The Taxation Laws Amendment Act No. 24 of 2011 ("the Act") was published on 10 January 2012 under Government Gazette No. 34927. The Act has introduced some controversial and wide ranging amendments to the already complex South African tax landscape. The most significant changes impact the corporate sector with reforms that spread across a wide spectrum of areas including: intra-group transactions, hybrid equity instruments, the regulation of third party backed shares, transfer pricing, the controlled foreign company regime and headquarter companies. Some amendments that should be highlighted are discussed briefly below. A new tax concept of 'return of capital' has been introduced that replaces capital distributions. From 1 April 2012 returns of capital payments will trigger a reduction in the base cost of the shares in the hands of the shareholder as opposed to the current tax treatment which triggers a deemed part disposal of the shares. The use of section 45 intra-group company restructures which largely facilitated the deduction of interest upon the acquisition of shares was a hotly contested issue during 2011. Debt-push down structures were utilised to secure the interest deductions that were not otherwise available. Debt used to fund section 45 and 47 reorganisations will now be controlled as a pre-approval from the South African Revenue Service will be required in the form of a tax directive being obtained in order to secure the deduction of interest. The new withholding Dividends Tax regime which replaces the secondary tax on companies will come into effect from 1 April 2012. The new regime imposes a 10 per cent tax on the beneficial owner of the dividend, with the company paying the dividend bearing the withholding obligation. The legislation has different rules that apply in respect of cash dividends and dividends paid in kind (in specie). Furthermore a new dispensation has been introduced to regulate the taxation of foreign dividends. It is important to note that even though the Act has a general effective date, most provisions have their own specific effective date, which can have either retrospective or prospective application. Therefore it is imperative for taxpayers to ensure that they do not fall foul of the law by applying obsolete laws.
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