A critical analysis of South Africa's dividend withholding tax legislation

Abstract

The purpose of the study was to perform a critical analysis of the new dividends tax legislation in order to identify possible problem areas and to make recommendations, where appropriate, to address perceived problems in this legislation. Resulting from this analysis, certain potential problems areas were identified which required further investigation. These included the meaning of “beneficial owner”, refund procedures of dividends tax, dividends tax anti-avoidance provisions, the utilisation of secondary tax on companies credits, personal liability of shareholders and directors, and the administrative burden of dividend-paying companies. The meaning of “beneficial owner” was considered from both a local and international point of view. It was recommended that beneficial ownership with reference to dividends tax be aligned with its international tax meaning in order to avoid discrepancies when assessing beneficial ownership in the context of double tax agreements. The recognition of secondary tax on companies’ credits under dividends tax was also considered together with alternative approaches to the utilisation of such credits. In order to reduce the administrative requirements imposed by the dividends tax legislation and the tracking of these by the South African Revenue Service, it was recommended that the current dividends tax provisions governing the utilisation of secondary tax on companies’ credits be reviewed. The application of the personal liability of shareholders and directors in the context of other applicable South African law, as well as other jurisdictions, was considered. It was recommended that the dividends tax provision dealing with the personal liability of shareholders and directors be reviewed in order to align these with other relevant domestic law provisions and international practice. Refund procedures were investigated by comparison with withholding-tax refund procedures in other jurisdictions. Recommendations were made for improving the refund procedures for South Africa’s dividends tax. The specific deemed dividend provisions under the dividends tax legislation were reviewed. It was recommended that guidance be issued to provide a framework or criteria for assessing potential transactions, other than those specifically provided for in the dividends tax legislation, which will be regarded as a dividend by virtue of the extended dividend definition. The administrative requirements imposed by the dividends tax legislation were reviewed and it was found that an increased administrative burden results from compliance with the dividends tax legislation. The administrative procedures in respect of dividend withholding tax in other jurisdictions were reviewed. It was found that it is necessary for dividendpaying companies and regulated intermediaries to ensure that they have adequate systems and procedures in place to ensure compliance with the dividends tax legislation. Certain recommendations were made to improve the administration of dividends tax. AFRIKAANS : Die doel van die studie is om ʼn kritiese ontleding van die nuwe wetgewing op dividendebelasting uit te voer, ten einde moontlike probleemareas te identifiseer en om, waar toepaslik, aanbevelings te maak om hierdie probleemareas in die wetgewing aan te spreek. Voortspruitend uit hierdie ontleding, is sekere potensiële probleemareas geïdentifiseer wat verdere ondersoek vereis. Hierdie sluit in die betekenis van “uiteindelik geregtigde”, terugbetalingprosedure van dividendebelasting, teenvermydingsprosedures vir dividendebelasting, die aanwending van sekondêre belasting op maatskappye krediete, persoonlike verpligting van aandeelhouers en direkteure en die administratiewe las van maatskappye wat dividende betaal. Die betekenis van “uiteindelik geregtigde” is oorweeg in beide ʼn plaaslike en internasionale perspektief. Dit word aanbeveel dat “uiteindelik geregtigde” binne die konteks van dividendebelasting met die internasionale betekenis daarvan gelykgestel word ten einde enige teenstrydighede te vermy wanneer “uiteindelik geregtigde” in die konteks van dubbelbelastingooreenkomste beoordeel word. Die erkenning van sekondêre belasting op maatskappye krediete in dividendebelasting is ook oorweeg tesame met alternatiewe benaderinge met betrekking tot die aanwending daarvan. Ten einde die administratiewe vereistes opgelê deur die dividendebelastingwetgewing, asook die naspoor van hierdie krediete, te verminder, is aanbeveel dat die huidige dividendebelastingbepalings wat sekondêre belasting op maatskappye krediete reguleer, hersien word. Die toepassing van persoonlike aanspreeklikheid van aandeelhouers en direkteure binnedie konteks van ander toepaslike Suid-Afrikaanse wetgewing, asook ander regsgebiede, is oorweeg. Daar word aanbeveel dat die dividendbelastingbepalings wat handel oor die persoonlike aanspreeklikheid van aandeelhouers en direkteure hersien word ten einde dit in lyn te bring met ander plaaslike wetgewing en internasionale praktyk. Die terugbetalingsprosedure van dividendbelasting is ondersoek deur dit te vergelyk met terugbetalingsprosedures van terughoudingsbelasting in ander regsgebiede. Aanbevelings word gemaak ten einde die terugbetalingsprosedure van Suid-Afrikaanse dividendbelasting te verbeter. Die spesifieke bepalings rakende geagte dividende kragtens die wetgewing op dividendbelasting is bestudeer. Daar word aanbeveel dat ʼn gids uitgereik word ten einde ʼn raamwerk te verskaf waarvolgens potensiële transaksies beoordeel kan word, anders as dié waarvoor spesifiek voorsiening gemaak is in die dividendbelastingwetgewing, wat geag sal wees om ʼn dividend te verteenwoordig as gevolg van die uitgebreide definisie van dividende. Die administratiewe vereistes opgelê deur dividendbelastingwetgewing is oorweeg en daar is bevind dat daar ʼn toenemende administratiewe las voortspruit uit die nakoming van dié wetgewing. Die administratiewe prosedures met betrekking tot dividende in ander regsgebiede is ondersoek. Daar is bevind dat dit nodig is vir maatskappy wat dividende betaal en gereguleerde tussengangers om te verseker dat hulle voldoende stelsels en prosedures in plek stel ten einde nakoming van die dividendbelastingwetgewing te verseker. Sekere aanbevelings is gemaak ten einde die administrasie van dividendbelasting te verbeter.