There will be a new tie-break clause in the treaty to deal with the situation in which a company or other entity appears to reside in both states. It provides that the tax authorities of each state will endeavour to resolve the issue by mutual agreement. South Africa`s Ministry of Finance says the test was proposed to become the accepted test of the Organisation for Economic Co-operation and Development`s (OECD) model contract as part of its BePS (Base Erosion and Profit Shifting, BEPS) initiative. South Africa and Mauritius have signed a Memorandum of Understanding that specifies the factors that the two states will consider in deciding the country of residence. These include the location of board meetings, but also “where the day-to-day management” of the company takes place. The old tax treaty contained a tax-saving clause, but it was removed from the new treaty. As part of a tax-saving provision, the foreign investor country authorizes the granting of credits for the fictitious taxes that the investment country issues because of a tax incentive or vacation in the country of investment. However, there were concerns that the provision of the old treaty would be used for “double non-taxation.” When a company is considered to be established in the two contracting states, the competent authorities determine the place of residence of the company within the meaning of the treaty by mutual agreement. If the authorities fail to reach a mutual agreement, the company is considered to be outside the scope of the treaty, in addition to the provisions of Article 25 (exchange of information). Both counties use the credit method to eliminate double taxation. A provision is also included for a tax-saving credit in which Mauritius takes into account the tax payable in South Africa as a tax payable elsewhere, but which has been reduced or cancelled by South Africa in order to promote economic development.
Walker stated that Mauritius is generally chosen for a holding company for investment in Africa because it has a wide network of double taxation agreements with African countries, adding that “for Mauritius this could be a public relations disaster in the emergence – regardless of what the real impact of the changes may mean, and even if Mauritius , as a holding company, remains a favourable competence for African investments, which the new contract authorizes interest and royalties, damaging its reputation as a “gateway to Africa”. The contract includes Mauritian income tax and african normal tax, secondary business tax, withholding tax on royalties and tax on foreign artists and sportsmen. According to South Africa`s Ministry of Finance, the main reason for the renegotiation of the treaty was the “control of abuse” of the old treaty. The new treaty was signed by both countries on 17 May 2013 and ratified by the South African Parliament on 14 September 2013, but Mauritius did not communicate its ratification of the new treaty to South Africa until 28 May 2015.