1.1 The position in the United States of America 1

1.2 South Africa and the taxation of electronic commerce 3

2.1 Going on-line in South Africa 7

3.1 The origins of the source principle 9

3.2 Application of the source principle 9

3.3 International trends 10

3.4 Residence 12

3.4.1 The residence of individuals 12

3.4.2 The residence of companies 12

3.4.3 The residence of a trust 14

3.4.4 The residence of a partnership 15

3.4.5 Residence in Double Taxation Agreements 16

4.1 Computer Software Purchased from a Web Site 18

4.2 The Purchase of Digital Goods 20

4.3 Electronic Services 21

4.3.1 Electronic access to databases 22

4.3.2 Internet Service Providers 23

5.1 Sale of Goods (natural source) 24

5.2 Sale of Goods (deemed source) 25

5.3 Royalties (natural source) 26

5.4 Royalties (deemed source) 27

5.4.1 Section 9(1)(b) 27

5.4.2 Section 9(1)(bA) 28

5.4.3 Section 35 30

5.5 Section 9C - Investment income from foreign sources 30

5.5.1 Section 9C 31

5.6 Services 33

5.6.1 Services (natural source) 33

5.6.2 Services (deemed source) 34

6.1 Double Taxation Agreements 37

6.2 Permanent Establishment 38

6.2.1 Business of the enterprise 40

6.2.2 Could a Server Hosting a Web Site be a PE? 41

6.2.3 Business Profits 46

6.2.4 Royalties 47

6.2.4.1 Computer Software 50

6.2.4.2 Know-how 50

6.2.4.3 The Use of Equipment 51

6.2.4.4 Technical Services 52

6.3 Fixed Base (183-day rule) 53

Much has been written on how the Internet affects legal issues, such as defamation and patent infringement, but substantial questions have yet to be answered in regards to how this new trade route will be treated by the various laws of taxation. Taxpayers conducting business electronically realise that they face not only the risk of multiple taxation, but also the serious risk of new or increased taxes. Tax authorities, on the other hand, believe that their tax bases are at risk of erosion because of what they perceive to be new administration and enforcement difficulties.

During the last two years the world has witnessed a global explosion in electronic commerce, involving trade in computer software, entertainment products, information services and on-line financial and professional services. The Organisation for Economic Co-operation and Development (hereinafter referred to as 'the OECD') in a discussion document to the Turku Conference on Electronic Commerce (hereinafter referred to as 'the Turku Paper') concluded that the rapid growth of electronic commerce could be attributed, amongst others, to the following:

• start-up capital requirements for businesses to conduct electronic commerce on the Internet are typically low;
• the Internet enables small businesses access to the global market;
• use of the Internet reduces the need for intermediaries in the sale and delivery of goods and services;
• rapid improvements in international communications and technology; and
• advances made with securing electronic payment systems and digital signatures.

1.1 The position in the United States of America (the 'US')

US Treasury Tax Counsel, Joseph H Guttentag, has stated on several occasions that the use of the Internet creates opportunities for tax avoidance as well as for double taxation. While stressing the importance of not impeding the further development of electronic commerce, he promised that the US Treasury will remain alert to the substantive issues arising from the use of the Internet for commerce, such as sourcing income. He questioned whether it will be necessary to establish 'tax toll booths' along the information superhighway to assure proper administration of the tax law.

The US took the international lead in the search for solutions when the Treasury Department published the 'Selected Tax Policy Implications of Global Electronic Commerce' (hereinafter referred to as 'the Treasury Paper') in November 1996. The introduction to this Paper states that:

The Treasury Paper strongly endorses the need for international agreement on taxing jurisdiction, tax certainty and neutrality. Income from electronic transactions should be taxed in the same manner as income from comparable physical transactions, so that 'decisions regarding the form in which information is distributed are not affected by tax considerations.'

The Internet Tax Freedom Act, places a moratorium on any new taxes on Internet access and creates a consultative group to study and make recommendations about domestic and foreign policies toward taxation of electronic commerce. US States and municipalities complain that this Act creates a Cayman Island-like tax-free haven on the Internet and that in treating cyberspace differently from Main Street USA, the principle of neutrality is abandoned. On July 30, 1998 the Senate Commerce Committee unanimously approved the Government Paperwork Elimination Bill (S.2107) generally referred to as the Digital Signature Act. This Bill provides for the use of digital signatures, requires US government agencies to make their forms available on the Internet, allows for the submittal of government forms electronically and allows for electronic payments to the US Treasury. The Internal Revenue Service Restructuring Reform Act of 1998 (H.R. 2676), signed into law on July 22, 1998, includes provisions requiring the IRS to move to a substantially paperless system by the year 2007.

1.2 South Africa and the taxation of electronic commerce.

The first authoritative reference to the taxation of electronic commerce in South Africa is found in the 5th Interim Katz Commission Report, which states that:

Although the Commission thought that a pioneering role in formulating rules for electronic commerce taxation would be both dangerous and arrogant, it found that by integrating South Africa's international tax arrangements with international tax conventions and concepts, the South African system should be better placed than most to absorb technical tax changes in this regard.

The South African Department of Communications plans to introduce legislation that will cover everything from encryption for secure electronic trading, computer crime and copyright to taxation issues. It seems that the Government is adopting a wait-and-see approach, monitoring attempts to introduce electronic commerce legislation in other countries and consulting with the private sector before publishing a discussions paper that will form the basis of a Green Paper. Director General Andile Ngcaba expressed the opinion that current legislation is insufficient to cope with the boom in on-line trade, particularly when it comes to the borderless nature of the Internet, stating that:

During 1998 the first South African Internet malls were established, which include 'shops' by well-known banks, computer companies and ticket outlets. Encryption technology is provided for vendors and the mall owners generate revenue by renting 'shopfront' space on its websites. A virtual casino is already operating from Swaziland.

This Paper evaluates the consequences that the Internet and electronic commerce present to traditional precepts of taxation, with particular reference to the 'source' principle in South African tax law and the 'deemed source' provisions of the Income Tax Act 58 of 1962 (hereinafter referred to as 'the Act'). This will be done by applying these principles and provisions to a number of typical Internet transactions.. As it can also be assumed that much of the tax evolution in this field will take place internationally, Double Taxation Agreements and concepts like 'permanent establishment' and 'fixed base' will also be examined against the electronic commerce background.

In this regard it should be noted that the transactions under discussion are of the nature where goods, services and information can be contracted for, paid for and even delivered over the Internet simply by accessing the vendors website on the Internet.

Although it is beyond the scope of this Paper to present a comprehensive description of the Internet and electronic commerce, it is nevertheless crucial to understand the basics in order to fully appreciate the complex ramifications they present to issues of international and domestic taxation.

The Internet refers to the global convergence of previously isolated and disparate computing systems and communications networks into a global "network of networks." This convergence has been driven by three major technological changes:

• what started as a US government-financed defence project on a robust packet switching system in the late 1960's turned into the most widely used method of connecting or networking computers;
• telecommunication transmissions has evolved from copper wire to fibre optic cable, with virtually limitless capacity; and
• the ability to convert text, images, audio and video and other content into a common digital format, referred to as digitisation. Any type of information which can be digitised, including cash equivalents, can now be transmitted electronically, easy and on a monumental scale.

The Internet has no central computer or organisational structure. The global village is truly a village without a chief. Far from being a hub with spokes, it is more like a spiders web. What links the Internet together is the TCP/IPprotocol, which is simply a means of specifying how data is broken up in packets and assigned addresses to be transferred over the Internet. This allows computers to communicate regardless of differences in hardware and software. The fastest growing application of the Internet is the World Wide Web, which is a multimedia, hypertext system which blends text, images, video and audio.

A document on the Web is usually referred to as a web site or web page. A uniform addressing system allows users around the world to access information on any of these web pages. The information on web pages is stored in the form of documents or pages on central computers called servers. The location of the server is irrelevant since it can be accessed by users around the world. For the purposes of this Paper it is important to know that the server computer hosting the web page would in some cases also be owned by the taxpayer, but in most cases the taxpayer will use a server provided by an Internet Service Provider (ISP) or other third party to host the web page(s) containing the information. Therefore the owner of the information on the web page is not necessarily the owner of the server.

Electronic commerce could be defined as the ability to perform transactions involving the exchange of goods or services between two or more parties using electronic tools and technology.

The following two issues pose a particular problem for taxpayers and revenue authorities:

• Security on the Internet.

• Payment systems

2.1 Going on-line in South Africa

The process of commerce enabling a web site is simpler and less expensive than would be imagined in South Africa. There are several complete electronic commerce solutions available from, amongst others, ECnet, BankGate, Virtual Vendor and IBM. ECnet and BankGate use models that allow for immediate authorisation and settlement of transactions by the banks. Security is provided by either the SSL (Secure Sockets Layer) protocol or the SET (Standard Electronic Transfer) protocol. Security is extremely high, with the transaction engine hosted behind a series of firewalls. Payment card details are encrypted when traversing the Internet. The steps to move a business to the Internet in South Africa could be summarised as follows:

• The first step is to obtain a virtual merchant number from a bank. Not all banks are ready to provide this service but it is likely that most of the larger banks in South Africa will allow virtual credit card purchases by the end of 1998.
• This virtual merchant number is then supplied to one of the e-commerce enablers like BankGate, ECnet or Virtual Vendor. The e-commerce enabler will issue a serial number and Digital Certificate to the vendor. They also set up an account for the vendor and work with the ISP hosting the vendors web site to configure the web site to accept credit card details.
• The vendor is then e-commerce enabled and a typical Internet transaction will follow the following process:

1. A client visits the vendor's (taxpayer's) web site and clicks on the item he/she wants to order or purchase;
1. Thereafter the client is switched to the website of the e-commerce enabler who authenticates the parties and validates the transaction;
1. The e-commerce enabler sends the fulfilment details to the vendor (taxpayer) who delivers the goods/services to the client; and
1. In the final step the e-commerce enabler instructs the bank to settle the account between the client bank and the vendor bank. The whole process takes a few of seconds to complete.

