South Africa: MLI to enter into force 1 January 2023

Approximately 50 of South Africa’s 80 tax treaties will be modified.

Approximately 50 of South Africa’s 80 tax treaties will be modified.

South Africa on 30 September 2022 deposited its instrument of ratification for the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI).  The MLI will now enter into force in South Africa on 1 January 2023.

With effect from 1 January 2023, approximately 50 of South Africa’s 80 tax treaties will be modified to the extent provided by the MLI and South Africa’s specific elections. However, among South Africa’s tax treaties that will not currently be modified are those with Germany, Botswana, Brazil, Mozambique, and the United States.

One key modification that will affect most of South Africa’s tax treaties covered by the MLI is the so-called “principal purpose test” (PPT). The PPT provides that a benefit under a tax treaty will not be granted if it is reasonable to conclude that obtaining the benefit was one of the principal purposes of the arrangement or transaction that resulted directly or indirectly in that benefit, unless the granting of the benefit was in accordance with the object and purpose of the treaty. 

KPMG observation

Although time will tell how the South African Revenue Service, the courts and/or the international tax community will interpret the PPT, it may mean that any cross-border structure or transaction that was arranged for a purpose that includes that of obtaining a tax benefit under a treaty, and which ultimately amounts to an abuse of that treaty, will infringe the PPT and likely result in a cancellation of a particular treaty benefit.

Each “benefit” available under a tax treaty will now need to be tested against the PPT to assess whether obtaining such a benefit is justifiable in the circumstances.


The MLI is one of the outcomes of the OECD/G20 Project to tackle BEPS, which resulted in the release of 15 “actions” in November 2015. These actions are essentially measures that aim to, in a cross-border context, tax profits where substantive economic activities generating the profits are carried out and where value is created. These actions include tax treaty-related measures aimed at addressing certain hybrid mismatch arrangements, preventing treaty abuse, addressing the artificial avoidance of permanent establishment status, and improving dispute resolution between taxpayers and revenue authorities. Since implementing these measures involves changes to more than 3,000 tax treaties, the adoption of the MLI enables countries to swiftly alter their tax treaties to implement these measures

Read an October 2022 report [PDF 242 KB] prepared by the KPMG member firm in South Africa


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