Most Read Contributor in South Africa, September 2016
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) .
We are all aware that uncertainty can arise in the determination
of who the beneficial owner is in cases where a trust is the
recipient of a dividend. It is trite law that the
beneficiaries of a vested trust are the beneficial owners as the
dividend paid would accrue to them in terms of section 25B of the
Act. The trust would merely act as a conduit for the income.
However, in the case of a discretionary trust this is not certain
as the trustees may not have exercised their discretion to vest the
right to the income in the beneficiaries.
The South African Revenue Service
("SARS") recently issued a Binding
Private Ruling ("BPR 129") dealing with
the exemption from dividends tax of dividends received by a listed
resident company, as a result of being the beneficial owner of the
thereof, that were paid in respect of the company's own
shares. Section 64D of the Act defines "beneficial
owner" as the person entitled to the benefit of the dividend
attaching to a share.
The facts of BPR 129 are essentially that the Applicant Company
had five share incentive schemes for its different categories of
employees. The terms of each scheme were embodied in a trust
deed that established a separate Share Trust. A set of scheme rules
governed the operation of each particular share incentive scheme
Each Share Trust regularly held shares that were not allocated
to any staff beneficiary, either because a beneficiary left the
Applicant Company's employ in circumstances that required the
Share Trust to repurchase the shares, or because a beneficiary of
the Share Trust failed to exercise their share options, or because
shares were acquired by a Share Trust and the trustees of that
trust have not yet allocated the shares or awarded options to
purchase them, as the case may be. The Applicant Company is
also a beneficiary of all five Share Trusts.
From time to time the Applicant Company will pay dividends via a
regulated intermediary (as defined in section 64D) to its
shareholders, which will include the five Share Trusts, that have
each acquired shares in the Applicant Company. The trustees of each
Share Trust will, inter alia, resolve to allocate the dividends
received on unallocated shares to the Applicant Company as a trust
The question which was the subject of the ruling was whether the
Applicant Company was the beneficial owner of the dividends and
therefore excluded from DWT in terms of section 64F. For a
person to be the beneficial owner they do not necessarily require
legal title to the dividend but merely have to enjoy entitlement to
the benefit of the dividend. SARS ruled that the Applicant Company
will be the beneficial owner of the dividends paid in respect of
the unallocated shares, with the result that the exclusion in
section 64F(a) of the Act would apply.
In similar circumstances this ruling will be very useful
However, if the facts are different clarity should be sought.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The expansion of the West African regional market to foreign investors, and the search for emerging markets has led to a continuous increase in business mobility and cross border investments with Nigeria.
Effective collaboration amongst government agencies, automation of processes and capacity building by tax authorities have always been identified by stakeholders as strategies for achieving an efficient tax system.
The major objective of the waiver is to promote voluntary compliance and consequently generate revenue for government which otherwise, could have been lost.
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