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  • 发文单位:中华财税网
  • 文    号:
  • 颁布日期:1997-02-17
  • 失效日期:
DEPARTMENT OF THE TREASURY TECHNICAL EXPLANATION OF THE CONVENTION BETWEEN THE UNITED STATES OF AMERICA AND THE REPUBLIC OF SOUTH AFRICA (12)
  
DEPARTMENT OF THE TREASURY TECHNICAL EXPLANATION OF THE CONVENTION BETWEEN
THE UNITED STATES OF AMERICA AND THE REPUBLIC OF SOUTH AFRICA FOR THE
AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH
RESPECT TO TAXES ON INCOME AND CAPITAL GAINS (12)

Paragraph 2
  Paragraph 2 provides special rules for the tax treatment in both
States of certain types of income derived from U.S. sources by U.S.
citizens who are resident in South Africa. Since U.S. citizens, regardless
of residence, are subject to United States tax at ordinary progressive
rates on their worldwide income, the U.S. tax on the U.S. source income of
a U.S. citizen resident in South Africa may exceed the U.S. tax that may
be imposed under the Convention on an item of U.S. source income derived
by a resident of South Africa who is not a U.S. citizen.
  Subparagraph (a) of paragraph 2 provides special credit rules for
South Africa with respect to items of income that are either exempt from
U.S. tax or subject to reduced rates of U.S. tax under the provisions of
the Convention when received by residents of South Africa who are not U.S.
citizens. The tax credit of South Africa allowed by paragraph 2(a) under
these circumstances need not exceed the U.S. tax that may be imposed under
the provisions of the Convention, other than tax imposed solely by reason
of the U.S. citizenship of the taxpayer under the provisions of the saving
clause of paragraph 4 of Article 1 (General Scope). Thus, if a U.S.
citizen resident in South Africa received U.S. source portfolio dividends,
and South Africa taxed the dividend, the foreign tax credit granted by
South Africa would be limited to 15 percent of the dividend -- the U.S.
tax that may be imposed under subparagraph 2(b) of Article 10 (Dividends)
-- even if the shareholder were subject to U.S. net income tax because of
his U.S. citizenship. With respect to royalty or interest income, South
Africa would not be required to allow a foreign tax credit even if it
taxed the income, because its residents are exempt from U.S. tax on these
classes of income under the provisions of Articles 11 (Interest) and 12
(Royalties).
  Paragraph 2(b) eliminates the potential for double taxation that can
arise because subparagraph 2(a) provides that South Africa need not
provide full relief for the U.S. tax imposed on its citizens resident in
South Africa. The subparagraph provides that the United States will credit
the income tax paid or accrued to South Africa after the application of
subparagraph 2(a). It further provides that in allowing the credit, the
United States will not reduce its tax below the amount that is taken into
account in South Africa in applying subparagraph 2(a). Since the income
described in paragraph 2 is U.S. source income, special rules are required
to resource some of the income to South Africa in order for the United
States to be able to credit South Africa's tax. This resourcing is
provided for in subparagraph 2(c), which deems the items of income
referred to in subparagraph 2(a) to be from foreign sources to the extent
necessary to avoid double taxation under paragraph 2(b). The rules of
paragraph 2(c) apply only for purposes of determining U.S. foreign tax
credits with respect to taxes referred to in paragraphs 1(b) and 2 of
Article 2 (Taxes Covered).
  The following two examples illustrate the application of paragraph 2
in the case of a U.S. source portfolio dividend received by a U.S. citizen
resident in South Africa. In both examples, the U.S. rate of tax on
residents of South Africa under paragraph 2(b) of Article 10 (Dividends)
of the Convention is 15 percent. In both examples the U.S. income tax rate
on the U.S. citizen is 36 percent. In Example I, assume the South African
income tax rate on its resident (the U.S. citizen) is 25 percent (below
the U.S. rate), and in Example II, assume the South African rate on
its resident is 40 percent (above the U.S. rate).
