Domestic tax relief for South African taxpayers on technical service income received from foreign jurisdictions

Abstract

South African tax legislation provides for domestic tax relief measures in s 6quat of the Income Tax Act 58 of 19621 which cater for scenarios where taxpayers have suffered double taxation on certain income received. This is typically seen in instances where income is earned from a foreign jurisdiction, has been subject to tax in that foreign jurisdiction and is subsequently taxed in South Africa as well. The intricate application of the provisions of s 6quat provides for significantly different relief to taxpayers insofar as the s 6quat deduction is available versus the s 6quat rebate. This research will evaluate different scenarios where certain international tax aspects, such as double tax agreements and permanent establishments, impact the relief available to South African taxpayers, specifically focusing on technical service income earned from foreign jurisdictions. With an imperative focus on the ‘source’ of technical service income earned from a foreign jurisdiction, the analysis will highlight the role a permanent establishment and double tax agreement respectively play in the relief afforded to taxpayers domestically, by quantifying the effective relief afforded in different scenarios. The research suggests that the absence of a permanent establishment results in lesser relief available to South African taxpayers insofar as the s 6quat rebate would not be available but rather the s 6quat deduction.