Peter Dachs

There has been a plethora of new tax legislation as well as various discussion documents from the South African Revenue Service (SARS) since the annual budget in February.

These include a media statement on secondary tax on companies (STC) which, in particular, deals with the conversion of STC to a dividend withholding tax. The media statement makes it clear that the new dividend withholding tax will only be imposed when a dividend is declared to a non-corporate shareholder or a non-resident shareholder. It will be levied at the rate of 10%. However, double tax agreements (DTAs) may reduce such rate of tax. SARS has confirmed that they are still renegotiating various DTAs in order to ensure that they are able to collect at least a 5% withholding tax on dividends declared to non-resident shareholders.

There is also a draft interpretation note on foreign tax credits. This includes interesting statements regarding SARS' interpretation of the interaction between South African domestic law and DTAs in respect of foreign tax credits. The general thrust of these statements is that the foreign tax credit relief provided in most of South Africa's DTAs should be limited in terms of the criteria set out in South Africa's domestic law dealing with foreign tax credits.

The latest taxation laws amendment bill follows hot on the heels of the last tax legislation. It deals, in particular, with urgent amendments to the group restructure rules. These are, in part, to close perceived loopholes in respect of such relief and ensure that these rules only provide a deferral from tax when transferring assets between groups of companies. SARS is concerned that perceived loopholes in the rules are being used to transfer assets between groups of companies and then to transfer such companies out of such groups free from tax.

Peter Dachs (pdachs@ens.co.za)
Cape Town