From the abovementioned it is clear that all the technology is available in South Africa to enable taxpayers to conduct business over the Internet. A rapid growth in the already booming trade could therefore be expected.

3.1 The Origins And History Of The Source Principle.

The first income tax laws in South Africa were based on the source principle, and income tax was only levied on income sourced in the Union (as it then was). This is to a certain extent still the position today. Since then several investigations into the advisability of this system have been made. In 1951 the Steyn Committee recommended that the source principle be retained mainly for the reason that changing the system would be too complex and would not have a material impact on revenue. In 1970 the Franzsen Commission recommended a change because more income was flowing into the country without being taxed and most of South Africa's trading partners were using a world-wide or residence system. Although the Government accepted these recommendations, the changes were never pursued. In 1987 the Margo Commission made a comprehensive review of the whole issue and came to the conclusion that the disruption that would be caused by a change to a residence system would not justify the possible benefits.

The 5th Interim Report of the Katz Commission concluded that, from the perspective of collecting revenue, adopting either a residence or source basis will make little difference as regards active income, but that as regards passive income, a residence system will bring a revenue advantage. It was thus recommended that active income should continue to be taxed on a source basis and that passive income should be taxed on a residence basis.

3.2 Application Of The Source Principle

There is no statutory definition of source. The Katz Commission confirmed that it is not in favour of attempting a detailed definition of a phenomenon that can have as many variables as international commerce and investment in the hands of endlessly creative entrepreneurs. Even in the US, with arguably the most detailed legislation in this regard, the attempt at codification has often run into trouble. Centlivres CJ in CIR v Epstein said that the Legislature was probably aware of the difficulty in defining source. In CIR v Lever Brothers & Another Watermeyer CJ referred to attempts to define source as an 'impossible task'.

In the Lever Brothers case, Watermeyer CJ held:

Over the years a wealth of court decisions have been handed down indicating the tests, factors and considerations that should be applied in deciding where the source of income is located.

If the natural source is found not to be in South Africa, it is necessary to ascertain whether any of the deemed source provisions apply. If the natural source or deemed source of income is located in South Africa and the income is also taxable in another country the question is resolved with reference to a Double Taxation Agreement, if any, between the two countries in question.

3.3 International Trends

No where in the world is either the source or the residence system applied with any degree of purity. The Katz Commission pointed out that certain international bodies are also favouring a sourced based system. The Treasury Paper comes to another conclusion, stating that the growth of electronic commerce will require that the principles of residence-based taxation assume even greater international importance. In the world of cyberspace it is often very difficult, if not impossible, to apply traditional source concepts to link an item of income with a specific source or geographical location. Therefore, source based taxation could lose its rational and be rendered obsolete by electronic commerce. By contrast, all taxpayers are resident somewhere. This argument is echoed by Karlin, who confirms that the growth of electronic commerce will de-emphasise the significance of the place economic activity is carried on. Mazansky points out that South Africa is one of the last sophisticated economies of the world where tax is still levied on the basis of source.

In many countries, like in South Africa, provisions were introduced where traditional source concepts were too difficult to apply effectively. Therefore, as source principles lose their significance, residence-based taxation concepts can step in to take their place. This trend will be accelerated by developments in electronic commerce.

Although the trend seems to be to move to a residence system when, inter alia, electronic commerce is concerned, there is also a danger lurking in the background. At the moment, and presumably for some time in the future, the US has a virtual monopoly on software and other digital exports. Electronic commerce will enable US companies to sell their products electronically from their US head offices. These sales would probably not be attributable to a permanent establishment in another country and a big part of the industry will thus not be exposed to foreign tax. Because of the US monopoly, other states would not have similar advantages. In fact, the result would be a lopsided system that maximises US tax revenues at the expense of other countries.

This result jeopardises the compromise on which the double taxation treaty network is based: the sharing of revenues between countries and eliminating double taxation. Eliminating the source based taxation of income derived from electronic commerce will only improve the US position. Moreover the Treasury Paper's position that no new taxes should be applied on electronic commerce, implies a request to other countries to adopt the same policy. If they do so, the US will have made sure that there is not going to be a substitute for the disappearing source-based taxation. It is suggested that the South African Government keep this in mind during treaty negotiations or as it seeks new and expand old principles to deal with electronic commerce.

3.4 Residence

As a result of the deemed source provisions (found mainly in s 9 of the Act) income which is in reality sourced outside South Africa, is deemed to be from a South African source. In the case of a natural person the test is 'residence' or 'ordinarily resident' in South Africa and in the case of a non-natural person the test is whether such an entity is 'managed and controlled' in South Africa. To understand the effect that these deemed source provisions have on electronic commerce, it is necessary to examine the meaning of the residence principle in South African tax law against the Internet background.

3.4.1 The residence of individuals.

The criteria to establish the residence of natural persons in a fiscal context, is the term 'ordinarily resident'.

The concept of 'ordinarily resident' is well understood in our law, although it is not defined in the Act. In CIR v Kuttel it was held that the concept has a narrower meaning than the term 'resident' and Goldstone JA referred to a English case where it was held that the natural meaning of 'ordinarily resident' was:

The Court also referred to the South African case of Cohen v CIR which held that 'ordinarily resident' would be:

In the context of electronic commerce the residence of natural persons create no new problems.

3.4.2 The residence of companies.

A 'domestic company' is defined in the Act as:

Meyerowitz is of the opinion that a company is 'managed and controlled' in South Africa when the directors meet in South Africa to transact the company's business, and not because the majority of the shareholders reside in South Africa. Huxham and Haupt also consider a company to be 'managed and controlled' in South Africa if that is where the directors have their meetings.

The main criticism of the definition of a 'domestic company' is that it has proven subject to relatively simple, formalistic manipulation. The concept is also out of line with the internationally used and much more substantial tax treaty expression of 'effective management'. It should be pointed out that major strides in global telecommunications technology make it possible for directors to meet in cyberspace by using videoconferencing technologies or to manage and control a company from outside its country of operation. Videoconferencing is expected to become more widespread with the introduction of inexpensive desktop video cameras that can be connected to a personal computer, coupled with higher speed Internet connections.

The Katz Commission recommended that the concept of 'effective management' as referred to in article 4(3) of the OECD Model Tax Convention should be used to designate the tax residence of companies. The Commentary to this Model Convention (hereinafter referred to as the 'OECD Commentary') states that the place of effective management is the place where the company is actually managed and the South African Revenue authorities seem to define the place of 'effective management' as the place where the day to day running of the business takes place.

In the context of electronic commerce a company may for all practical purposes only exist in cyberspace; conducting its business electronically and directors meeting by videoconferencing over the Internet. It is suggested that the residence of such a company should be the location of the server that hosts the home website of the company, as that would be the place where the day to day running of the company takes place. However, this suggestion would be far removed from the management of the company, which seems to indicate human activity. Another argument would then be to look at the place where the directors meet, but if they meet via videoconferencing it would indeed be very difficult to attribute such a meeting to a specific geographic location. For the time being, and in the absence of clearer guidelines, the location of the server hosting such an 'electronic company' or the country of incorporation seems to be the only criteria than can be successfully applied.

The abovementioned example, would furthermore be problematic where the server is located in one state and the company is incorporated in another state. In such a situation the tie-break provisions contained in Double Taxation Agreements should be applied and the United States and Canada have indicated that they consider the place of incorporation the final and only test.

The Treasury Paper states that a review of current residency definitions might be appropriate, but does not elaborate thereon. It is suggested that Machiel Lambooij came to the correct conclusion:

3.4.3 Residence of a trust.

In s 1 of the Act a 'person' is defined to include a trust. Therefore, the Act considers a trust a person for tax purposes. Where the Act refers to the ordinary residence of 'a person (other than a company)' it also includes a trust.

In Nathan's Estate v CIR the Court held a trust to be resident in Natal because the trustees were resident in that province and it was from that province that the fund was administered. Meyerowitz states that a trust as a persona for tax purposes is akin to a company whose residence is where the central management and control abodes. Mazansky is of the opinion that the term 'ordinarily resident', despite the approach by the courts in the past, is only appropriate to natural persons and not to other non-company persons. In the United Kingdom the residence of the trustees is examined to establish the residence of a trust, and the corporate test of management and control does not apply. Emslie, Davis & Hutton state that:

It should be noted that the question as to the residence of a trust, creates no problem in s 9C and 9D of the Act, where residence is established by reference to 'natural person' and 'any person other than a natural person'. In these sections, the residence of a trust, being a person other than a natural person, would be the same as that of a company and electronic commerce would present the same problems as those mentioned above.

3.4.4 Residence of a partnership.

As the Internet reduce the use of intermediaries and employees and require low start up capital, partnerships could be considered an ideal vehicle to access the global market.

In South Africa a partnership is not a legal person distinct from the partners, nor is a partnership a taxable persona for the purposes of the Act. Partners share the actual income of the partnership according to the partnership agreement. According to Centlivres CJ in CIR v Epstein, where a partner carries on his activities for the partnership in South Africa, his income from the partnership is derived from a source in South Africa, notwithstanding the fact that the other partner resides and renders services to the partnership outside South Africa. The activities or services rendered by the partner to the partnership is the originating cause of the partner's share, and will be sourced where these services or activities take place.

If a partnership conducts electronic business, and a partner either maintains or updates a website, his or her share of the profits will be sourced to the place where such work or services were done. As website maintenance and updating could be done electronically from a remote computer situated anywhere on the globe, the current position opens the door for tax avoidance and creative tax planning. Emslie, Davis & Hutton are of the opinion that Centlivres CJ solely examined the activities of one partner in relation to his share of the income and that the minority judgement of Schreiner JA is preferable to that of the majority. In the minority judgement Schreiner JA stated that:

However, this case deals with the source of a partners share of the income and not with the question of residence of the partnership.

