United States Generally Accepted Accounting Practice ("US GAAP") generally requires taxes to
be measured at the rate applicable to distributed profits, while International Financial Reporting Standards ("IFRS") requires the undistributed rate to be used. This current conflict between US
GAAP and IFRS has particular relevance in South Africa, which has a dual tax'
system as a result of Secondary Tax on Companies ("STC") being levied when a company
distributes its profits. Currently, under US GAAP, South African companies would be required
to raise a liability for the tax that would become payable' on the future distribution of profits,
while under IFRS, this is only recognised when the profits are distributed.
The objective of the study is, therefore, to consider the timing of the recognition of a liability for STC.
The literature study has indicated strong arguments for both the recognition of a inability for
STC prior to the declaration of a dividend and the non-recognition of a liability for STC prior to
the dec1aration of a dividend. The empirical study, however, concluded that the recognition of
ability prior to the declaration of a dividend is not appropriate, as a majority of the respondents
believe that no "past event" has occurred and therefore the definition of a liability in terms of the
IASB Framework is not satisfied. The results of the empirical study, however, also
indicate that if the "past event” hurdle could be overcome, uncertainty exists as to whether the
recognition of a liability for STC prior to the declaration is appropriate. This is as a result of
mixed opinions among the respondents as to whether the "probability" and "measurability"
criteria, in terms of the IASB Framework, could be satisfied prior to the declaration of a