and Oman (2003) has concluded provide that – in brief – no dividend tax may be levied by the State of which the company paying the dividends is a resident.

4.6.The inspector argues that the MFN clause, as enshrined in Article 10, paragraph 10 of the Convention, both in his text as he intended to offer any reasons for the intended legal effect by the person concerned. When concluding the Protocol, South Africa had the intention, as in relation to other States, dividends paid by South African bodies no (longer) be exempt from withholding tax. The treaty between South Africa and Sweden, although subsequent to the Treaty but which does not provide for a more favorable rate than in the Treaty.Further lead the tax treaties between South Africa and Cyprus respectively, Kuwait and Oman not to apply the MFN clause in the Treaty because this tax before the Protocol are closed.

4.7.The parties rightly do not dispute that, at the time of under 2.2 mentioned dividend payment, the MFN provision of the DTC South Africa – Sweden (Article 10, paragraph 6, of the Convention, following amendment by the Protocol ZA-Z) is activated given – for example – the tax treaty between South Africa and Cyprus. The latter taxation treaty briefly in the fact that the State of a company which pays dividends is a resident shall not levy on such dividend. Given applies them based on the aforementioned MFN provision in the DTC South Africa – Sweden that ‘Such exemption or lower rate Shall automatically apply to dividends (…) Arising in South Africa and beneficially owned by a resident of Sweden and dividends (…) Arising in Sweden and beneficially owned by a resident of South Africa. ” In other words, the ‘lower rate’ (0{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e}) in the tax treaty between South Africa and Cyprus also applies to the relationship between South Africa and Sweden.

4.8.The court considers that the wording of Article 10, paragraph 10 of the Treaty means that in case South Africa – after the (Protocol to the) Convention is closed – taxes on qualifying participation dividends in another treaty restricted to a rate lower than 5{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e}, that rate also applies to dividends from shareholdings in Dutch qualifying South African bodies. The court considers that this case arises here at the time of this dividend payment.Because: (a) South Africa, on after the (Protocol to the) Treaty was signed a protocol agreement with Sweden, which – for the parties rightly is not in dispute – is to be classified as a treaty within the meaning of Article 10, paragraph 10 of the Treaty and (b) of this Protocol, South Africa has its tax on qualifying dividends participation restricted to a rate lower than 5{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} (see 4.7). The fact that the DTC South Africa – Sweden (as amended by the Protocol ZA-Z) in the second paragraph of Article 10 provides for a 5{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} rate does – unlike the inspector points out – this last unfinished. After all, that circumstance does not mean that South Africa by inclusion of another member, namely the fifth paragraph of Article 10 shall taxation of dividends (below) is limited. The circumstances that the latter limitation is based on an MFN and that paragraph does not specify a rate, cause – other than the inspector points out – neither to a different conclusion. The terms of the MFN clause in the Treaty – “limits its taxation on dividends (…) to a rate lower, zoals exemption from taxation or taxation on a reduced Taxable base, than [5{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e}; court] “- indeed indicate that the contracting parties not a narrow interpretation of the concept of a rate lower than ‘stood for but had a view on the actual applicable rate.

4.9.The court does not follow the inspector in his view that the intention of the contracting parties opposes the above explanation given in section 4.8 of the MFN clause. The inspector may be admitted that this is a special situation. The DTC South Africa – Sweden was envisaged before the conclusion of the Protocol ZA-Z already in – in short – a 0{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} rate, and that the Convention was concluded prior to the conclusion of the Treaty would be 0{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} rate of the tax treaty South Africa – Sweden does not activate the MFN clause of the Treaty. However, there are enough clues in the inspector cited sources, provided that the light of the Vienna Convention could have been used for interpretation of the Treaty, that the Contracting States have intended to in a situation like this, the MFN clause does not apply to let his (notwithstanding its wording). The court also noted that the Inspector in his argument puts a strong emphasis on the treaty policies and objectives of South Africa, but this ignores that the Netherlands’ position is important. After all it was the Netherlands who called for inclusion of an MFN clause (cf.. Representatives, 2008-2009, 31 743, A, no. 1, pp. 2-3).

4.10.In view of the foregoing, the application must be declared and serves a refund of withheld by the BV and paid dividend of € 542,554 be granted to interested.