South Africans are truly beginning to wake up to the opportunities in Africa and elsewhere. They are to be found in all the SADC countries: farming, mining, building, operating workshops, transporting and generally ‘making a plan’. The most astute of such businesspeople are aware of the advantages of operating limited liability structures, with the risk associated with African operations kept well under control.
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It’s also easy to fall foul of tax authorities in Africa. Sometimes a foreign business is awarded a contract ahead of a local competitor and allegations of tax non-compliance are made. Once you’re in the revenue authority’s spotlight in a foreign jurisdiction, you’ll struggle to get out of it. Two alternatives usually present themselves if unfair tax practices begin to hinder the business.
The first is to reason with the tax authority. Unfortunately, if the official concerned is in any way acting ‘improperly’ and is victimising you, this won’t be readily apparent and the negotiations might be time-consuming, expensive and, ultimately, futile – because a ‘settlement’ is the last thing on their mind. The second option is approaching the courts for relief.
The reliability of this course of action depends on the strength of the rule of law in that jurisdiction, the competence of the judge to deal with complex tax matters and the depth of your pockets. However, there are other options – and one which isn’t commonly used, but should be considered, is what might be termed the ‘diplomatic alternative’.
The stronger jurisdictions that businesspeople might operate from as a base have many tax agreements in place. South Africa, for example, has more than 70 double tax avoidance treaties (DTAAs) with other countries around the world. A common feature of such agreements is the protection afforded against tax discrimination.
If a national of one of the states party to the DTAA operates in the other state, that national can’t be subjected to any tax or any requirement in connection with such tax that is “more burdensome than the same tax or requirements associated therewith to which a national of the other state may be subjected.” Discrimination may then be reported to the ‘competent authority’ of your ‘home state’ within three years of being first notified of the adverse tax against you.
Under the DTAA, the states can then resolve the case by mutual agreement with a view to avoidance of taxation not in accordance with the treaty. The remedy that’s provided within the DTAA is available regardless of the remedies existing within the local legal systems of either country. It will also take place regardless of time limits within the domestic laws of the states.
I strongly suggest that this is the way to go if you have ‘tax problems’ abroad – assuming, of course, there is a DTAA with the country in question. And if there is one, get hold of a copy and read it if you’re doing business – or thinking of operating – in that jurisdiction.
Peter O’Halloran is head of tax at BDO, Gaborone. Contact him on 00267 390 2779 or at [email protected]. Please state ‘Tax’ in the subject line of your email.