                        Example I Example II
Paragraph 2(a)
U.S. dividend declared              $100.00 $100.00
Notional U.S. withholding tax per Article 10(2)(b)15.00 15.00
South Africa taxable income 100.00 100.00
South Africa tax before credit 25.00 40.00
South Africa foreign tax credit 15.00 15.00
Net post-credit South Africa tax 10.00 25.00
Example I Example II
Paragraphs 2(b) and (c)
U.S. pre-tax income $100.00 $100.00
U.S. pre-credit citizenship tax 36.00 36.00
Notional U.S. withholding tax 15.00 15.00
U.S. tax available for credit 21.00 21.00
Income resourced from U.S. to South Africa 27.77 58.33
U.S. tax on resourced income 10.00 21.00
U.S. credit for South African tax 10.00 21.00
Net post-credit U.S. tax 11.00 0.00
Total U.S. tax 26.00 15.00
  In both examples, in the application of paragraph 2(a), South Africa
credits a 15 percent U.S. tax against its residence tax on the U.S.
citizen. In example I the net South African tax after foreign tax credit
is $10.00; in the second example it is $25.00. In the application of
paragraphs 2(b) and (c), from the U.S. tax due before credit of $36.00,
the United States subtracts the amount of the U.S. source tax of $15.00,
against which no U.S. foreign tax credit is to be allowed. This provision
assures that the United States will collect the tax that it is due under
the Convention as the source country. In both examples, the maximum amount
of U.S. tax against which credit for South African tax may be claimed is
$21.00. Initially, all of the income in these examples was U.S. source. In
order for a U.S. credit to be allowed for the full amount of South African
tax, an appropriate amount of the income must be resourced. The amount
that must be resourced depends on the amount of South African tax for
which the U.S. citizen is claiming a U.S. foreign tax credit. In example
I, the South African tax was $10.00. In order for this amount to be
creditable against U.S. tax, $27.77 ($10 divided by .36) must be resourced
as foreign source. When South African tax is credited against the U.S. tax
on the resourced income, there is a net U.S. tax of $11.00 due after
credit. In example II, South African tax was $25 but, because the amount
available for credit is reduced under subparagraph 2(c) by the amount of
the U.S. source tax, only $21.00 is eligible for credit. Accordingly, the
amount that must be resourced is limited to the amount necessary to ensure
a foreign tax credit for $21 of South African tax, or $58.33 ($21 divided
by .36). Thus, even though South African tax was $25.00 and the U.S. tax
available for credit was $21.00, there is no excess credit available for
carryover.
Paragraph 3
  Paragraph 3 provides the rules for the South African double taxation
relief. Under this paragraph, United States taxes (i.e., the United States
taxes listed as covered taxes in Article 2 (Taxes Covered)) paid by South
African residents in accordance with the Convention will be allowed as a
credit against the South African taxes payable by that resident. Two
conditions are specified. U.S. taxes imposed solely by reason of
citizenship under the saving clause of paragraph 4 of Article 1 (General
Scope) are not covered by this rule. South Africa's obligation with
respect to such taxes is dealt with in paragraph 2. The paragraph also
specifies that the South African credit shall not exceed the percentage of
the South African tax due before the credit, which is the same as the
ratio of the U.S. source income in respect of which the credit is
being claimed to total South African income.

Relation to Other Articles
  By virtue of the exceptions in subparagraph 5(a) of Article 1 (General
Scope) this Article is not subject to the saving clause of paragraph 4 of
Article 1. Thus, the United States will allow a credit to its citizens and
residents in accordance with the Article, even if such credit were to
provide a benefit not available under the Code.

             ARTICLE 24
            Non-discrimination
  This Article assures that nationals of a Contracting State, in the
case of paragraph 1, and residents of a Contracting State, in the case of
paragraphs 2 through 5, will not be subject, directly or indirectly, to
discriminatory taxation in the other Contracting State. For this purpose,
non-discrimination means providing national treatment. Not all differences
in tax treatment, either as between nationals of the two States, or
between residents of the two States, are violations of this national
treatment standard. Rather, the national treatment obligation of this
Article applies only if the nationals or residents of the two States are
comparably situated.
  Each of the relevant paragraphs of the Article provides that two
persons that are comparably situated must be treated similarly. Although
the actual words differ from paragraph to paragraph (e.g., paragraph 1
refers to two nationals "in the same circumstances," paragraph 2 refers to
two enterprises "carrying on the same activities" and paragraph 3 refers
to two enterprises that are "similar"), the common underlying premise is
that if the difference in treatment is directly related to a tax-relevant
difference in the situations of the domestic and foreign persons being
compared, that difference is not to be treated as discriminatory (e.g., if
one person is taxable in a Contracting State on worldwide income and the
other is not, or tax may be collectible from one person at a later stage,
but not from the other, distinctions in treatment would be justified under
paragraph 1. Other examples of such factors that can lead to non-
discriminatory differences in treatment will be noted in the
discussions of each paragraph.
