In order to prevent the double taxation of income of an entity that is deemed resident in two different countries, the OECD has a tie-breaker rule that is intended to ensure that the residence of a such a “dual resident” entity is allocated to the country in which its “place of effective management” is situated. The OECD considers the “place of effective management” as the place where the key management and commercial decisions of an entity’s business are made. In the past, the most senior managers of an entity tended to operate from and meet in a single location such as a head office of an enterprise and so the determination of its place of effective management was not too difficult. However, globalisation and the resultant technological advancements have fundamentally changed the way businesses are run. With the evolving communications technology, it is no longer necessary for a group of persons to be physically located or to meet in one place to hold discussions thus making it difficult to determine a single place of effective management. This article analyses the challenges that globalisation and the resultant technological advancements pose to the concept “place of effective management”. The article points out the fact that the effectiveness of this concept in this global era has been further limited by the lack of an international meaning of the concept. This has encouraged countries to construe the concept to have a similar meaning to other concepts used in domestic legislations that do not have a tie breaker purpose. In light of the challenges brought about by globalisation, the article suggests recommendations, from a South African perspective, that could ensure the effectiveness of the concept as a tie breaker rule.
|Keywords:||Double Taxation, Place of Effective Management, E-Commerce|
Senior Lecturer, Department of Mercantile Law, University of South Africa, Pretoria, Gauteng Province, South Africa
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