the grounds etc being ‘held to be unreasonable’. It follows that where either party requests an award of costs, the Tax Court should be requested to hold that the other party’s grounds etc were unreasonable.

One sometimes reads Tax Court judgments where awards of costs are made in what must be ignorance of the provisions discussed above. In this regard, the point should perhaps be made that – in fairness to the learned Judges, who in the nature of things preside mainly in the High Court – legal representatives acting in the Tax Court should ensure, by making appropriate submissions, however trite, that the Court is apprised of the relevant provisions dealing with costs.

t i o n 2 3 m A n d N o n - D i s c r i m i n a t i o n C l a u s e s I n S o u t h f r i c a ’ s T a x T r e a t i e s by Albertus Marais1

I have previously written2 about how the non- discrimination clause contained in many of South Africa’s double tax treaties will trump domestic law insofar as it pertains to ‘intra-group transactions’ in section 45 of the Income Tax Act, 58 of 1962, as amended, (‘the Act’). A similar and more pressing question arises concerning the application of section 23M of the Act. This provision potentially limits interest deductions when a South African company pays interest to a person that is not subject to South African tax on that receipt, and the creditor is in a so-called ‘controlling relationship’3 vis-à-vis the South African debtor.4

The matter is topical, given National Treasury’s reliance on section 23M to shore up tax revenue shortfalls expected to come about due to the decrease in the corporate income tax rate from 28% to 27%.5

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It is estimated that this reduction in the corporate income tax rate will lead to revenue shortfalls of some R2.6 billion for the fisc, of which R1.5 billion6 is planned to be recovered through a more targeted application of section 23M.7

This article considers whether section 23M will have as wide an application as anticipated by Treasury, or whether it could only apply where the limitation calculation of section 23M arrives at the same result for what would be excessive interest as determined in terms of a conventional transfer pricing analysis.

Presently, Article 24(4) of the OECD Model Tax Convention (‘the OECD MTC’) provides that:

‘Except where the provisions of paragraph 1 of Article 9 [or] paragraph 6 of Article 11 … apply, interest … paid by an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose

1 Director: AJM Tax. 2 ‘Treaty Non-Discrimination Clauses and the South African Corporate Roll-Over Relief Regime’ 2021 Taxpayer 3. 3 A term defined in section 23M. 4 Of course, section 23M can operate in a domestic context too where, for example, a company pays interest to its PBO shareholder. It is considered that section 23M is intended primarily to apply to interest being paid by a South African entity to a non-resident person. See the Explanatory Memorandum on the Taxation Laws Amendment Bill, 2013, [24 October 2013] at 2.6. 5 Effective for corporate taxpayers with years of assessment ending on or after 31 March 2023. 6 See page 6 of the Budget Review 2022 issued by National Treasury on 23 February 2022 [accessible at http://www.treasury.gov.za/ documents/national%20budget/2022/]. 7 The balance is expected to be addressed through the ring-fencing of portions of assessed losses, which amendments relate to section 20 of the Act.