GENERAL EFFECTIVE DATE UNDER ARTICLE 28: 1 JANUARY 1998 　　　　　　　　　TABLE OF ARTICLES Article 1---------------------------------General Scope Article 2---------------------------------Taxes Covered Article 3---------------------------------General Definitions Article 4---------------------------------Residence Article 5---------------------------------Permanent Establishment Article 6---------------------------------Income from Immovable (Real) Property Article 7---------------------------------Business Profits Article 8---------------------------------Shipping and Air Transport Article 9---------------------------------Associated Enterprises Article 10--------------------------------Dividends Article 11--------------------------------Interest Article 12--------------------------------Royalties Article 13--------------------------------Capital Gains Article 14--------------------------------Independent Personal Services Article 15--------------------------------Dependent Personal Services Article 16--------------------------------Directors' Fees Article 17--------------------------------Entertainers and Sportsmen Article 18--------------------------------Pensions and Annuities Article 19--------------------------------Government Service Article 20--------------------------------Students, Apprentices and Business Trainees Article 21--------------------------------Other Income Article 22--------------------------------Limitation on Benefits Article 23--------------------------------Elimination of Double Taxation Article 24--------------------------------Non-discrimination Article 25--------------------------------Mutual Agreement Procedure Article 26--------------------------------Exchange of Information and Administrative Assistance Article 27--------------------------------Diplomatic and Consular Officers Article 28--------------------------------Entry into Force Article 29--------------------------------Termination Letter of Submittal---------------------of 13 June, 1997 Letter of Transmittal-------------------of 26 June, 1997 The "Saving Clause"-------------------Paragraph 4 of Article 1 　　　　　　　　　　　　　　　MESSAGE 　　　　　　　　　　　　　　　FROM 　　　　　　　　THE PRESIDENT OF THE UNITED STATES 　　　　　　　　　　　　　TRANSMITTING 　　CONVENTION BETWEEN THE UNITED STATES OF AMERICA AND THE REPUBLIC OF SOUTH AFRICA FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND CAPITAL GAINS, SIGNED AT CAPE TOWN FEBRUARY 17, 1997 　　　　　　　　　　　LETTER OF SUBMITTAL 　　　　　　　　　　　　　　　　　　　　　　　DEPARTMENT OF STATE, 　　　　　　　　　　　　　　　　　　　　　　　Washington, June 13, 1997. The PRESIDENT, The White House. 　　THE PRESIDENT: I have the honor to submit to you, with a view to its transmission to the Senate for advice and consent to ratification, the Convention Between the United States of America and the Republic of South Africa for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains, signed at Cape Town on February 17, 1997 ("the Convention"). 　　Currently, there is no income tax convention between the United States and South Africa. The income tax convention between the United States and South Africa of December 13, 1946 was terminated July 1, 1987, pursuant to the terms of that convention and Section 313 of the Comprehensive Anti-Apartheid Act of 1986. The proposed Convention generally follows the pattern of the U.S. model treaty. It establishes maximum rates of tax that may be applied to various types of income, protection from double taxation of income, exchange of information to prevent fiscal evasion, and standard rules to limit the benefits of the Convention so they are available only to persons that are not engaged in treaty shopping. Like other U.S. tax conventions, this Convention provides rules specifying when income that arises in one of the countries (the "source country") and is beneficially owned by residents of the other country (the "country of residence") may be taxed by the source country. 　　The Convention establishes maximum rates of tax that may be imposed by the source country on specified categories of income, including dividends, interest, and royalties, to residents of the other country that are the same as those in the U.S. model treaty and in many recent conventions with OECD countries. Pursuant to Article 10, dividends from direct investments are subject to tax by the source country at a rate of five per cent. The threshold ownership criterion for direct investment is ten per cent, consistent with other modern U.S. treaties, in order to facilitate direct investment. Other dividends are generally taxable by the source country at 15 per cent. 　　In general, under Article 11, interest derived and beneficially owned by a resident of a Contracting State is exempt from tax by the source country and may be taxed only in the State in which the owner of the income resides. Under Article 12, royalties derived and beneficially owned by a resident of a Contracting State may also be taxed only in the State in which the owner of the income resides. 　　These rates of taxation on royalty and interest income do not apply, however, if the beneficial owner of the income is not a resident of, but carries on business in the source country and the income is attributable to a permanent establishment in the source country. In that situation, the income is to be considered either business profit or income from independent personal services and is subject to the provisions of Articles 7 and 14, which deal with these classes of income. 　　Like other U.S. tax treaties, this Convention provides the standard anti-abuse rules for certain classes of investment income in Articles 10 and 11. 　　The taxation of capital gains, described in Article 13 of the Convention, follows the pattern of the U.S. model tax treaty. It provides that gains from the sale of real property (including a U.S. real property interest) are taxable in the State in which the property is situated. Gains from the sale of personal property that is part of a permanent establishment or fixed base may be taxed in the State in which the permanent establishment or fixed base is located. The proposed Convention permits taxation of profits from international carriage by ships or airplanes only by the country of residence. Gains, including gains from the sale of ships, aircraft, or containers operated or used in international traffic are taxable only in the Contracting State in which the alienator is located. 　　