Tax Treaty Case Law around the Globe 2016

S. 145Chapter 11 South Africa: Curious Case of the Service PE

Craig West and Jennifer Roeleveld

11.1. Introduction

The case AB LLC and BD Holdings LLC v. Commissioner of the South African Revenue Service, (13276) [2015] ZATC 2 (15 May 2015), is a Tax Court judgment and therefore creates no precedent in South Africa. However, the case has elicited comment. The case concerns a service permanent establishment (PE) as contemplated in the tax treaty concluded in 1997 between South Africa and the United States. Unlike the UN Model, the service PE clause was not inserted in article 5(3) in this treaty but as part of the illustrative list in article 5(2). Apart from this primary issue, the court also had to consider temporal issues regarding the application of article 7.

11.2. Facts of the case

Two companies (anonymized as AB LLC and BD Holdings LLC) brought the appeal against the Commissioner of the South African Revenue Service in respect of assessments for the 2007, 2008 and 2009 years of assessment in which the amounts accrued for services rendered by the companies was taxed in South Africa in terms of article 7(1) read with article 5(1) and (2)(k) of the South Africa-United States Income Tax Tre...