D A V I D W A R N E K E Head of Corporate Tax, BDO COMPANIES should take note of the fact that secondary tax on Companies (STC) credits that they have accumu- lated up to March 31 this year will expire on that date. The implication is that companies with STC credits should take advantage of the credits by paying dividends on or before March 31. The benefit of STC credits is enjoyed at the point where dividends are distributed to sharehold- ers who are not exempt from the dividends tax – for example where dividends are paid to shareholders who are natural persons. Therefore multi-tier groups of companies will have to pay dividends all of the way up and out of the group on or before March 31 for the non-exempt share- holders to experience a benefit. The benefit derived by a non-exempt shareholder from an STC credit is that the effective rate of dividends tax payable is reduced. For example, say South African resident company A has two shareholders who each hold 50% of the shares. The one shareholder is a South African resident individ- ual and the other is a South African resident company B. Company A has an STC credit of R100 and pays a divi- dend of R100 in total. No dividends tax need be withheld by company A from the dividend paid of R100 as the STC credit is sufficient to shield the entire dividend paid from dividends tax. Although the dividend paid to company B would in any event have qualified for exemption from dividends tax as it is paid to a South African resident company, a benefit arises for the shareholders of company B as the pro-rata STC credit of R50 is transferred to company B. If the shares in company B are held entirely by non-exempt persons such as South African resident indi- viduals, the R50 pro-rata STC credit that was transferred to company B can be used to shield dividends paid by company B to its shareholders from dividends tax. The potential saving in dividends tax therefore occurs at the level where the dividends are paid to non-exempt persons. In this example the monetary benefit of the STC credit is therefore a total of 15 percent of the R100 available STC credit, in other words R15. The utilisation of STC credits is subject to the notifi- cation by the company declaring the dividend of the amount by which the dividend reduces the STC credit of the company. This declaration needs to be made by the date of payment of the dividend and, in terms of the word- ing of section 64J(1) of the Income Tax Act, has to be made to all recipients of the company’s dividend, without regard to whether or not such recipients are exempt from the dividends tax. SARS has recently issued a draft binding general rul- ing confirming that a dividend has to be paid by March 31 in order to apply STC credits against it. The mere dec- laration of a dividend on or before March 31 without the payment thereof by that date will not result in the appli- cation of STC credits against the dividend. Our BDO tax services team is equipped to deal with business and personal tax planning, as well as shareholder and owner issues and employment solutions. We have partners and directors who lead specialist areas with a team committed to ensuring you receive the most up-to-date information relating to your tax needs. Whether you are a business or an individual, our teams give practical and direct advice, delivering solutions which suit your needs. With a local presence in the four major centres wher- ever you are we are close to your business. BDO in South Africa is the South African member firm of BDO International. BDO is the brand name for the BDO network and for each of the BDO member firms. The global BDO network provides audit, tax and advisory serv- ices in 151 countries, with over 59 000 people working out of 1 200 offices worldwide. Service provision within the international BDO network of independent member firms (“the BDO network”) is co-ordinated by Brussels Worldwide Services BVBA, a lim- ited liability company incorporated in Belgium with its statutory seat in Brussels. Tax Management Solutions Cape Times February 25, 2015 A Commercial Feature 9 Co-ordinated by: Eugenie Broodryk – 021 488 4795, [email protected] – Special Projects, Independent Newspapers, Cape M A Y A N D C O M P A N Y S P O K E S P E R S O N ON July 17, 2013, the minister of finance appointed The Davis Tax Committee (TDTC) to address pertinent issues relating to tax base ero- sion as a result of profit shifting in South Africa. Base erosion and profit shifting (BEPS) is a global issue and is being addressed by both the OECD and G20 countries. According to the OECD BEPS report “what is at stake is the integrity of the corporate income tax”. South Africa has observer status in the OECD. Globalisation is the main cause of BEPS. As much as globalisation reinforces increased trade and free flow of capital and labour, it also provides room for shifting manufacturing bases from high- to low-cost jurisdictions by multina- tional entities. This results in the erosion of a tax base in a country where costs are high. As a result, most countries, including South Africa, are