The OECD Commentary states that:

In the tax treaty between South Africa and the United States, a 'person' is defined to include a partnership and can therefore be a 'resident' of either the United States or South Africa. This would not be a foreign concept to South African tax law. In Nathan's Estate v CIR De Wet J stated that:

It is therefore suggested that the residence of a partnership should be established in the same way as that of a trust and obviously the same problems would occur.

3.4.5 Residence in Double Taxation Agreements

In most of the Double Taxation Agreements South Africa entered into after 1994 the residence of a individual is established by the well known principle of 'ordinarily resident' and that of non-individuals at the 'place of effective management'. Of these recent treaties only the treaties with Hungary and Romania refer to the residence of non-individuals in terms of the older concept of 'place of management or control'.

Some of the older agreements establish residence by referring to 'any person who under the laws of South Africa is liable for taxation be reason of domicile, residence, place of management or any criteria of a similar nature.'

The treaties with Malawi and Namibia refers to both individuals and non-individuals in the context of 'ordinarily resident'. These two treaties are the only treaties where the residence of a company is established by the 'ordinarily resident' concept. It is suggested that the Courts should apply the modern concept of 'place of effective management' to decide whether a company is resident in South Africa, Malawi or Namibia.

The few remaining treaties refer to the 'ordinarily residence' of persons other than companies and the 'place of incorporation, management or control' in the case of companies.

None of the concepts used in these Double Taxation Agreements provide any answers to the problems that electronic commerce create in the context of residence.

Not only is the Internet changing traditional ways of doing business, it is also generating new businesses and ways of doing business. This result in new electronic products, delivery systems and even electronic companies operating in cyberspace. It is no longer easy to determine whether a taxpayer is selling goods, the use of intangibles or services. The principle of neutrality requires that the tax system treat economically similar income equally, regardless of whether earned electronically or whether the product was delivered digitally. Before transactions can be sourced, it is necessary to identify the type of transaction and the income that arises, as different types of income are sourced differently in South African tax law and in Double Taxation Agreements. In this chapter electronic income will be characterised by evaluating some of the most common Internet transactions.

4.1 Computer Software Purchased From a Web Site.

In many countries the courts and the revenue authorities are struggling with the commercial treatment of software. As software sales are made pursuant to licensing agreements, it is uncertain whether the sale give rise to royalty income or more closely resembles a sale.

The Copyright Amendment Act brought the Copyright Act 98 of 1978 into the computer age. Computer programs are now protected as a separate, sui generis category of protected works. A computer program is defined in s 1 of the Copyright Act as:

Computer software is also defined in the 1992 OECD Commentary which will be discussed under the treatment of software in the context of Double Taxation Agreements. This Commentary, however, can be useful in applying and developing domestic law. The Copyright Act further introduces specific rules in respect to the nature of copyright in a computer program.

The crisp issue is whether the payment for the right to use the software constitutes income received or accrued for the use of the copyright. Sher comes to the conclusion that the right to use computer software is inextricably linked to a license of the copyright. De Hosson, however, comes to a contrary view by applying the 1992 OECD definition.

Section 11B of the Copyright Act reserves certain acts exclusively for the owner of a copyright in software and the fact that the legislator did not include the mere use of the software could be interpreted to mean that the granting to use the software would not constitute use of the copyright. The Copyright Act, thus distinguishes the user of software from a person who has the right to copy (reproduce) the software for use other than private use. It is therefore suggested that the payments made by a South African purchaser for the electronic delivery of a computer program do not constitute royalties. In every case the contract underlying the sale and the particular circumstances and facts should be examined to establish whether the payment was for a sale of goods or royalties.

The International Fiscal Association (hereinafter referred to as the IFA) passed a number of final resolutions during its annual congress in New Delhi in October 1997 on the issue of software transfers. The principles underlying these resolutions provide valuable guidance to the questions posed by the electronic transfer of software. The resolutions are as follows:

• In determining the classification of income from software transfers, the most important distinction is that between the sale of a software product and the granting of rights with respect to the underlying copyright.
• The transfer of standard software for the internal use of the transferee should be treated as the sale of a product, even though certain sales reflect the customary protection of the copyright owner. The same characterisation should apply to site licenses.
• Income from the grant of an exclusive right to use software in a specific jurisdiction and for the useful life of the product should be treated for tax purposes as a sale of copyright.
• A reproduction license (unless it is a site license) may constitute a license (royalty) unless it involves the disposition of an entire right such as an exclusive geographical license for the useful life of the product.

It is therefore suggested that South African copyright law, the OECD and the IFA, treat consideration for the use of computer software as consideration for the sale of goods and not as royalties. On October 2, 1998 the IRS in the United States declared that software purchased over the Internet will be treated exactly the same as software purchased and delivered on a disc.

4.2 The Purchase Of Digital Goods Other Than Computer Software

As pointed out above, any product that can be digitised can be sold and delivered electronically. This would include, books, newspapers, CD's, motion pictures, photographs, airline and movie tickets, videos and sound recordings. Patents, designs and trade marks that can be digitally converted can also form the object of electronic commerce, whether in the form of an out-and-out sale or in the form of some limited transfer of rights.

Musical works, literary works and other works that can be copyright protected used to be easily distinguishable for purposes of the Copyright Act by the medium by which they were communicated (eg gramophone record, book etc.). Nowadays all these can be communicated and purchased in digital form. This was partially addressed by the legislator in the Copyright Amendment Act by the fact that the authorship in these works are now grouped together if they are 'computer-generated' The Copyright Act does not offer protection for digitised audio and video and for computer-held databases and therefore consideration for these could never be classified as royalties.

Digitised goods furthermore presents unique issues because it can be perfectly reproduced by the purchaser. A purchaser who desired to purchase ten copies of a book will generally purchase ten copies from the publisher, but someone wishing to purchase ten copies of a electronic book may simply purchase one copy and acquire the right to make nine additional copies. Thus, the question whether the consideration is royalties or for a sale, remains. The courts might consider that the transaction creates royalty income, since the right to make reproductions is a right reserved by the copyright holder and by allowing a third party to make reproductions, the payment is (at least in part) consideration for the use of the copyright. On the other hand this transaction may be viewed as merely a substitute for the purchase of ten copies from the publisher.

It is therefore suggested that the courts and revenue authorities will have to examine the underlying contract to the sale, the facts and circumstances of the case and apply the definitions of patent, design, trade mark and royalties in the Act in a manner that takes into account the unique characteristics of digitised information. The same argument applies to the interpretation of Double Taxation Agreements.

The European Commission (the policy making body of the European Union) announced on June 17, 1998 that the sale of digital products will be taxed as services in the European Community. This view conflicts with that of the OECD and the United States Internal Revenue Service which concludes that in the classification between goods or services, the means of delivery is irrelevant. It is furthermore suggested that the view of the EU does not adhere to the principle of neutrality.

4.3 Electronic Services.

Digitised information further complicates existing difficulties in defining services income, as distinguished from the sale of goods and royalties. This distinction is important for the application of both domestic tax law and Double Taxation Agreements.

Currently a vast array of services are available on the Internet, from daily horoscopes and adult entertainment to professional services by accountants and advocates, banking services and communication services like videoconferencing and 'chat-lines'. Most of these services are clearly services for tax purposes, but in some cases these 'services' are of such a nature that it is unclear whether they should be regarded as services, the sale of goods or even producing rental income for tax purposes.

4.3.1 Electronic access to databases

Several web sites offer direct on-line access to proprietary databases. These include credit reporting agencies, legal and tax databases, on-line libraries and encyclopaedias. These web sites allow a person access to their databases and payment is based on a variety of factors such as time spent accessing the central computer, the number of searches made, etc. In addition, several publishing businesses are migrating their products to the Internet. For example, the Wall Street Journal offers an on-line subscription that provides a number of benefits including real-time breaking news reporting and the ability to customise the type of articles that will be automatically 'clipped' for each user. On-line magazines offer even more services such as bulletin boards and searches.

The correct classification of electronic access to databases are even less clear than that of software or other on-line services. The sale of a newspaper or magazine would generally be considered the sale of goods. On the Internet, however, users can search old newspapers and magazines for information, or customise the newspapers and magazines they buy to suit their particular requirements. Would this change the sale of the newspaper and magazine from a sale of goods to services? Alternatively, could the consideration be for the sale of an 'information' product, or even royalties?

The use of CD-ROM's is even more problematic. Previously a reference work, such as an encyclopaedia, would have been sold as a set of bound volumes and would have resulted in a sale of goods for tax purposes. Now, instead of purchasing a bound volume, a potential customer might be able to choose between a CD-ROM containing the information or the on-line service on the Internet, through which the encyclopaedia's content could be accessed. The sale of the CD-ROM would generally be regarded as a sale of goods, while the character of the income arising from the on-line service is not clear.

Both the OECD and authors like Cigler, Burrit & Stinnet come to the conclusion that it will be necessary to reconsider existing principles in this area and that the various tax authorities will develop different interpretations on a given set of facts. This would result in a situation where a transaction is considered a sale on one jurisdiction and a service in another. It is therefore suggested that international consensus on these issues are paramount and that characterisation policy should not be formulated at a domestic level.

It is suggested, however, that payments for access to these databases should be characterised as payments for services.

4.3.2 Internet Service Providers (ISPs)

ISPs play a very important role in electronic commerce, as they allow businesses to move their goods and services to the Internet and provide purchasers access to these goods and services. ISPs have sprung up basically overnight in cities and towns across South Africa. Amongst the services they provide are connections to the Internet for both businesses and purchasers (referred to as dial-up access), advertising, reminders, submission of URLs to various search and directory sites across the world, web page design, web site hosting, corporate or lease line access and domain name registration.

