In the years since the Organisation for Economic Cooperation and Development (OECD) adoptedits first draft tax treaty in 1963, the world has experienced an astonishing surge in internationaltrade and investment. The tax treatment of these cross-border transactions is affected by doubletax agreements. As tax treaty networks will likely continue to expand, concerns about tax treatyabuse might be expected to grow. The extent to which a country’s tax treaty policy favoursdeveloping countries - or not - depends upon the extent to which the country is prepared to adoptprovisions from the UN model tax convention as opposed to the OECD model. Developingcountries, in particular, should carefully consider the design of their tax treaties so as toeffectively combat tax avoidance without sacrificing foreign direct investment. To this end, theCanada/South Africa tax treaty is compared and contrasted with these two models. The conceptof beneficial ownership is reviewed in this context. It is contended that a general definition inSouth Africa's Income Tax Act of 'beneficial ownership' would assist in the interpretation of theterm for the purposes of South Africa's tax treaties. It is submitted that the scope for the sourcetaxation of passive investment income (viz. dividends, interest and royalties) in the developingcountry could be magnified through treaty negotiations.
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