searching for ways and means of addressing BEPS. The main purpose of anti-BEPS legislation is to ensure that multinational entities which invest in a country pay their fair share of tax on amounts that are economically attributable to their activ- ities in that local country. According to the TDTC report, it is difficult to assess to what extent BEPS occurs in South Africa. TDTC noted that in the process of combating BEPS, South Africa has to maintain a balance between the protection of its tax base and sus- taining a competitive economy. Secondly the county has to have a tax system that is equitable, efficient, certain and simple. The committee fur- ther noted that BEPS cannot be addressed with- out considering the role of exchange controls. The committee has recommended seven South African, customised OECD BEPS action plans. These are: ■ Tax challenges of the digital economy; ■ Hybrid mismatch arrangements; ■ Harmful tax practices; ■ Double tax treaty abuse; ■ Transfer pricing documentation; ■ Multilateral instruments development; and ■ Transfer pricing on intangibles. TDTC calls for, as its primary driver, the effi- cient policing of all the above action plans. Current rules surrounding these issues are complicated and should receive specialist profes- sional advice. May and Company is well equipped to assist clients in most areas of inter- national tax. Direct any questions you may have in respect to these or any other international taxation issues to Carl May on the number in the advertisement on this page or email carl@mayandcompany .co.za. PROFESSIONAL TEAM: The May and Company team is celebrating 25 years of offering their professional services. (Back) Mogammad Abdullatief, Roshan Davids, Bahdia Jattiem, Lucy Mutengwe and David Pattullo. (Front) Beverley May, Carl May, Graeme Schkolne and Naomi Chirwa. A look at issues addressed by the first Davis Tax Committee report Tax alert: STC credits to expire on March 31, this year ‘As much as globalisation reinforces increased trade and free flow of capital and labour, it also provides room for shifting manufacturing bases from high- to low-cost jurisdictions by multinational entities’ DAVID WARNEKE “We’ve brought in BDO. The partner’s already on it” Audit • Advisory • Tax At BDO, we take business personally. We partner with you to help you achieve greater, more meaningful success. We work to build strong, professional relationships that enable us to understand what’s important to you, your unique business needs and the complexities of the industry in which you operate. And in doing so, provide the key tax solutions that allow you and your business to fly. For more information on how we can partner your business, contact: www.bdo.co.za David Warneke [email protected] +27 (0) 21 460 6300 Antonie van der Hoek [email protected] +27 (0) 21 460 6300 Tax Advisory ACCOUNTING AUDITING TAX SPECIALISTS Dynamic team celebrating 25 years of business success Established in 1990, May and Company is a dynamic medium sized firm of Public Accountants and Auditors located in Cape Town. The firm is a niche practice, employing 15 staff, and headed by managing partner Carl May, who holds two post graduate degrees from the University of Cape Town in various areas of Taxation. May and Company employ Tax Specialists in matters pertaining to Income Tax, Value Added Tax, Capital Gains Tax, Estate Duty, Donations Tax, Employees Tax and ancillary employee benefit payments and International Tax Planning. International Tax Planning in particular requires the marrying of ideal plans formulated in the home and investing jurisdictions. When specialist expertise is required in more than one jurisdiction, membership of the International Fiscal Association network gives access to personal relationships delivered by competent professionals at small accounting and law practices around the world. Left to right: Beverley May, Carl May, Graeme Schkolne, Naomi Chirwa Tel: +27 (0)21 425 1500 • Fax: +27 (0)86 503 0518 • www.mayandcompany.co.za OM\04\09946071
A Commercial Feature Cape Times February 25, 2015 9 Tax ... · [email protected] +27 (0) 21 460 6300 Tax Advisory ACCOUNTING AUDITING TAX SPECIALISTS Dynamic team celebrating
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DAVID WARNEKEHead of Corporate Tax, BDO
COMPANIES should take note of the fact that secondarytax on Companies (STC) credits that they have accumu-lated up to March 31 this year will expire on that date.The implication is that companies with STC credits shouldtake advantage of the credits by paying dividends on orbefore March 31. The benefit of STC credits is enjoyedat the point where dividends are distributed to sharehold-ers who are not exempt from the dividends tax – for example where dividends are paid to shareholders who arenatural persons. Therefore multi-tier groups of companieswill have to pay dividends all of the way up and out of thegroup on or before March 31 for the non-exempt share-holders to experience a benefit. The benefit derived by anon-exempt shareholder from an STC credit is that theeffective rate of dividends tax payable is reduced.