Although some of these services cannot be conducted electronically (yet), they play an important role in electronic commerce as websites of businesses are in most cases hosted on the servers of these service providers. In addition, ISPs provide the ability to consummate an entire electronic business transaction, including customer sign-up and billing. Cigler, Burritt & Stinnet examine the possibility that some of the services provided by ISPs could not be regarded as services but something else. For example payments for placing information (like a website) on a host server could be regarded as rental income, from the lease of tangible personal property However, they come to the conclusion that for tax purposes, all the services provided by service providers should be regarded as services.

In this chapter the different types of income characterised in the previous chapter will be sourced by application of the source principle and the deemed source provisions of the Act.

5.1 Sale of goods - natural source

In the case of income received or accrued as a result of the sale of goods there is a specific deeming provision in the Act. For this reason it is still unclear whether the source of a sale of goods is the conclusion of the contract, performance by the seller, payment by the purchase or a combination thereof. It would appear that payment by the buyer does not matter and that the originating cause must be sought in a combination of the conclusion of the contract and performance by the seller.

Meyerowitz states that:

Maisels JA held in Transvaal Associated Hide & Skin Merchants v COT Botswana that when the activities of a person are performed in two or more countries, the locality of the source must be determined by reference to those of the activities which constitute the dominant, main or real and basic cause of the accrual of the income.

It is suggested that the originating cause of the electronic sale of goods, could be the activity of making that digital goods available on a website. Of several possible originating causes, the activity of making the digital goods available on a website would be the only 'work which the taxpayer does'. All the other activities are usually done automatically and electronically by the server computer without the presence or even knowledge of the taxpayer. The stock in trade will usually only be one copy of the digital article, automatically copied and delivered by the server in the case of a sale. It is suggested that the source of an electronic sale of goods would probably then be the physical location of the server computer hosting the web site. Therefore the natural source of the electronic sale of goods would only apply to taxpayers who has their web sites hosted on a server in South Africa.

5.2 Sale of goods - deemed source.

Amounts accrued to or received by a person by virtue of a contract made in South Africa for the sale of goods are in terms of s 9(1)(a) of the Act deemed to be from a source within South Africa, whether such goods have been delivered or are to be delivered in or out of South Africa. This provision applies even though the seller has no connection with, and does nothing more than conclude the contract of sale in South Africa.

This provision has been criticised by the Margo Commission and the Katz Commission, but the legislature has not yet reacted to the criticism. The Katz Commission is of the opinion that the provision is an example of lack of clarity and futility. It is easily and formalistically circumvented. Meyerowitz also questions the wisdom of this provision, stating that it depends upon legal subtleties as to the place of conclusion and that in any event, it can be easily circumvented.

For this provision to apply the sale must relate to 'goods'. Although Meyerowitz consider that this provision is confined only to corporeal movables, it is suggested that the principle of neutrality implies that digitisation of goods should not render the provision inapplicable.

A binding contract is constituted by acceptance of an offer. The acceptance must reach the seller and at that time the contract is completed. In cases dealing with telephone contracts it was held that the contract is concluded at the place where the acceptance is conveyed to the seller, i.e. the place where the seller is. It is suggested that the same rules would apply to an electronic contract. An electronic contract concluded on the Internet would thus be concluded at the location of the server hosting the website of the seller. The widespread use of automated bank teller machines and parking garages seems to indicate that a computer could be a party to a contract and accept offers, or at least be regarded as an electronic agent.

Electronic offer and acceptance raises a number of questions. Is downloading a manner of acceptance? Does clicking on a 'YES' or 'BUY' icon constitute acceptance? Will information on a seller's website constitute an offer, as opposed to a mere invitation to bargain? Can a computer server make and accept offers? These questions relate to the impact electronic commerce is having on the South African law of contract and is beyond the scope of this paper. Advances made with security and encryption technology allow parties to a contract to authenticate their respective identities and to 'sign' contracts digitally.

It is therefore suggested that s 9(1)(a) of the Act would only apply to electronic contracts of sale where the seller's web site is hosted on a server located in South Africa. Therefore, the world-wide income of any person selling goods from a website located in South Africa would be sourced in South Africa, that being the place where the contract was concluded. The possibility to collect these taxes would be very remote, for example where a Canadian resident buys a digital book from a company incorporated in Australia through a web site hosted on a server in South Africa and pays the purchase price electronically to the Australian company.

5.3 Royalties - natural source

Information that can be digitised is generally protected by copyright law. The question of the source of royalties came up for consideration in Millin v CIR. The Court regarded royalties as sourced in South Africa if the intellectual property was developed in South Africa, irrespective of where the asset is used to generate the royalties. In the case of Smith v Secretary of Inland Revenue the Appellate Division cast doubt on the reasoning of the court in Millin's case in refusing to equate copyright to property, by stating that the court's finding that copyright is not a capital asset was not necessary for its decision, but the general principle in Millin's case still applies

Thus, royalty income generated by a South African resident is largely taxed on a residence basis under the current tax law and royalties earned by a non-resident would not be sourced in South Africa. The borderless nature of the Internet allows South African residents to move their intellectual property with minimal difficulty to a computer server anywhere in the world to generate income outside South Africa. On the basis of Millin's case a court may well hold that the income received by the South African resident in respect of the use of the immaterial property owned by it abroad is of a South African source because such income is derived from 'the exercise of owner's wits and labour in South Africa'. However, it might be argued (in the light of Smith's case), that the intellectual property is a capital asset and that the royalty income arose from the employment of such capital asset abroad, and are accordingly of a non-South African source. If that is the case and the royalty income is remitted back to South Africa, s 9C would most likely apply.

5.4 Royalties - deemed source.

5.4.1 Sec 9(1)(b)

Section 9(1)(b) of the Act deems an amount to have accrued to any person from a South African source if it has been received by or accrued to him/her by virtue of the use or the right to use in South Africa or the grant of permission to use in South Africa -

This provision does not apply to income received by a natural person not ordinarily resident in South Africa, Namibia, Botswana, Lesotho and Swaziland or to an external company in respect of the use in any printed publication of such copyright, otherwise than for advertising purposes in a motion picture film or television. It is suggested that any printed publication that is subsequently also available digitally, i.e. books and magazines, should also qualify for the exclusion. The justification of this exclusion could be questioned in a tax system that seeks neutrality.

Furthermore, this provision also excludes consideration for the outright disposal of the things enumerated, as the provision only refers to the 'use or right of use... or the grant of permission to use'. Where any of the things enumerated is assigned outright the consideration therefore, whether it takes the form of a lump-sum payment or periodical payments, is taxable in South Africa only if the natural source of the income is in South Africa.

As pointed out above, the consideration paid for downloading a computer program from a web site does not constitute the use of copyright and will only in very limited cases fall into the ambit of s 9(1)(b). Furthermore, the provision indicates that the use must be imparted for use in South Africa, which seems to indicate that where the use is imparted generally the provision would not apply. Almost all the information on the Internet is available to any user and would only in very limited cases be imparted for use only in South Africa. Therefore this provision will have very limited application in the context of electronic commerce. Even if the provision does apply, collecting the taxes would be very difficult, if not impossible.

The Katz Commission criticises this provision, referring to the possibility that currently exists, that royalty payments may be classified as such under South African law, but not covered by South African tax treaties. For example, in the commentary to the tax treaty between South Africa and the United States it is stated that as the term royalties is defined in the Convention it is therefore independent of domestic law. The Commission recommended that, for ease of understanding and international compatibility, the OECD Model Convention definition of royalty should be used.

5.4.2 Sec 9(1)(bA)

An amount received or accrued to any person would be deemed to be from a South African source if it was received or accrued by virtue of:

Section 9(1)(bA) differs from s 9(1)(b) in that it is not confined to any limited use, it includes consideration for the outright and once-and-for-all passing on of know-how. The provision also applies wherever the know how has been obtained or has been or is to be imparted, or the assistance has been or is to be rendered or the undertaking has been given, and whether the payments have been or are to be made to a resident or non-resident. The fact that the parties concerned are non residents and that the know-how is not put into use in South Africa does not render the provision inapplicable.

Horak is of the opinion that this provision aims to encompass the imparting of knowledge (and services connected therewith), but not the product of the knowledge. This implies that the mere granting of a right to use the product of the knowledge (eg computer software) could not fall within the scope of this provision. In many tax jurisdictions payments for the right to use know-how are subject to withholding tax and tax authorities in these jurisdictions have raised the argument that even if the transfer of a software package does not constitute the grant of any significant right to use the copyright, it nevertheless constitutes the grant to use the know-how, and subsequently the product of revenue can be subject to withholding tax on that basis. In this regard De Hosson makes the following remark:

It could therefore be suggested that neither the consideration paid for downloading a software program, nor the instructions provided therewith, would fall under s 9(1)(bA). The proposed US 'Regulations on Computer Program Transactions' seems to follow the same approach in treating the 'provision of services for the modification of the program (and) the provision of know-how regarding computer programming techniques' in the same manner as transfer of a computer program.

Furthermore, it is suggested, that as almost all of the 'knowledge and information' mentioned in this provision could be digitised and could therefore be the object of electronic commerce. The question regarding the application of the provision would again be answered by examining the underlying contract and the facts and circumstances of the case. It should be kept in mind that, when this knowledge and information are available on an open network (like the Internet) and therefore generally available, the provision would not apply.

The Katz Commission levels the same criticism against this provision as against s 9(1)(b) of the Act, recommending that the OECD Model Convention definition of royalties should also replace this provision. The OECD definition makes no reference to services and the Commission recommended that the inclusion of services is inconsistent with the basic distinction between active and passive income. By removing services from the provision current uncertainties would be reduced and the system would find a functional resonance with international norms and practises.

The IFA, during its 51st annual congress in New Delhi (October 1997), adopted a final resolution calling on international organisations (like the OECD and the UN) to formulate guidelines to distinguish between know-how, technical services and other services. Therefore the international trend seems to be to include know-how in a wider royalties definition and to exclude services from such a definition.

