In a long awaited announcement it was indicated by the Minister of Finance that there are several dividend schemes that undermine the tax base. One method makes use of a scenario where the owner of shares cedes the rights to dividends to a third party in return for a payment. The benefit that a third party receives, is not only found in the exempt dividend, but also an STC credit. Another scheme involves the receipt of dividends from shares in which the taxpayer does not have any meaningful economic risk,
Author: Nyasha Musviba
Interest-free shareholder's loans at arm's length?
Where foreign subsidiaries find themselves in financial distress, the interest rate on the shareholder loans from a South African shareholder may be reduced to zero percent as the foreign subsidiary is unable to pay any interest due to the fact that it may be insolvent. However, in terms of the transfer pricing provisions in section 31(2) of the Income Tax Act, Act 58 of 1962, as amended, all shareholder’s loans granted by South African shareholders to foreign subsidiaries should bear an arm’s length interest rate. The question therefore remains whether a zero interest rate on a shareholder’s loan will be seen as an arm’s length interest rate for South African transfer pricing purposes.
Capital gains tax and trusts: is there a pipe?
Rene Magritte (1898 – 1967), the Belgian Surrealist artist, painted a smoking pipe and below it the words “Ceci n’est pas une pipe” (“This is not a pipe”). And, of course, the painting of the pipe isn’t a pipe; it is an image of a pipe. In South African tax law (which may also seem surreal at times) there is
Donations tax implications of maintenance payments
Taxpayers contributing to the maintenance of another person may not be aware that the value of property (cash or assets) donated does not necessarily have to be capped at the current threshold of R100,000 per year of assessment.
Dividends now taxable in certain share incentive schemes
Companies must ensure that dividends declared to their employees after 1 January 2011 as part of their employee share incentive schemes are still exempt from income tax otherwise companies and their employees may be in for a surprise.
Share incentive schemes vs equity shares – round 2
In a previous article we drew attention to the proposed amendments to section 10(1)(k) of the Income Tax Act, 1962 (“the Act”), in terms of which the legislature sought to tax all dividends declared on any “restricted equity instrument” for purposes of section 8C of the Act.
A new era for mergers and amalgamations
The coming into effect of the new Companies Act 71 of 2008 (“the New Companies Act”), which is likely to be in September of this year, will unveil a new chapter in South African corporate law. Valid criticism may be leveled against many aspects of the new Companies Act, but the introduction of amalgamations and mergers into our corporate practice, is largely a welcomed innovation. Section 113 of the New Companies Act allows profit companies (state-owned, public, private and personal liability companies) to amalgamate and merge. An amalgamation or merger will entail two or more profit companies combining or sharing their commercial efforts and economic resources, in whole or in part. It will result in either the restructuring of one or more of the existing merging companies (whether relating to their shareholdings and or their asset composition), the creation of a new company or a combination of the two. Although Read More …