UAE tax treaty ‘not designed to help the Guptas’

The Treasury has reacted to reports that SA’s tax treaty with the United Arab Emirates (UAE) will help the Gupta family avoid tax, insisting that its purpose was to tackle genuine trade and business needs.

While some tax experts have questioned the wisdom of a double tax agreement with countries that have low or zero tax rates, SA has several, including with Mauritius, Qatar, Oman and other countries in the Middle East.

The comments follow an article in the Sunday Times which cast doubt on the tax treaty between SA and the UAE and said the treaty would aid the Gupta family in their attempt to shift tens of billions of rand to that country.

Treasury deputy directorgeneral Ismail Momoniat said on Monday that work on the double tax treaty with the UAE dated back to 2006, preceded the emergence of the Guptas and was overseen by two staunchly anti-corrupt finance ministers, Pravin Gordhan and Nhlanhla Nene. The agreement was signed by Nene in November 2015 but only came into force at the end of 2016 after it had been ratified by the parliaments of both countries.

Pricewaterhouse-Coopers tax policy leader Kyle Mandy said there was nothing unique about the treaty with the UAE and its provisions were standard. There was a tie-breaker clause to decide which country was a person’s “centre of vital interests” which would determine in which country he or she was resident for tax purposes.

Many people from SA working in the UAE have broken their South African tax residence and are solely taxable in the UAE — which would mean SA has no taxing rights over their income.

South African residents are taxed on their worldwide income by the South African Revenue Service.

Those who break their South African residency by assuming residency elsewhere are subject to capital gains tax on their local assets as well as exchange control regulations.

South African Institute of Tax Professionals CEO Keith Engel questioned the wisdom of having a tax treaty with any tax haven country but nevertheless insisted there was nothing “nefarious” about SA’s tax treaty with the UAE.

Momoniat said the treaty provided a framework for the collection of taxes as a result of the trade and investment relations between the countries.

He noted that more than 200 South African companies were established in the UAE.

These range from restaurants such as Nando’s, The Butcher Shop, The Meat Co, Mugg & Bean and Debonairs Pizza to companies involved in construction, engineering, banking, energy, travel, hospitality and human resources, among others.