The TIEA with Grenada follows a familiar format.  The Parties agree to provide assistance through exchange of information that is foreseeably relevant to the administration and enforcement of their respective domestic laws of the Parties concerning the taxes covered by this Agreement, including information that is foreseeably relevant to the determination, assessment, enforcement or collection of tax, or to the investigation of tax matters, or the prosecution of criminal tax matters  The provisions of the TIEA do not override  the rights of taxpayers enshrined in the local laws.  A requested Party is not obliged to provide information which is neither held by its authorities nor in the possession of or obtainable by persons who are within its territorial jurisdiction.  The Parties agree to use their best endeavours to ensure that the effective exchange of information is not unduly prevented or delayed.

It is interesting to note that donations tax is a notable exception from the list of South African taxes covered by the TIEA.  All our other taxes are provided for.

The remaining clauses are unremarkable and familiar from previous TIEAs and it would be repetitive to discuss them in detail here.  Tax practitioners with clients in Grenada should merely be alert to the existence of the TIEA with Grenada in what yet another tightening of the noose around global tax avoidance.

Historically, the proximity and porous borders between South Africa and its neighbours have tempted vendors to carry out purported exports to these countries when in fact the goods concerned either never leave South Africa or are routed back by illegal means. In this way vendors are able to claim the zero rate of tax, which applies to exports, when the standard 14% rate should apply. The agreement seeks to prevent this practice, at least between South Africa and Swaziland.

The respective governments have each agreed to establish a refund system administered by a Claims and Refund Manager to deal with claims and refunds. A memorandum of understanding will set out the operational procedures regarding refunds and claims. When a vendor in one state charges and collects VAT on exported supplies, the importer in the other state may claim a refund of the VAT. This is done through the tax authority in the importer state. Presumably the intention is that this tax authority will satisfy itself that the transaction is genuine and that the zero rate applies before authorising the refund and calling on the tax authority in the exporter state to remit the VAT to it. The refund will then be remitted to the importer.

By placing the process of refunds in the hands of the tax authorities, the hope is that the opportunity for fraudulent VAT claims will be minimised, if not eradicated.

These agreements all have substantially similar provisions. The tax authorities must provide information to each other that is foreseeably relevant to the administration and enforcement of domestic tax laws, the collection of taxes and the prosecution of criminal tax matters. The significance of the “foreseeably relevant” requirement is that tax information exchange agreements should not be used for information fishing expeditions. The requesting authority must exhaust its own means of obtaining the requested information before resorting to the agreement. The parties must ensure that they have the authority under their domestic law to obtain the kind of information likely to be requested.

Sometimes a party may request permission to visit the other party to interview individuals and examine records.

South Africa has concluded and ratified tax information exchange agreements with Barbados, Belize, Costa Rica, Dominica, Lichtenstein, Samoa and Monaco, but to date only those with Barbados and Liechtenstein have been ratified by both parties.

Given the global push towards tax base erosion and profit shifting, which invariably involves tax havens, we can expect a continuing increase in the number of these arrangements.

Peter Surtees

January 2015