On July 24 2013 The South African Revenue Service (SARS) issued Binding Class Ruling 41 regarding the question of whether a dividend distributed by a foreign company constitutes a ‘foreign dividend’ as defined in Section 1 of the Income Tax Act (58/1962). The applicant was a foreign corporate partnership limited by shares. Its structure was essentially a hybrid between a partnership and a limited liability company, which is
Tag: Dividend Tax
Taxation of Foreign Dividends
Author: Tarryn Spearman(Grant Thornton) Significant changes were introduced to the way foreign dividends, received by South African residents, are treated for tax purposes. The purpose of these changes is to eliminate the disparity between the tax treatment of domestic and foreign dividends.
A Departure From ‘Adequate Reasons’ and Common Sense
Author: Daniel Areias & Johan Kotze (Bowman Gilfillan) All taxation , in one way or another, may impact upon fundamental human rights. However, to ensure that the imposition is not absolute, section 5 of the Promotion of Administrative Justice Act provides that every person, whose rights may have been materially and adversely affected by administrative action, may request written reasons for that action from the administrator responsible.
Ruling on dividends tax on shares held by local branches
On June 19 2013 the South African Revenue Service (SARS) published Binding Private Ruling 148. The ruling dealt with whether the dividends tax rate applicable to dividends paid on shares held by a local branch of a foreign company can be reduced by a relevant double tax agreement. The facts were briefly as follows.
Disposal of shares by a special purpose vehicle
Judgment was handed down in the case of A (Pty) Ltd v Commissioner for the South African Revenue Service (case number 13003, as yet unreported) on 13 June 2013. The case involved the timeworn question of whether the receipts or accruals in respect of the disposal of a particular asset constitute gross income, or whether it is excluded as being capital in nature.
STC credits: Planning required to ensure it does not go to waste
When dividends tax was introduced with effect from 1 April 2012 many companies still possessed STC credits. These STC credits arose from the fact that more dividends were received by or accrued to the company in the last dividend cycle than dividends declared during such a dividend cycle. The balance of STC credits as at 31 March 2012 are carried forward into the dividends tax system in terms of section 64J of the Income Tax Act (hereafter the Act).
Sale of shares in a foreign company
South African residents are taxed on their worldwide income. Accordingly, a capital gain arising from the sale of shares in a foreign company will be subject to South African tax unless an exemption applies or a double tax agreement provides otherwise.
Dividends withholding tax implications where a resident company is a beneficiary of a share scheme trust
Dividends withholding tax (“DWT”) was introduced into the Income Tax Act 58 of 1962 (“the Act”) with effect from 1 April 2012. Section 64F of the Act exempts the withholding of DWT in respect of the receipt of dividends, to the extent that it does not consist of dividends in specie by “beneficial owners” which are listed in the section. A resident company is included in the exemption in terms of the list in section 64F(a) .
Changes to the taxation of dividend cessions and manufactured dividends
In the 2013 Budget Review, which was released on 27 February 2013, specific mention was made that a research project is underway in which consideration is being given to a unified treatment of dividend cessions and manufactured dividends. As part of this project it noted that consideration will be given to anti-avoidance rules to eliminate the shift in the income from taxable parties to exempt parties. The Budget Review states that the tax impact of a dividend transfer depends on wh
Anti-avoidance: share repurchases through subsidiaries
Judgment was handed down on 16 November 2012 by the Tax Court in the case of A Ltd v Commissioner for the South African Revenue Service. The facts were as follows. A Ltd was a company listed on the JSE