Article 7 of the proposed Convention generally follows the standard rules for taxation by one country of the business profits of a resident of the other. The non-residence country's right to tax such profits is generally limited to cases in which the profits are attributable to a permanent establishment located in that country. The proposed Convention, however, grants rights to tax business profits that generally are somewhat broader than those found in the U.S. and OECD model treaties. Under the proposed Convention, pursuant to the definition of a "permanent establishment" in Article 5 (2) (k), an enterprise will have a permanent establishment in a Contracting State if its employees or other personnel provide services within that State for 183 days or more within a 12-month period in connection with the same or a connected project. 　　As do all recent U.S. tax treaties, this Convention preserves the right of the United States to impose its branch profits tax in addition to the basic corporate tax on a branch's business (Article 10). The proposed Convention, at Article 7, also accommodates a provision of the 1986 Tax Reform Act that attributes to a permanent establishment or fixed base income that is earned during the life of the permanent establishment or fixed base but is deferred and not received until after the permanent establishment or fixed base no longer exists. 　　Consistent with U.S. treaty policy, Article 8 of the new Convention permits only the country of residence to tax profits from international carriage by airplanes and ships. This reciprocal exemption also extends to income from the rental of ships or aircraft if the rental income is incidental to income from the operation of the craft in international traffic. 　　The taxation of income from the performance of personal services under Articles 14 and 15 of the proposed Convention is subject to rules that essentially follow those of the U.S. model treaty. The 183-day personal service requirement in the definition of permanent establishment (Article 5) is adopted in the definition of fixed base in Article 14. 　　Under Article 18 of the proposed Convention, at the request of South Africa, the tax treatment of pensions differs from that in the U.S. model treaty. Pensions will be subject to limited source-country tax. The residence country may also tax, subject to a foreign tax credit, if the source country has taxed the pension. 　　Article 22 of the proposed Convention contains significant anti-treaty-shopping rules making the Convention's benefits unavailable to persons engaged in treaty shopping. 　　The proposed Convention also contains the standard rules necessary for administering the Convention, including rules for the resolution of disputes under the Convention (Article 25). The information-exchange provisions of the proposed Convention (Article 26) make clear that South Africa is obligated to provide U.S. tax officials such information as is necessary to carry out the provisions of the Convention. The information is understood to include bank information. Consistent with U.S. policy, South African information will be available to U.S. authorities regardless of whether South Africa has a "tax interest" in the information. 　　The Convention would permit the General Accounting Office and the tax-writing committees of Congress to obtain access to certain tax information exchanged under the Convention for use in their oversight of the administration of U.S. tax laws and treaties (Article 26). 　　In accordance with Article 28, the United States and South Africa must notify each other that their constitutional requirements for entry into force of the Convention have been satisfied. The Convention will enter into force 30 days after the later of the notifications. It will have effect, with respect to taxes withheld at the source, for amounts paid or credited on or after the first day of January following entry into force. In other cases the Convention will have effect with respect to taxable periods beginning on or after the first day of January following the date on which the Convention enters into force. 　　Article 29 provides that the proposed Convention will remain in force indefinitely unless terminated by one of the Contracting States. Either State will be able to terminate the Convention after five years from the date on which the Convention enters into force by giving prior notice of at least six months through diplomatic channels. 　　A technical memorandum explaining in detail the provisions of the Convention will be prepared by the Department of the Treasury and will be submitted separately to the Senate Committee on Foreign Relations. 　　The Department of the Treasury and the Department of State cooperated in the negotiation of the Convention. It has the full approval of both Departments. Respectfully submitted, MADELEINE ALBRIGHT. 　　　　　　　　　　　　　LETTER OF TRANSMITTAL 　　　　　　　　　　　　　　　　　　　　　THE WHITE HOUSE, June 26, 1997. To the Senate of the United States: 　　I transmit herewith for Senate advice and consent to ratification the Convention Between the United States of America and the Republic of South Africa for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains, signed at Cape Town, February 17, 1997. Also transmitted is the report of the Department of State concerning the Convention. 　　This Convention, which generally follows the U.S. model tax treaty, provides maximum rates of tax to be applied to various types of income and protection from double taxation of income. The Convention also provides for the exchange of information to prevent fiscal evasion and sets forth standard rules to limit the benefits of the Convention so that they are available only to residents that are not engaged in treaty shopping. 　　I recommend that the Senate give early and favorable consideration to this Convention and give its advice and consent to ratification. 　　　　　　　　　　　　　　　　　　　　　　　　　　　WILLIAM J. CLINTON.