South Africa is a country under influence of many foreign actors, especially within the field of oil and gas activities. Within this industry, which is relevantly new for the country, the business is primarily taking place offshore. In regard off the foreign entities acting in the country the South African state levy taxes on basis of the so called source principle. The source principle is however only applicable in situations of permanent establishment. Both the South African national legislation and their double taxation agreements defines permanent establishment as "a fixed place of business through which the business of an enterprise is wholly or partly carried on". This definition has been further developed and interpreted by commentaries as well as doctrine.
The concept is however difficult to apply on offshore oil and gas activities due to the fact that these activities, mostly, do not constitute a so called fixed place off business in its wording due to their mobility. This problematic aspect of the permanent establishment concept has been acknowledged by coastal states, including South Africa, which for the purpose of taxation of offshore oil and gas activities has included offshore clauses in their double taxation agreement.
The problematic issues arise firstly in regard of the fact that only a few of the South African double taxation agreements contains an offshore clause. The second problematic issue is that the South African national legislation makes no reference to such a clause nether has the Government regulated the situation in other ways. The possibility thus arises that, even if, on basis of offshore clause or international interpretation South Africa will be attributed the right to tax an offshore oil and gas activity, the national rules might actually hinder the state from levy the taxes.