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October 18, 2022

South Africa deposits its instrument of ratification in respect of the MLI

  • South Africa has deposited its instrument of ratification in respect of the MLI with the OECD. The MLI will enter into force for South Africa on 1 January 2023.

  • With the imminent entry into force of the MLI, taxpayers should consider how and when the MLI will potentially impact their international transactions.

On 30 September 2022, South Africa deposited its instrument of ratification in respect of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) with the Organisation for Economic Co-operation and Development (OECD). The MLI will enter into force for South Africa on 1 January 2023.

The MLI is a treaty standard which is one outcome of the OECD/G20 project to tackle base erosion and profit shifting (BEPS). It is designed to implement various recommended measures to counter tax treaty abuse, and countries are therefore able to use the MLI framework to implement certain BEPS action plans in relation to their bilateral double tax agreements (DTAs).

The key distinction between the MLI and an amending protocol to a bilateral DTA is that the MLI does not amend the text of a specific DTA, but instead operates alongside it with the aim of modifying its application, so as to align that DTA with the measures to address BEPS. These measures, which include the combating of treaty abuse and improving dispute resolution, will significantly impact South Africa’s bilateral DTAs.

Arguably, the most far-reaching amendment will be in relation to the principal purpose test (PPT) which South Africa has opted to apply. Broadly speaking, this means that a benefit under a bilateral DTA will not be granted if it is reasonable to conclude, considering all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction. Important to note is the PPT will also apply to transactions entered into before ratification of the MLI. It will also be interesting to see how tax authorities and courts interpret and apply this PPT in practice and whether South Africa’s existing general anti-avoidance rules will be of relevance.

As noted, the MLI will enter into force in South Africa on 1 January 2023. Broadly speaking, the provisions are effective as follows:

  • For taxes withheld at source (i.e., withholding taxes): The first day of the first calendar year following the entry into force. For South Africa this will apply to events giving rise to withholding tax on or after 1 January 2023.
  • For all other taxes: For taxable periods beginning on or after six calendar months after the entry into force date. For South Africa this will apply to years of assessment commencing on or after 1 July 2023.

At the time of drafting this Global Tax Alert, South Africa's bilateral DTAs impacted by the MLI include: Australia, Austria, Belgium, Bulgaria, Cameroon, Canada, Chile, China (People's Republic), Croatia, Cyprus, the Czech Republic, Denmark, Egypt, Finland, France, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Japan, Korea (Rep.), Lesotho, Luxembourg, Malaysia, Malta, Mauritius, the Netherlands, New Zealand, Norway, Oman, Pakistan, Poland, Portugal, Qatar, Romania, Russia, Saudi Arabia, Seychelles, Singapore, the Slovak Republic, Spain, Sweden, Switzerland, Thailand, Ukraine, the United Arab Emirates and the United Kingdom. This list of affected bilateral DTAs will extend as additional countries deposit their instruments of ratification. Important to note, the extent to which the MLI will modify South Africa's bilateral DTAs with these countries will depend on the final adoption positions taken by these other countries.

With the imminent entry into force of the MLI, taxpayers should carefully consider how and when the MLI will potentially impact their international transactions. In addition, international tax planning going forward will now need to take into consideration the implications of the MLI in terms of its application to affected bilateral DTAs.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Advisory Services (Pty) Ltd., Johannesburg

Ernst & Young Société d’Avocats, Pan African Tax – Transfer Pricing Desk, Paris

Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London

Ernst & Young LLP (United States), Pan African Tax Desk, New York


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