  The operative paragraphs of the Article also use different language to
identify the kinds of differences in taxation treatment that will be
considered discriminatory. For example, paragraphs 1 and 3 speak of "any
taxation or any requirement connected therewith that is other or more
burdensome," while paragraph 2 specifies that a tax "shall not be less
favorably levied." Regardless of these differences in language, only
differences in tax treatment that materially disadvantage the foreign
person relative to the domestic person are properly the subject of the
Article.
Paragraph 1
  Paragraph 1 provides that a national of one Contracting State may not
be subject to taxation or connected requirements in the other Contracting
State that are different from, or more burdensome than, the taxes and
connected requirements imposed upon a national of that other State in the
same circumstances. As noted above, whether or not the two persons are
both taxable on worldwide income is a significant circumstance for this
purpose.
  A national of a Contracting State is afforded protection under this
paragraph even if the national is not a resident of either Contracting
State. Thus, a U.S. citizen who is resident in a third country is
entitled, under this paragraph, to the same treatment in South Africa as a
national of South Africa who is in similar circumstances (i.e., who is
resident in a third State). The term "national" in relation to a
Contracting State is defined in subparagraph 1(f) of Article 3 (General
Definitions).
  Because the relevant circumstances referred to in the paragraph
relate, among other things, to taxation on worldwide income, paragraph 1
does not obligate the United States to apply the same taxing regime to a
national of South Africa who is not resident in the United States and a
U.S. national who is not resident in the United States. United States
citizens who are not residents of the United States but who are,
nevertheless, subject to United States tax on their worldwide income are
not in the same circumstances with respect to United States taxation as
citizens of South Africa who are not United States residents. Thus, for
example, Article 24 would not entitle a national of South Africa resident
in a third country to taxation at graduated rates on U.S. source dividends
or other investment income that applies to a U.S. citizen resident in the
same third country.
  The definition of the term "national" is found in Article 3 (General
Definitions). The definition covers both individuals and juridical persons
that are nationals of a Contracting State.
Paragraph 2
  Paragraph 2 provides that a Contracting State may not tax a permanent
establishment or fixed base of an enterprise of the other Contracting
State less favorably than an enterprise of that first-mentioned State that
is carrying on the same activities.
  The fact that a U.S. permanent establishment of a South African
enterprise is subject to U.S. tax only on income that is attributable to
the permanent establishment, while a U.S. corporation engaged in the same
activities is taxable on its worldwide income is not, in itself, a
sufficient difference to deny national treatment to the permanent
establishment. There are cases, however, where the two enterprises would
not be similarly situated and differences in treatment may be warranted.
For instance, it would not be a violation of the non-discrimination
protection of paragraph 2 to require the foreign enterprise to provide
information in a reasonable manner that may be different from the
information requirements imposed on a resident enterprise, because
information may not be as readily available to the Internal Revenue
Service from a foreign as from a domestic enterprise. Similarly, it would
not be a violation of paragraph 2 to impose penalties on persons who fail
to comply with such a requirement (see, e.g., sections 874(a) and
882(c)(2)). Further, a determination that income and expenses have been
attributed or allocated to a permanent establishment in conformity with
the principles of Article 7 (Business Profits) implies that the
attribution or allocation was not discriminatory.
  Section 1446 of the Code imposes on any partnership with income that
is effectively connected with a U.S. trade or business the obligation to
withhold tax on amounts allocable to a foreign partner. In the context of
this Convention, this obligation applies with respect to a share of the
partnership income of a South African partner and attributable to a U.S.
permanent establishment. There is no similar obligation with respect to
the distributive shares of U.S. resident partners. It is understood,
however, that this distinction is not a form of discrimination within the
meaning of paragraph 2 of the Article. No distinction is made between U.S.
and non- U.S. partnerships, since the law requires that partnerships of
both U.S. and non-U.S. domicile withhold tax in respect of the partnership
shares of non-U.S. partners. Furthermore, in distinguishing between U.S.
and non-U.S. partners, the requirement to withhold on the non-U.S. but not
the U.S. partner's share is not discriminatory taxation, but, like other
withholding on nonresident aliens, is merely a reasonable method for the
collection of tax from persons who are not continually present in the
United States, and as to whom it otherwise may be difficult for the
United States to enforce its tax jurisdiction. If tax has been
over-withheld, the partner can, as in other cases of over-withholding,
file for a refund. (The relationship between paragraph 2 and the
imposition of the branch tax is dealt with below in the discussion of
paragraph 6.)
