Treaty Override: The Conflict Between Article 24(4) of the OECD Model Convention and Section 23M of South Africa’s Income Tax Act

The taxation of cross-border transactions is predominantly governed by the Organization for Economic Co-operation and Development (OECD) Model Convention that South Africa and other jurisdictions have adopted through a network of double tax conventions (DTCs). These DTCs are incorporated into domestic law via section 108(2) of the Income Tax Act and read alongside section 231 of the Constitution. However, conflicts between domestic law and DTCs (treaty override) pose a significant legal challenge. South Africa’s legal framework remains ambiguous as to whether DTCs or domestic legislation takes precedence in such cases as evidenced by existing case law. This article examines the conflict between Article 24(4) of the OECD Model Convention and section 23M of the Income Tax Act. The author draws on key case law and argues that DTCs should take precedence over domestic legislation in cases of conflict unless the override aligns with the fundamental objectives of the DTC. The analysis explores examples of both ‘justifiable’ and ‘prohibited’ treaty overrides and ultimately concludes that section 23M constitutes a prohibited override of Article 24(4). The article also contrasts this view with that of Du Plessis who supports applying interpretative principles to resolve treaty overrides. Furthermore, the author contends that section 23M does not constitute an anti-avoidance provision under Article 9 as its formula applies uniformly to both arm’s length and non-arm’s length transactions.