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a rate lower than that pro­vided for in the Swedish pro­to­col, such ex­emp­tion or lower rate shall ap­ply to div­i­dends aris­ing in SA and ben­e­fi­cially owned by a res­i­dent of Swe­den.

The Swedish most-favoured na­tion pro­to­col ap­plies if any favourable div­i­dends tax treat­ment is pre­scribed in “any” treaty or con­ven­tion. There are no lim­its on when the favourable treaty or con­ven­tion should have been con­cluded or en­tered into force.

As a re­sult, SA’s en­tire treaty net­work should be as­sessed to de­ter­mine whether there is any div­i­dends tax treat­ment that is more favourable than that in the Swedish pro­to­col.

To date, the rel­e­vant favourable treaty is the tax treaty be­tween SA and Kuwait con­cluded on Fe­bru­ary 17 2004, en­tered into force on April 25 2006 and in re­spect of with­hold­ing taxes ap­plies with ef­fect from June 1 2006. The Kuwait treaty pro­vides for ex­clu­sive res­i­dence state tax­a­tion of div­i­dends. That is, for ex­am­ple, div­i­dends paid by a com­pany which is a res­i­dent of SA to a res­i­dent of Kuwait who is the ben­e­fi­cial owner of such div­i­dends shall be tax­able only in Kuwait. SA may there­fore not tax div­i­dends paid by a South African res­i­dent to a ben­e­fi­cial owner that is res­i­dent in Kuwait.

Given this ben­e­fi­cial div­i­dends treat­ment in the Kuwait treaty, the same ben­e­fit can be claimed in re­spect of div­i­dends paid by a South African res­i­dent to a ben­e­fi­cial owner that is res­i­dent in Swe­den. As a re­sult, be­cause the Swedish treaty was con­cluded af­ter the Dutch treaty, the same ex­clu­sive res­i­dence state tax­a­tion treat­ment can be claimed un­der the Dutch treaty.

The cir­cu­lar zero-tax treat­ment for div­i­dends is ac­ti­vated in the Dutch treaty be­cause the Swedish treaty was con­cluded on March 18 2012, a date fol­low­ing the con­clu­sion of the Dutch treaty on July 8 2008. The ef­fec­tive

Pic­ture: iSTOCK

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