5.4.3 Section 35

Section 35 of the Act imposes a withholding tax in respect of royalties that has been received by or accrued to a non-resident or a non-domestic company. The provision only applies to royalties that are deemed to be from a South African source, by virtue of s 9(1)(b) and s 9(1)(bA). In many of the DTAs South Africa concluded, this withholding rate on royalties is reduced or eliminated and will be discussed in the Chapter 6.

5.5 Sections 9C - Investment income from foreign sources.

Following the 5th Katz Commission Report, the Legislator introduced measures to ensure that certain categories of foreign passive investment earned by South African residents (directly or indirectly) are deemed to be from a South African source. These new provisions are contained in s 9C and s 9D of the Act, while s 6quad and s 64B of the Act have been amended to link these with the new provisions. The affected persons are South African residents and non-residents are only affected to the degree that income is connected to a 'permanent establishment' in South Africa. The affected income is investment income, defined in s 9C to be:

5.5.1 Section 9C

This provision deals with investment income earned directly. Where investment income (as defined) is received by or accrues to a resident (as defined) or a non-resident (where the income arose from the activities carried on by him/her through a permanent establishment situated inside South Africa) from a source outside South Africa, it is deemed to have been received or accrued from a South African source. This provision will not apply to investment income connected with a resident's permanent establishment outside South Africa, provided that the establishment is suitably equipped for conducting a substantive business enterprise and the income is effectively connected to the business activities of such resident.

This provision introduces new concepts and definitions into the Act, and also creates new problems in the context of electronic commerce. A comprehensive analysis of this provision is beyond the scope of this Paper and only the problems in an electronic commerce context will be examined. These problems are as follows:

• Persons, other than natural persons, must have its 'place of effective management' in South Africa to be effected by s 9C. As pointed out above the place of 'effective management' of a company that conducts electronic commerce from a website (that being its only business), could be problematic to determine. It is suggested that the day-to-day running of such a company could not take place at any other place than at the location of the server hosting the website. If this website is accessed for updating, changes etc., from a foreign location by, say one of the directors, it could be argued that the day-to-day running of the company is taken place from that foreign location. It is unclear whether 'manage and controlled' should in all circumstances be human activity.
• The term 'permanent establishment' is defined in s 9C(1) with reference to Art 5 of the OECD Model Tax Convention. Mazansky points out, and it is suggested correctly so, that there is a degree of awkwardness in importing a definition of this nature verbatim into the South African domestic tax law. The OECD Model is a model for agreement between Contracting States and at times inappropriate for a domestic tax provision, eg the usage of the term 'Contracting State' which has no relevance at all to the domestic provision. The Katz Commission, in fact, recommended that the OECD Model and UN Model definitions would provide the basic concepts and terminology for the South African legislation, and not that the definition should be used without any adaptation. The Commission touched on the effect that electronic commerce could have on the definition of a 'permanent establishment' and recommended that the degree of 'fixedness' implicit in the definition is no longer appropriate in light of modern trade practises:

• Section 9C(3)(a) deals with persons not affected by the provision and introduce the concept of 'substantial business enterprise'. This concept seems new to the South African tax legislation. An electronic and manual search by both the author and Van Blerck and Horak in local and international legislation, agreements and reports failed to locate the term. It is used in the new Double Taxation Agreement with Japan signed in March 1997, but the term is not defined in the agreement. The Katz Commission Report only discussed the term with reference to Controlled Foreign Corporations (CFC) and the UK rules towards CFCs.

From the abovementioned it is clear that s 9C creates substantial problems in the context of electronic commerce. These problems seems to revolve around the question whether a server could be regarded as a 'permanent establishment' or not and is discussed in Chapter 6.

5.6.1 Services - natural source

It is an established principle in South African tax law that the source of income from services rendered or work done is located where the services are rendered or the work is done, whether they are mental or physical. The originating cause is the rendering of the service or work done, which is the quid pro quo in respect of which the income is received.

When this principle is applied to electronic commerce, it is suggested that any on-line services are performed at the server which hosts the web site. Again we are faced with the problem whether the 'work done', contemplated in case law, is only confined to human activity and whether 'work done' by a computer should also be taken into account. Another argument could be that on-line services are done where the web site is accessed. This would however, lead to a situation where an on-line taxpayer would be rendering services in every single country in the world where the website can be accessed from.

5.6.2 Services - deemed source

In terms of s 9(1)(d) of the Act an amount shall be deemed to have accrued to any person from a source within South Africa if it has been received by or accrued to or in favour of such person by virtue of:

There is a definite difference between this deeming provision and the natural source of services, in that for the purpose of the deeming provision even the place where the services are rendered does not directly matter. The only requisite of s 9(1)(d) is that the income must have accrued to or received by the taxpayer by virtue of services rendered by him in the carrying on of a trade in South Africa. In regards to the natural source the place of the trade may or may not be the decisive test, but as regards the deeming provision the trade in South Africa is the absolute test. It does not matter whether the payment is done by a person in or outside South Africa, where the service is rendered and where payment is made.

'Trade' is defined in s 1 of the Act to include:

It is suggested that this definition is wide enough to include all the know services currently available on the Internet.. In the case of Burgess v CIR Grosskopf JA made the following observation on the nature of trade:

This wide interpretation could mean that even businesses situated outside South Africa could be considered to carry on a trade in South Africa, if such a business has a website hosted on a local server. It is furthermore suggested that even websites of foreign service providers accessed by South Africans, could mean that such businesses are carrying on a trade in South Africa, it being a profitable activity. The possibility of Revenue collecting these taxes is very limited indeed, even less so the possibility of determining the identity and location of these businesses.

As the deeming provision does not concern the location of the services rendered, amounts received for services rendered abroad could also be sourced in South Africa. In ITC 878 the Court was of the opinion that work outside South Africa had to be done as part of the taxpayer's trading in South Africa. In ITC 1585 Melamet J said that this provision was intended to apply where a taxpayer has a trade within South Africa and renders services outside South Africa as part of that trade and was not intended to apply where the taxpayer had two distinct businesses, one within and one outside South Africa. This is of particular relevance to taxpayers in South Africa who also own or control servers abroad. A Court could come to the conclusion that the income generated by such non-South African servers are deemed to be from a South African source by virtue of s 9(1)(d) as the services rendered from that foreign server forms part of the trade of the taxpayer in South Africa.

Amounts received by or accrued to non-residents from where-ever would not fall under this provision, it being immaterial where the services are rendered, whether the payment is made by a person in or outside South Africa or wheresoever such payment is made. But if such a non-resident renders services from a web site hosted on a server in South Africa, it would probably be carrying on a trade in South Africa and therefore the provision will apply.

This provision came under attack from the Katz Commission for inhibiting the smooth flow of trade and investment across South Africa's borders. It stated that:

Although the Commission recommended that active income should continue to be taxed on a source basis, it further recommended that no detailed definition of source should be attempted, and instead the general concept used internationally of taxing business profits with reference to a combination of 'activity' linked to a 'permanent establishment' should form the basis of taxability. Such an approach would ease the sourcing of electronic services income.

From the abovementioned it seems that the crisp issue is whether the existence of a commercial web site hosted on a server in South Africa implies that the owner thereof is carrying on a trade in South Africa. Given the wide interpretation of 'trade' by the courts, it is suggested that it will and therefore s 9(d) would apply.

A Double Taxation Agreement (hereinafter referred to as a 'DTA') is an international treaty concluded between two states to regulate the exercise of tax jurisdiction by the two states. The purpose of such agreements are usually expressed in the preamble to be 'the avoidance of double taxation and the prevention of fiscal evasion'. In the absence of such a treaty double taxation may arise because of the overlap of the taxing jurisdiction of each state. In terms of s 108(1) of the Act and s 241 of the Constitution, the South African Government may enter into agreements with the governments of other countries, with a view to the prevention, mitigation or discontinuance of the levying, under the laws of South Africa and that other country, of tax in respect of the same income. As soon as the agreement has been approved by Parliament, the agreement must be notified by publication in the Government Gazette and thereafter the agreement have the effect as if enacted in the Act.

The concepts of 'permanent establishment' and 'fixed base' in DTAs are very important, since they determine which of the two treaty countries has the primary right to tax the income. If a resident of one country has activities that pass the threshold to constitute a 'permanent establishment' or 'fixed base' in the source country, the source country will have the primary right to tax the income and the resident country will be obliged to give relief from double taxation. In the context of electronic commerce the vital question would be whether a server hosting a website in a specific country constitutes a 'permanent establishment' or a 'fixed base' in that country.

The global and borderless nature of the Internet and the fact that electronic commerce can take place between taxpayers situated anywhere in the world, emphasises the importance of DTAs in the taxation of electronic commerce. In this regard the Katz Commission came to the following conclusion:

The US Treasury echoed this view by identifying the role of tax treaties as one of the most substantive issues on the taxation of electronic commerce.

Concepts in DTAs, like 'business of an enterprise', 'permanent establishment', 'fixed base', 'independent personal services', 'business profits' and 'royalties', will be examined in this Chapter and applied to electronic commerce. Because of the virtual monopoly the United States continues to have on electronic products and services, special attention would be given to the new DTA between South Africa and the United Sates. Furthermore reference would be made to the Commentary on these concepts in the various Model treaties. These model treaties include the OECD Model, the UN Model and the US Model treaties.

In general all the DTAs South Africa entered into provide that a concept or term used in a DTA but not defined therein, will have the meaning that it has under the law of the country whose tax is being applied. Therefore terms and concepts not defined in the relevant DTA would have their South African meaning and definition in this Chapter.

6.2 Permanent Establishment (PE)

The concept of 'permanent establishment' determines which of the two treaty countries has the primary right to tax income. Therefore it is important to test the economic activity that gives rise to the income against the definition of a PE. If the activity passes the PE threshold in the source country, that country would have the primary right to tax the income. In a typical DTA the PE concept relates to the taxation of business profits, dividends, interest, royalties, capital gains and dependant personal services, amongst others. For the purposes of this Paper the taxation of business profits, royalties and dependant personal services are relevant.

