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Limitations of the term 'place of effective management' and its use as an effective tie-breaker test when applied in the current South African business context
(2016-01-29) Davies, Lyle
According to South African domestic law, the term ‘place of effective management’ is ‘one of the tests used to determine the residency of a person, other than a natural person’ (South African Institute of Tax Practitioners, 2010, p.549). The term ‘place of effective management’ is not defined in the South African Income Tax Act 58 of 1962 and there is very limited case law in South Africa which deals specifically with the matter. In an attempt to clarify the term, the South African Revenue Service issued Interpretation Note 6: Resident: Place of effective management (persons other than natural persons) (2002) where, as noted by Olivier and Honiball (2008, p.82), ‘emphasis is placed on where important decisions are implemented and not where such decisions are taken’ as the ‘place of effective management’. This is contrary to international guidelines, which typically focus on where important decisions are taken (Olivier and Honiball, 2008, p.75). Key Words: Board of directors, central management and control, control, day-to-day decisions, Discussion Paper on Interpretation Note 6, Interpretation Note 6, key decision making, OECD Model Tax Convention, place of effective management