  Paragraph 2 obligates the host State to provide national treatment not
only to permanent establishments of an enterprise of the other State, but
also to other residents of such State that are taxable in the host State
on a net basis because they derive income from independent personal services
performed in the host State that is attributable to a
fixed base in that State. Thus, an individual resident of South Africa who
performs independent personal services in the U.S., and who is subject to
U.S. income tax on the income from those services that is attributable to
a fixed base in the United States, is entitled to no less favorable tax
treatment in the United States than a U.S. resident engaged in the same
kinds of activities. With such a rule in a treaty, the host State cannot
tax its own residents on a net basis, but disallow deductions (other than
personal allowances, etc., as provided in paragraph 4) with respect to the
income attributable to the fixed base.
Paragraph 3
  Paragraph 3 requires that a Contracting State not impose taxation or
connected requirements on an enterprise of that State that is wholly or
partly owned or controlled, directly or indirectly, by one or more
residents of the other Contracting State, that is other or more burdensome
than the taxation or connected requirements that it imposes on other
similar enterprises of that first-mentioned Contracting State. For this
purpose it is understood that "similar" refers to similar activities or
ownership of the enterprise.
  The Tax Reform Act of 1986 changed the rules for taxing corporations
on certain distributions they make in liquidation. Prior to 1986,
corporations were not taxed on distributions of appreciated property in
complete liquidation, although nonliquidating distributions of the same
property, with several exceptions, resulted in corporate-level tax. In
part to eliminate this disparity, the law now generally taxes corporations
on the liquidating distribution of appreciated property. The Code provides
an exception in the case of distributions by 80 percent or more controlled
subsidiaries to their parent corporations, on the theory that the built-in
gain in the asset will be recognized when the parent sells or distributes
the asset. This exception does not apply to distributions to parent
corporations that are tax-exempt organizations or, except to the extent
provided in regulations, foreign corporations. The policy of the
legislation is to collect one corporate-level tax on the liquidating
distribution of appreciated property. If, and only if, that tax can be
collected on a subsequent sale or distribution does the legislation defer
the tax. It is understood that the inapplicability of the exception to the
tax on distributions to foreign parent corporations under section
367(e)(2) does not conflict with paragraph 3 of the Article. While a
liquidating distribution to a U.S. parent will not be taxed, and, except
to the extent provided in regulations, a liquidating distribution to a
foreign parent will, paragraph 3 merely prohibits discrimination among
corporate taxpayers on the basis of U.S. or foreign stock ownership.
Eligibility for the exception to the tax on liquidating distributions for
distributions to nonexempt, U.S. corporate parents is not based upon the
nationality of the owners of the distributing corporation, but rather is
based upon whether such owners would be subject to corporate tax if they
subsequently sold or distributed the same property. Thus, the exception
does not apply to distributions to persons that would not be so subject --
not only foreign corporations, but also tax-exempt organizations. A
similar analysis applies to the treatment of section 355 distributions
subject to section 367(e)(1).
  For the reasons given above in connection with the discussion of
paragraph 2 of the Article, it is also understood that the provision in
section 1446 of the Code for withholding of tax on non-U.S. partners does
not violate paragraph 3 of the Article.
  It is further understood that the ineligibility of a U.S. corporation
with nonresident alien shareholders to make an election to be an ?S"
corporation does not violate paragraph 3 of the Article. If a corporation
elects to be an S corporation (requiring 35 or fewer shareholders), it is
generally not subject to income tax and the shareholders take into account
their pro rata shares of the corporation's items of income, loss,
deduction or credit. (The purpose of the provision is to allow an
individual or small group of individuals to conduct business in corporate
form while paying taxes at individual rates as if the business were
conducted directly.) A nonresident alien does not pay U.S. tax on a net
basis, and, thus, does not generally take into account items of loss,
deduction or credit. Thus, the S corporation provisions do not exclude
corporations with nonresident alien shareholders because such shareholders
are foreign, but only because they are not net-basis taxpayers. Similarly,
the provisions exclude corporations with other types of shareholders where
the purpose of the provisions cannot be fulfilled or their mechanics
implemented. For example, corporations with corporate shareholders are
excluded because the purpose of the provisions to permit individuals to
conduct a business in corporate form at individual tax rates would not be
furthered by their inclusion.

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