It is suggested that the PE concept as defined in the OECD Model will be one of the concepts around which international consensus would seek to tax electronic commerce. Therefore the current OECD definition would be used as a starting point for this discussion. The OECD Model Tax Convention defines a PE in Article 5 as follows:

6.2.1 Business of the enterprise

In Secretary for Inland Revenue v Downing Corbett JA, in dealing with the definition of a PE in the DTA between South Africa and Switzerland, held that:

Therefore, before the PE issue can be answered, the first question to be answered is whether the taxpayer in question carried on a business by having a website hosted on a server in the relevant country.

The term 'carrying on a business' is neither defined in any of the DTAs South Africa concluded nor in any of the Model Conventions or the Commentaries thereto. Therefore, the South African law could be applied as to the meaning of the term.

The definition of 'trade' in s 1 of the Act enumerates a number of activities. As 'business' is merely one of them, it could be argued that the legislature did not intend the term in a wide sense. The courts have, however, not approached the question in this way and the general view seems to be that the words should be given their ordinary signification in the commercial sense.

From a reading of the cases dealing with the term, it is suggested that there is no justification why selling goods or providing services electronically should not be considered the carrying on of a business.

The term 'enterprise' is not defined in any DTA or Model Convention but is understood to refer to any activity that constitute a trade or business.

6.2.2 Could a server hosting a website constitute a PE?

The Katz Commission seems to have come to the conclusion that a server hosting a website in South Africa could not constitute a PE as defined in the OECD Model. It therefore recommended that the degree of fixedness does not recognise modern trade practises and technological advances. The Commission introduced the idea of a business facility that is 'suitable equipped' for that particular business which would possibly push a server over the PE threshold. It should however be noted that these recommendations were made in relation to the taxation of investment income and were not implemented by the legislature in the definition of a PE in s 9C and 9D of the Act.

The OECD Commentary states that a PE may exist if the business is carried on mainly through automatic equipment, with the activities of personnel restricted to setting up, operating, controlling and maintaining such equipment. According to Goldberg & Alpert it appears that these Commentaries were focused on gaming and vending machines. Even in cases where a server can accept orders and deliver the goods, it is far from clear that the seller would have a PE in the country where the server is located.

The Treasury Department is of the opinion that persons engaged in electronic commerce may not have a US PE because they do not have a 'fixed place of business' in the United States, unless a PE is created by imputation from an agents activities. Agency issues could arise from the relationship between a foreign person and an ISP or telecommunications service provider. In most cases of electronic commerce, information will be transmitted to the customer's computer through telephone lines, eg a foreign person who operates a computerised research service might contact with a US telecommunications company to provide the local dial access service so that foreign persons and US customers can access the website or database. Alternatively, the foreign person might use an US-based ISP or customers might use such an ISP to access the website. In this example the ISP and the telecommunications company would not be regarded as agents of the foreign person, and even if they were deemed to be agents, they would certainly be independent agents, with the result that a PE would not arise. It is therefore suggested that the US Treasury Department came to the conclusion that, at least under current rules, the presence of a computer server in the US would not constitute a PE.

In South Africa the agency provisions in the PE definition came up for decision in Secretary for Inland Revenue v Downing. In this case the respondent, a resident of Switzerland, left the management of his South African share portfolio in the hands of a stockbroker in South Africa. The question to be answered was whether the respondent was carrying on a business through a PE in South Africa. Corbett JA stated:

It is therefore suggested that a website hosted on a server owned by an independent agent (like an ISP) would not constitute a PE, because hosting websites would certainly be what such agents do in the normal course of carrying on their business. In this context the US Treasury and the South African Courts come to the same conclusion.

Cigler, Burritt & Stinnet came to much the same conclusion:

Goldberg & Alpert try to resolve the issue by comparing a server to a sales catalogue which is mailed into a state or, where the server can also deliver the goods, to a sales outlet. In the case of the latter, a strong case could be made to constitute a PE, while the former would not constitute one.

Muscovitch comes to the conclusion that a webpage could constitute a PE, but only in the country where the server is located:

Ward is also of the opinion that a server would not constitute a PE. He comes to this conclusion by applying English case law relating to VAT and the 'fixed establishment' concept. The American Bar Association suggests that a computer server would probably not be a PE, except in the case where a person is selling the use of the server itself, as opposed to making use of the server to sell other products and services.

In October 1996 the Second Chamber of the German Supreme Tax Court rendered its decision in a case which came to be referred to as the 'pipeline case'. The court concluded that a Dutch company who controlled and owned an oil pipeline in Germany had a PE in Germany, although the company had no employees in Germany and all its technical and marketing personnel were situated in the Netherlands. All the maintenance and repairs to the pipeline were done by independent contractors in Germany. Hey points out that what is clear from the decision is that no employees or physical presence by the taxpayer was necessary to render a pipeline, controlled from another country a PE, nor was it necessary that the PE be visible. He applies this case to electronic commerce as follows:

During the 1997 IFA Congress when it was discussed whether a server could qualify as a PE, no conclusions could be reached and it was recommended that IFA and the OECD further study these questions. The Turku Paper identified a number of issues that would guide the OECD in deciding whether refinements or changes in the definition of a PE would be in order. These lengthy issues could be summarised at follows:

• The first issue is whether the general conditions for the existence of a permanent establishment may be satisfied by a web site on a server owner or used by a foreign enterprise, taking into account that there would not necessarily be any employees of the enterprise present in the source country. This requires a determination of whether such a site constitutes a 'place of business', whether the server can then be said to be 'fixed' and whether the undertaking of periodical automated business functions may be said to constitute the 'carrying on of a business' through such a fixed place of business.
• The determination of whether the server constitutes a 'fixed place of business' must take into account various possibilities. For instance, a server may be located in a building in a country where the enterprise has no other presence. Alternatively, it could be located on a portable laptop computer used in different places. Further difficulties would arise where a number of mirror web sites on different servers located in different countries would be used so that a customer could be directed to any server depending on electronic traffic. Another possibility would be to have only one website which is electronically transferred to another server in another country every 182 days.
• The ownership of the website contents or data and the ownership of the server would also be relevant. For instance, the enterprise could own the web site but lease the server from a service provider, lease both the web site and the server from the service provider or lease the web site and server and share various functions with the service provider or other web site owners.
• Another issue is whether the activities carried on through a web site go beyond the types of preparatory and auxiliary activities which would not result in a PE. This issue has to be addressed with respect to the various functions that can be automated, such as advertising, ordering, payment, storage and digital delivery as well as with respect to various combinations of these functions. It also requires a determination of the extent to which a database of digital content may be said to constitute a stock of goods and, if that is the case, whether the database may be said to be maintained solely for the purpose of storage, display or delivery if it also has a search and reporting facility. Particular issues arise in respect of the exception, included in sub-para 4(d), concerning the collection of information as it is not clear at what point mere collection of information substantially becomes processing of raw information collected, which may render the exception inapplicable.
• If the functions performed through a web site and a server were such that they did not constitute a PE, there would also be a need to examine whether or not any other activities were carried on through that server, eg where the enterprise would lease excess capacity on its server to another enterprise to operate a web site.
• Other issues arise with respect to the relationship between an enterprise that owns a web site and the ISP, the questions being whether or not and to what extent the latter may be considered to be an agent of the former.
• If it is determined that a web site is a PE, it is necessary to determine the income attributable to that PE. Particular difficulties could arise in these cases because there are no branches in the traditional sense and therefore no branch account operations between the branch and the head office which could be used as the starting point. In addition, it might be difficult to determine the functions and transactions that should be attributed to the operations of the PE if mirror web sites in other countries are used to handle transactions when the web site in question redirects the transactions because of traffic volumes.

It seems clear from the aforesaid that neither a server hosting a website nor access to such a website would constitute a PE in most countries under current rules. The fact that some countries might treat a server differently than others for tax purposes is worrisome in an international tax context. Because servers are entirely mobile, they would be rushed to countries where they would not be considered PEs, eg to escape withholding taxes. The same principles would apply for purposes of s 9C and 9D of the Act. The mobile nature of electronic commerce necessitates an uniform international approach in this regard. In light of these issues, the OECD Working Group on Permanent Establishment is currently examining the changes to be considered to the definition of a PE.

6.2.3 Business Profits

The general principle in DTAs is that the 'business profits' of a resident of one state, shall only be taxable in that state unless that resident carries on business in the other state through a PE situated therein, but only so much of the profit as is attributable to that PE.

Most DTAs and Model DTAs does not define 'business profits'. However, the US Model Treaty defines the concept as income from any trade or business, including income derived by an enterprise from the performance of personal services, and from the rental of tangible personal property. The Treaty between South Africa and the US does not define the concept, but from reading the Technical Explanation to the Treaty, it is clear that the same definition as set out in the US Model Treaty is applied. Income received for the transfer of 'shrink-wrap' computer software is considered to be 'business profits' in the US Model Treaty and it is suggested that this is internationally accepted to be the situation with software that is bought and delivered electronically. Cigler, Burritt & Stinnet suggest that 'business income' means the same as active income. Some DTAs treat 'business income' as 'industrial and commercial profits' and give detailed definitions of what these profits include, eg the DTAs with Botswana, Germany, Malawi, Namibia, Uganda & Tanzania, the United Kingdom, Zambia, and Zimbabwe. In Commissioner of Taxes v Aktiebolaget Tetra Pak Beadle CJ held that the term 'industrial and commercial profits' should be given a wide meaning:

The question whether income from services provided by companies should be regarded as 'business profits' or 'independent personal services' seems unclear. The issue is of importance because 'business profits' relates to the PE concept, while 'independent personal services' usually relates to the concept of a 'fixed base' in most DTAs. This issue came up for discussion during the 1997 IFA Congress, where it was concluded that from a academic point of view Article 14 (Independent personal services) in the OECD Model applied to companies, but was in practice not applied to companies and only applied to individuals and partnerships.