For example, say South African resident company Ahas two shareholders who each hold 50% of the shares.The one shareholder is a South African resident individ-ual and the other is a South African resident company B.Company A has an STC credit of R100 and pays a divi-dend of R100 in total.
No dividends tax need be withheld by company A fromthe dividend paid of R100 as the STC credit is sufficientto shield the entire dividend paid from dividends tax.Although the dividend paid to company B would in anyevent have qualified for exemption from dividends tax asit is paid to a South African resident company, a benefitarises for the shareholders of company B as the pro-rataSTC credit of R50 is transferred to company B. If theshares in company B are held entirely by non-exempt persons such as South African resident indi-viduals, the R50 pro-rata STC credit that was transferredto company B can be used to shield dividends paid bycompany B to its shareholders from dividends tax. Thepotential saving in dividends tax therefore occurs at thelevel where the dividends are paid to non-exempt persons.In this example the monetary benefit of the STC credit istherefore a total of 15 percent of the R100 available STCcredit, in other words R15.
The utilisation of STC credits is subject to the notifi-cation by the company declaring the dividend of theamount by which the dividend reduces the STC credit ofthe company. This declaration needs to be made by thedate of payment of the dividend and, in terms of the word-ing of section 64J(1) of the Income Tax Act, has to bemade to all recipients of the company’s dividend, withoutregard to whether or not such recipients are exempt fromthe dividends tax.
SARS has recently issued a draft binding general rul-ing confirming that a dividend has to be paid by March31 in order to apply STC credits against it. The mere dec-laration of a dividend on or before March 31 without thepayment thereof by that date will not result in the appli-cation of STC credits against the dividend.
Our BDO tax services team is equipped to deal withbusiness and personal tax planning, as well as shareholderand owner issues and employment solutions.
We have partners and directors who lead specialistareas with a team committed to ensuring you receive themost up-to-date information relating to your tax needs.Whether you are a business or an individual, our teamsgive practical and direct advice, delivering solutions whichsuit your needs.
With a local presence in the four major centres wher-ever you are we are close to your business.
BDO in South Africa is the South African member firmof BDO International. BDO is the brand name for the BDOnetwork and for each of the BDO member firms. Theglobal BDO network provides audit, tax and advisory serv-ices in 151 countries, with over 59 000 people workingo u t o f 1 2 0 0 o f f i c e s w o r l d w i d e . S e r v i c e provision within the international BDO network of independent member firms (“the BDO network”) is co-ordinated by Brussels Worldwide Services BVBA, a lim-ited liability company incorporated in Belgium with itsstatutory seat in Brussels.
Tax Management SolutionsCape Times February 25, 2015A Commercial Feature 9
Co-ordinated by: Eugenie Broodryk – 021 488 4795, [email protected] – Special Projects, Independent Newspapers, Cape
MAY AND COMPANY SPOKESPERSON
ON July 17, 2013, the minister of financeappointed The Davis Tax Committee (TDTC) toaddress pertinent issues relating to tax base ero-sion as a result of profit shifting in South Africa.Base erosion and profit shifting (BEPS) is aglobal issue and is being addressed by both theOECD and G20 countries.
