Abstract
Policy makers in South Africa, like other emerging market economies, seek to grow their economies to achieve the attendant economic benefits using many tools including double taxation agreements. It is envisaged that by providing tax certainty and giving up some taxing rights, in some instances, capital-poor countries will encourage foreign direct investment. This research is conducted in the form of an extended literature review which first explains jurisdiction to tax, then defines double taxation. A comparison of the most commonly used treaty models contrasts the United Nations and Organisation for Economic Co-operation and Development conventions, read together with their commentaries.
The existing research and data does not appear to support the policy position that entering into Double Tax Agreements (DTAs) will increase Foreign Direct Investment (FDI), which consequently should result in economic growth. The correlation of economic indicators, such as Gross Domestic Product and unemployment rates, are considered in relation to the signing of double tax treaties and further analysed against foreign direct investment flows into South Africa in the ensuing periods.
This study undertakes to provide alternative methods of addressing double taxation, providing recommendations to treaty negotiators and thus importantly informing the future negotiations for entering into double tax treaties. Alternative means of increasing investment activity are also briefly addressed and a proposed South African and/or regional model convention that addresses the specific needs of emerging market economies are strongly proffered.
M.Com.