It is suggested that this issue be resolved by application of the relevant DTAs between the States concerned, and if that is not possible by mutual agreement between the competent authorities.

As business profits are linked to the 'permanent establishment' concept, it is suggested that non-residents earning 'business profits' through a website hosted on a server located in South Africa, would not be taxed thereon in South Africa.

6.2.4 Royalties

In most DTAs royalties derived by a resident of a certain state, shall only be taxable in that state. This is referred to as the 'exclusive taxation of royalties' in the state of resident. This provision will not apply if the owner of the royalties carries on business through a PE or performs independent personal services from a fixed base situated in the source state and the royalties are attributable to that PE or 'fixed base'.

In the DTA between South Africa and the United States the term 'royalties' is defined in Article 12(2) as:

The OECD definition of royalty included consideration for the use of certain equipment as royalties but was amended in 1992 to exclude rental income from the 'use of industrial, commercial, or scientific equipment', and income from the use of such equipment is now treated as business profits. It should be noted that a large number of OECD member countries had reservations indicating that they wished to continue defining rental income from such equipment as royalties and continue imposing withholding taxes thereon.

During the 1997 OECD Conference in Turku (Finland) it was concluded that:

Most double taxation agreements reduce or eliminate the withholding tax on royalties provided that the foreign taxpayer is taxed in his/her home country on the income. In DTAs concluded with most of South Africa's treaty partners the withholding rate is eliminated, with the exception of Botswana, Canada, Croatia, the Czech Republic, India, Japan, Korea, Lesotho, Malta, Poland, Romania, Singapore, and Taiwan.

Furthermore, a certain number of DTAs deem royalties to arise in a certain state. Of the Model Conventions only the UN Model contains this deemed source provision. According to Article 12(5) of the UN Convention:

The DTAs South Africa concluded with Austria, Canada, Croatia, Germany, the Czech Republic, Finland, France, Hungary, Israel, India, Japan, Korea, Lesotho, Malta, Poland, Romania, Sweden, Singapore, Thailand and Taiwan contain this deemed source provision where royalties are concerned.

The effect of this deemed source provision is that royalties are sourced to the residence of the payer, irrespective of the fact that the transaction was concluded on the Internet and irrespective of the question whether a server constitutes a PE or not.

6.2.4.1 Royalties: Computer Software

A limited number of DTA deal with the question of computer software. In the DTA between South Africa and the United States 'royalties' are defined to include the use of computer software. In the Technical Explanation to this treaty it is stated that:

Currently only the DTAs with Canada, the Czech Republic, Japan, Lesotho, Mauritius, Thailand, and the United States have the use of computer software as part of the 'royalties' definition and it is suggested that the same principles would apply as quoted above.

6.2.4.2 Royalties: Know-how

DTAs also consider payment for information concerning industrial, commercial or scientific experience as royalties, which alludes to the concept of 'know-how'. Payments as consideration for after-sales service, for services rendered by a seller to a purchase under a guarantee, for pure technical assistance, or for an opinion given by an engineer, advocate or accountant, does not constitute royalties.

6.2.4.3 Royalties: The use of equipment

The fact that some DTAs concluded by South Africa include the 'use or right to use, industrial, commercial or scientific equipment' as part of the royalties definition could have far reaching implications for electronic commerce, especially for ISPs. The following questions come to mind:

• Does a South African resident who has data hosted on the computer server of a foreign ISP, use the 'commercial' equipment of that service provider?
• Does hosting data on a computer server constitute the use of that computer or does the owner of the server computer simply provide a service or lease 'space' on that computer to a client?

Neither the Commentary to the OECD Model (before the 1992 amendment) nor the UN Model provide any guidelines to answer there questions. Karlin suggests that the income ISPs receive for access to or the conveyance of data on the Internet, are payments for services and thus not for the use of their equipment. It is suggested that treaty partners will have to characterise the payments received by ISPs as either royalties (from the use of their equipment) or as payment for services. If such 'rental' payments would result in royalties, it would be very difficult, if not impossible, for a resident to know in what jurisdiction the service provider is located and whether to withhold tax and at what rate. The whole issue would also relate to the question whether a server computer constitutes a PE

Currently the DTAs South Africa concluded with Botswana, Canada, the Czech Republic, Germany, France, Hungary, Israel, Japan, Swaziland, Malawi, Zimbabwe, Poland, Romania, Switzerland, Taiwan, Thailand, the United Kingdom and the Netherlands include the 'use of industrial, commercial and scientific equipment' in the definition of royalties. In the remaining DTAs payment for the use of equipment will in most cases be treated as business profits or as personal services.

6.2.4.4 Royalties: Technical Services

Unlike all the other DTAs South Africa concluded, the DTA with India levies a withholding rate of between 12% and 10% on fees for technical services. This DTA treat royalties and fees for technical services in the same manner. Fees for technical services are defined in art 12(4) of the DTA as:

It is unclear how this definition differs from that of 'Professional Services' in Article 14 of the DTA, which is defined to include:

It seems that the difference lies in the use of the word 'independent' in Article 14, but surely the services contemplated in Article 12(4) could also be performed independently. Furthermore, these technical services are deemed to be sourced in either India or South Africa when:

The effect of this deeming provision is that the technical services provided by a South African resident and paid for by a resident of India will be sourced in India, irrespective of the fact that the services were provided electronically and irrespective of the location of the server making such services possible. The fees will also be sourced in India if a non-resident of that country has a permanent establishment of fixed base in India that borne that fees. Obviously it would be difficult for the competent authorities of both countries to enforce this provision, especially when the services are provided electronically. Furthermore residents of both countries providing electronic services could construct the contract in such a way that the services fall under Article 14 of the treaty and so avoid the withholding tax. Nevertheless, to source services where the payer resides seems like an innovative way to source transactions conducted over the Internet.

6.3 Fixed-base or 183-day rule

Article 14 of the DTA concluded between South Africa and the United States states that:

Article 14 further states that only the income attributable to the 'fixed base' is taxable in the other state and that there is deemed to be a 'fixed base' if a resident of one state is in the other state for a period or periods exceeding in the aggregate 183 days in any 12 month period. This deeming provision is not in the US or OECD Model Conventions but appears in the UN Model. Only the DTAs South Africa concluded with Canada, Croatia, the Czech Republic, Denmark, Finland, India, Ireland, Korea, Malawi, Malta, Namibia, Norway, Thailand, Uganda and Tanzania, Japan, Singapore, the United States, Zambia and Zimbabwe have the 183-day deeming provision.

The use of the word 'individual' in Article 14 (Independent personal services) of the treaty between South Africa and the United States suggests that this provision does not apply to companies. This is confirmed in the Commentary under Article 14. It should be noted that the definition of a PE in this treaty includes:

The fact that services performed by a company for longer than 183 days in either South Africa or the United States is deemed to be a PE, means that for a company performing services there is deemed to be a PE and for an individual performing personal services there is deemed to be a 'fixed base' if it continues for more than 183 days. But it seems clear from the definition that the services of a company must be performed through employees or personnel of the enterprise, which would exclude services performed by a server computer where no employees or personnel of the enterprise are employed, irrespective of the number of days. In the 183 days deeming provisions relating to individuals, Article 14 states that the individual must 'stay' in the State concerned for that number of days. If an individual performs services from a server in one State, he or she would in most cases never have to 'stay' at the same location as the server. It would even be possible for such a individual to update and change his or her server from a foreign location. It is therefore suggested that both deeming provisions require the presence of residents or employees of a resident company of one state at the location where the services are provided, which would not be the case where a server provides the services electronically.

The term 'professional services or other activities of an independent character' is not defined in the treaty between South Africa and the United States. In the UN Model the term is defined to include independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants. The same definition is used in the OECD Model and the Commentary thereto states that the enumeration has an explanatory character only and is not exhaustive. It should be noted that the services of artists, like entertainers, could fall under the provisions of other articles in some DTAs. Furthermore this provision does not relate to dependent personal services and relationships as between employer and employee, which is dealt with in other provisions and not necessarily relevant to electronic commerce taxation.

The term 'fixed base' is not defined in any of the Model Conventions. According to the Technical Explanation to the treaty between South Africa and the United States, the meaning of a 'fixed base' is understood to be similar but not identical to that of a PE. During the 1996 IFA Congress in Geneva the remark was made that a 'fixed base' and a PE were different phrases, which implied that they should have different meanings, and that a 'fixed base' implied a given location, a degree of continuity or permanence and a connection between the activity and the base. The OECD Commentary states that the taxation of 'business profits' and 'independent personal services' are based on the same principles, but that the concept of a PE should be reserved for commercial and industrial activities. The reasoning behind this argument is unclear.

The Commentary to the US Model Convention concludes that the question whether a 'fixed base' is regularly available must be determined by the facts and circumstances of each case.

It is therefore suggested that the problems electronic commerce and the use of server computer create in defining a PE, would also apply to a 'fixed base'. It could be assumed that possible changes to the PE definition would also apply to a 'fixed base'.

The information revolution continues to sweep through the world economy at a speed nobody expected. Tax principles and systems of tax administration will have to adapt. Cyberspace is a borderless world and our current views of source and residence will become increasingly vague. Tax legislation and tax courts throughout the world never expected a new and borderless global trade route.

Officials at the South African Revenue Service are aware of the new problems, but for solutions they look at the Legislature. Current rules and principles can simply not provide any answers. Therefore this Paper concentrated on the problems created by electronic commerce. As to possible solutions, the Katz Commission shares the indecisiveness plaguing legislators in this area:

Nevertheless, the author cannot resist the temptation to speculate about the future. In the current chaos, one thing seems clear, and that is that no future tax system would be effective if it is not the product of international consensus. Such a system should be equitable, simple and certain. The system should also be sufficiently flexible and dynamic to ensure that tax rules keep pace with further technological and commercial developments. In this regard the OECD and the UN will play a very important role.

