The calculation of Secondary Tax on Companies is based on the net outflow of dividends (outgoing less incoming) in any particular “dividend cycle”, whereas Dividends Tax is based on the gross outflow of dividends with no reference to any period. Additionally, for a period of three years the recipients liability for Dividends Tax can be reduced with the amount of any “STC credit” available to the company at the time of payment. The STC credit is made up from two possible sources, i.e. any unused STC credit of the company brought forward from the final dividend cycle under the STC system, as well as any new pro rata portion of any STC credit received by the company under the Dividends Tax (less any dividends paid). Foreign dividends cannot create STC credits.
The STC credit has to be utilised first and as a result the recipient may not choose to postpone using the STC credit until a later stage. The STC credit must be allocated pro rata based on shareholding. Where Dividends Tax is not withheld due to an inaccurate notification of the amount of an STC credit, the liability for the shortfall in Dividends Tax will fall on the company paying the dividend.