Abstract
Orientation: The South African tax legislation in respect of dividend cession. Research purpose: The objective of this article was to investigate the tax implications of a dividend cession for the cedent, cessionary and declaring company involved in the cession in order to provide guidance regarding the tax implications arising from such cession. Motivation for the study: The introduction of specific anti-avoidance provisions and amendments to tax legislation complicated the tax treatment of a dividend cession. Current literature and guidance contains a brief reference to the capital gains tax implications, while other guides deal exclusively with the dividends tax implications. Based on the lack of definitive guidance of other taxes resulting from a dividend cession, this investigation is considered necessary. Research approach/design and method: This study involved an interpretative analysis of the tax legislation and incorporates other literature on the research objective to describe the tax implications as a result of dividend cession. The mode of inquiry for this study is qualitative in nature and follows a doctrinal research method. Main findings: Findings suggest that although the classification of a dividend cession could be a usufruct (a real right), the practical tax implications with reference to dividends could not have been the intention. The submission is therefore that the tax implications should be as a personal right. Furthermore, the introduction of specific anti-avoidance provisions resulted in an instance of possible double taxation which was noted, which is submitted as a possible unintended consequence as a result of legislation amendments. Practical/managerial implications: The practical value of the article lies in the guidance in respect of the tax implications which taxpayers could consider in transactions pertaining to dividend cession. Contribution/value-add: Instance of double taxation documented and submitted as possible unintended consequence which could inform further debate on the topic.
Highlights
With effect from 01 April 2012, dividends tax was introduced in South African tax law because of a need to shift from a company-level tax to an internationally applied method of shareholderlevel tax (South African Revenue Service [SARS] 2008:24), with exemptions depending on the nature of the beneficial owner
The different theories considered in the classification (Table 1) resulted in the possible classification of a dividend cession as a personal right or a real right
With regard to the tax consequences, it is not conceived that the intention of legislature could be to subject such a dividend cession to the tax consequences of a usufruct
Summary
With effect from 01 April 2012, dividends tax was introduced in South African tax law because of a need to shift from a company-level tax to an internationally applied method of shareholderlevel tax (South African Revenue Service [SARS] 2008:24), with exemptions depending on the nature of the beneficial owner. To provide for the taxation of a dividend cession and prevent potential abuse of the exemptions, various provisions have been inserted and amended in the Securities Transfer Tax Act No 25 of 2007 (South Africa 2007) (the STT Act) and the Income Tax Act No 58 of 1962 (South Africa 1962) (the IT Act). No further guidance is provided in respect of the effect of a dividend cession in relation to normal tax (including capital gains tax) and its interaction with dividends tax, securities transfer tax and donations tax. Based on the lack of definitive guidance of other taxes resulting from a dividend cession, this investigation is considered necessary
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