According to the OECD BEPS report “what isat stake is the integrity of the corporate incometax”. South Africa has observer status in the
OECD. Globalisation is the main cause of BEPS.As much as globalisation reinforces increasedtrade and free flow of capital and labour, it alsoprovides room for shifting manufacturing basesfrom high- to low-cost jurisdictions by multina-tional entities. This results in the erosion of a taxbase in a country where costs are high. As aresult, most countries, including South Africa,are searching for ways and means of addressingBEPS.
The main purpose of anti-BEPS legislation isto ensure that multinational entities which invest
in a country pay their fair share of tax on amountsthat are economically attributable to their activ-ities in that local country.
According to the TDTC report, it is difficultto assess to what extent BEPS occurs in SouthAfrica.
TDTC noted that in the process of combatingBEPS, South Africa has to maintain a balancebetween the protection of its tax base and sus-taining a competitive economy. Secondly thecounty has to have a tax system that is equitable,efficient, certain and simple. The committee fur-
ther noted that BEPS cannot be addressed with-out considering the role of exchange controls.
The committee has recommended sevenSouth African, customised OECD BEPS actionplans. These are:■ Tax challenges of the digital economy;■ Hybrid mismatch arrangements;■ Harmful tax practices;■ Double tax treaty abuse;■ Transfer pricing documentation;■ Multilateral instruments development; and■ Transfer pricing on intangibles.
TDTC calls for, as its primary driver, the effi-cient policing of all the above action plans. Current rules surrounding these issues are complicated and should receive specialist profes-sional advice. May and Company is wellequipped to assist clients in most areas of inter-national tax.
Direct any questions you may have in respectto these or any other international taxation issuesto Carl May on the number in the advertisementon this page or email [email protected].
PROFESSIONAL TEAM: The May and Company team is celebrating 25 years of offering their professional services. (Back) Mogammad Abdullatief,Roshan Davids, Bahdia Jattiem, Lucy Mutengwe and David Pattullo. (Front) Beverley May, Carl May, Graeme Schkolne and Naomi Chirwa.
A look at issues addressed by the first Davis Tax Committee report
Tax alert: STC credits to expire on March 31, this year
‘As much as globalisation
reinforces increased trade and
free flow of capital and labour,
it also provides room for shifting
manufacturing bases from
high- to low-cost jurisdictions by
multinational entities’
DAVID WARNEKE
“We’ve brought in BDO. The partner’s already on it”
Audit • Advisory • Tax
At BDO, we take business personally. We partner with you to help you achieve greater, more meaningful success.
We work to build strong, professional relationships that enable us to understand what’s important to you, your unique business needs and the complexities of the industry in which you operate. And in doing so, provide the key tax solutions that allow you and your business to fl y.
For more information on how we can partner your business, contact:
www.bdo.co.za
David Warneke
[email protected]+27 (0) 21 460 6300
Antonie van der Hoek
[email protected]+27 (0) 21 460 6300
Tax Advisory
ACCOUNTING AUDITING TAX SPECIALISTS
Dynamic team celebrating 25 years of business success
Established in 1990, May and Company is a dynamic medium sized fi rm
of Public Accountants and Auditors located in Cape Town. The fi rm is
a niche practice, employing 15 staff, and headed by managing partner
Carl May, who holds two post graduate degrees from the University of
Cape Town in various areas of Taxation. May and Company employ
Tax Specialists in matters pertaining to Income Tax, Value Added Tax,
Capital Gains Tax, Estate Duty, Donations Tax, Employees Tax and ancillary
employee benefi t payments and International Tax Planning. International
Tax Planning in particular requires the marrying of ideal plans formulated
in the home and investing jurisdictions. When specialist expertise is
required in more than one jurisdiction, membership of the International
Fiscal Association network gives access to personal relationships
delivered by competent professionals at small accounting and law
practices around the world.Left to right: Beverley May, Carl May, Graeme Schkolne, Naomi Chirwa
Tel: +27 (0)21 425 1500 • Fax: +27 (0)86 503 0518 • www.mayandcompany.co.za OM\04\09946071
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