It is suggested that the solution to effectively taxing electronic income would be one of, or a combination, of the following possibilities:

• Existing definitions, concepts and judgements in domestic tax law could be expanded and re-defined to be applicable to electronic commerce;
• Existing domestic legislation and DTAs could be amended to provide for electronic commerce. This could be done in much the same way as the current s 9C in the Act;
• The Legislature could adopt a wait-and-see approach and incorporate international consensus in domestic legislation and DTAs;
• A multilateral super-DTA to regulate the taxation of electronic commerce could be established where every country is a treaty partner; and
• There could be a move away from income tax to indirect taxes, such as a use tax for Internet access. The idea of 'tax toll booths' on the Internet could also be examined.

Personally the author would prefer the idea of a super-DTA to tax income from electronic commerce internationally. This could be done under the auspices of either the OECD and the UN or under the WTO. The only purpose of such a DTA would be to source electronic income to a certain country. It would create international certainty and source income to a specific country according to international rules contained therein. This approach would limit the impact on domestic legislation and fruitless exercises in definition stretching. It could truly be a tax treaty for cyberspace that strikes a balance between the developed and developing world.

In the interim, the current chaos and uncertainty create the climate for limitless tax planning possibilities.

Finally, and borrowing from Michael Karlin, the author hopes that this Paper lifted some of the cosmic fog which seems to settle on the tax community when the Internet is the topic. However, it would take much more than a light legislative breeze to lift this fog permanently. A gale force south-easter seems more appropriate.

Books, Reports and Articles

1. Bracewell-Milnes B & Jager J Summery of IFA Congress proceedings 1997 IFA Bulletin (January 1998)

2. Brush M in Money Daily The taxman cometh to the Web - but not just jet (February 25, 1998)

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4. Cleaver B & Hutton S South Africa - importation of technology SATR (1997)

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5. Dunahoo & Carlisle Cybertax - discussion of US Treasury paper Tax Notes International Vol 14 No 8 (1997)

6. Emslie T S, Davis D M & Hutton S J Income Tax Cases and Materials 2ed (1995)

7. Eskinazi R South Africa - Double tax agreements SATR 1995

8. Geary J in Time Magazine (Digital Supplement) Digital Cities (June 29, 1998)

9. Goldberg S H & Alpert H H Internet sales pose International Tax Challenges L&V Tax Information (April 1997)

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10. Greguras F M Electronic commerce: On-line contract issues Presentation made at the Law Seminars International (September 21, 1995)

(availibe at http://www.oikoumene.com/ec_contracts.html downloaded on 8 June 1998)

11. Hardesty D Digital Signatures Bill Approved by Senate Committee E- Commerce Tax News August 16, 1998

(available at http://www.mshb.com/ec/081698.htm received by eMail on date of publication)

12. Hardesty D Eropean Commission says Electronically Delivered Products are Services E-Commerce Tax News June 23, 1998

(available at http://www.mshb.com/ec/062398.htm downloaded on August 20, 1998)

13. Hey F E F Permanent Establishment - remote-controlled pipeline German Court ruling Tax Notes International Vol 14 No 8 (1997) at 651

14. Horak W South African importation of software - income tax implications SATR (1993)

15. Huxham H & Haupt P Notes on South African Income Tax (1998)

16. International Fiscal Assosiation Resolutions passed at the 51st IFA Congress in New Delhi IFA Bulletin (January 1998)

17. Irons J S in Electronics Bulletin Board Taxing the Internet (April, 30 1998)

(available at http://economics.tqn.com/library/weekly/aa043098.htm downloaded on April 30, 1998)

18. Joubert D J, Otto J M & Grove N J Algemene Kontraktereg Suid-Afrikaanse Handelsreg 3ed (1992)

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20. Kranz M in Time Magazine at p 40 Click till you drop (August 3, 1998)

21. Lambooij M Rethinking corporate residence Loyens &Volkmaars Tax Information (June 1997)

22. Mazansky E The residence concept in SA Tax legislation SATR (1994)

23. Mc Loed D in Financial Mail at p 44 Legislating what they can't see (April 10, 1998)

24. Meyerowitz D Meyerowitz on Income Tax (1997-1998ed)

25. Muscovitch Z Taxation of Internet Commerce (April 1996)

(available at http://www.globalserve.net/~zak/Taxation.html downloaded on May 19, 1998)

26. OECD Economic Commerce: The challenges to tax authorities and taxpayers (discussion paper to Turku Conference) (November 17, 1997)

(available at http://jya.com/turku18.htm downloaded on August 3, 1998)

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30. US Executive Order A Framework For Global Electronic Commerce (1997)

(available at http://www.iitf.gov/eleccomm/comm.htm downloaded on May 14, 1998)

31. USA Treasury Department Office of Tax Policy Selected Tax Policy implications of global electronic commerce (November 1996)

(available at http://www.fedworld.gov/pub/tel/internet.txt downloaded on May 14, 1998)

32. Van Blerck M & Horak W South Africa - worldwide tax of residents SATR (1997)

33. Van der Merwe C G Sakereg 2ed (1989)

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Commission Reports

1. Franzen Commission: Taxation in South Africa: Second Report RP 86/1970

2. Katz Commission: Interim Report 5 Basing the South African Tax system on the source or residence principle - options and recommendations (March 1997)(available at http://www.finance.gov.za/katz/katz5_1.htm)

3. Margo Commission: Report of the Commission of Inquiry into the Tax Structure of the Republic of South Africa RP43/1987

4. Steyn Commission: First Report of the Committee of Enquirey into the Income Tax Act UG No 75-1951

Model Taxation Agreements

1. OECD Committee on Fiscal Affairs The OECD Model Tax Convention on Income and Capital and Commentary (1992 amendment)

2. United Nations United Nations Model Tax Convention between Developed and Developing Countries Resolution 1541 (December 1979)

3. United States of America Treasury Department United States Model Income Tax Convention & Commentary (September 20, 1996)

Republic of South Africa: Double Taxation Agreements

Botswana Proclamation R49 of 1978

Canada GN 675 Government Gazette 17985, May 7, 1997

Czech Republic Government Notice 55 Government Gazette 18603, January 7, 1998

France GN 1463 Government Gazette 16681, September 27, 1995

Finland GN 1878 Gazette Gazette 16862, December 1, 1995

Germany Proclamation R125 of 1973 (Federal Republic)

Hungary GN1521 Government Gazette 17438, September 13, 1996

India GN 1709 Government Gazette 18545, December 12, 1997

Ireland GN 1720 Government Gazette 18552, December 15, 1997

Israel Proclamation R139 Gazette 6577, July 13, 1979

Japan GN 1419 Government Gazette 18391, October 27, 1997

Korea GN 14 Government Gazette 16918, January 26, 1996

Lesotho GN 607 Government Gazette 17948, April 22, 1997

Malawi Proclamation R176, 1971

Malta GN 1573 Government Gazette 18461, November 21, 1997

Mauritius GN 915 Government Gazette 18111, July 2, 1997

Namibia GN 683 of 1959 as amended by GN R2072 of 1969

Netherlands Proclamation R140 of 1971

Norway GN 1685 Government Gazette 17504, October 15, 1996

Poland GN 842 Government Gazette 17201, May 16, 1996

Romania GN 1462 Government Gazette 16680, September 27, 1995

Singapore GN 33 Government Gazette 18599, January 2, 1998

Swaziland Proclamation 70 of 1973

Switzerland Proclamation R240 of 1967

Taiwan GN 1455 Government Gazette 17408, September 3, 1996

Thailand GN 1456 Government Gazette 17409, September 3, 1996

Uganda & Tanzania Proclamation 146 of 1960

United Kingdom Proclamation R17 of 1969 as amended by Proclamation R138 of 1969.

United States of America Government Gazette 18553, December 15, 1997

Zambia Proclamation 174 of 1956 and Proclamation 60 of 1960

Zimbabwe Proclamation 214 of 1965

Cases

1. Burgess v CIR 1993 (4) SA 161 (A)

2. CIR v Epstein 1954 (3) SA 689 (A)

3. CIR v Kuttel 1992 (3) SA 242 (A)

4. CIR v Lever Brothers & Another 1946 AD 441

5. Cohen v CIR 1946 AD 174

6. COT v Aktielbolaget Tetra Pak 1966 (4) 198 (R AD)

7. COT v Shein 1958 (3) SA 14 (FC)

8. COT v William Dunn & Co Ltd 1918 AD 607

9. Millin v CIR 1928 AD 207

10. Nathan's Estate v CIR 1948 (3) SA 866 (N)

11. Northern Office Micro Computers (Pty) Ltd & Others v Rosenstein 1981 (4) SA 123 (C)

12. R v Levy 1929 AD 213

13. S v Henckert 1981 (3) SA 445 (A)

14. Secretary for Inland Revenue v Downing 1975 (4) SA 518 (A)

15. Smith v Secretary of Inland Revenue 1968 (2) 480 (A)

16. Tel Panda Investigation Bureau (Pty) Ltd v Van Zyl 1965 (4) SA 475 (E)

17. Transvaal Associated Hide & Skin Merchants v COT Botswana 29 SATC 97

Special Income Tax Court Cases

1. ITC 770 (1954) 19 SATC 216

2. ITC 878 (1959) 23 SATC 230

3. ITC 1190 (1974) 35 SATC 188

4. ITC 1193 (1975) 35 SATC 220

5. ITC 1501 (1989) 53 SATC 314

6. ITC 1529 (1992) 54 SATC 252

7. ITC 1585 (1996) 57 SATC 81

Statutes: South Africa

1. Income Tax Act 58 of 1962

2. Copyright Act 98 of 1978

3. Constitution of the Republic of South Africa Act 108 of 1996

Statutes: Other Countries

1. Internet Tax Freedom Act US HR 1054 S 442

(available at http://thomas.loc.gov)