Browsing by Author "Cara, Prins"

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    Dividend in specie : value-added tax implications and the resultant effect on dividends tax
    (Stellenbosch : Stellenbosch University, 2022-12) Cara, Prins; Andrea, Van der Merwe; Stellenbosch University. Faculty of Economic and Management Sciences. School of Accountancy.
    ENGLISH SUMMARY: Section 64E(1)(a)(i) of the Income Tax Act No. 58 of 1962 (ITA) requires a company to calculate dividends tax by multiplying the amount of the dividend by 20%. Dividends tax is regulated in terms of provisions contained in the ITA, however dividends tax is a separate tax from income tax. Dividends are therefore treated differently in terms of income tax and dividends tax. The definition of ‘dividend’ in section 64D of the ITA, read with the definition of ‘dividend’ in section 1(1) of the ITA should be considered in determining whether a transaction should be treated as a dividend and whether dividends tax is applicable. A distribution other than in the form of cash, is referred to as a dividend in specie. In terms of section 64E(3)(b) of the ITA, where a company declares a dividend in specie, the amount of the dividend is deemed to be equal to the market value of the asset. Where there are value-added tax (VAT) implications in terms of the Value-Added Tax Act No. 89 of 1991 (VAT Act) upon declaration of a dividend in specie, it is not clear from current literature whether the VAT implication of the dividend in specie is included in the market value of the asset for dividends tax calculation purposes. The definition of ‘open market value’ in section 3(1)(b) of the VAT Act clarifies that, for the purposes of the VAT Act, ‘open market value’ includes value-added tax. In contrast to the definition of ‘open market value’ in the VAT Act, the definitions of ‘market value’ in the ITA do not provide clarity on whether the VAT implications of a dividend in specie should be considered when determining the market value of the asset for the purpose of calculating dividends tax on the dividend in specie. This research assignment therefore set out to determine whether the VAT implications of a dividend in specie should be included when determining the market value of the dividend in specie for dividends tax purposes. Additionally, it was also determined whether the output tax (if the VAT implications of a dividend in specie results in output tax levied) meets the definition of ‘dividend’ and whether dividends tax should be calculated on the amount of output tax. A doctrinal research methodology was followed in performing the research by using a methodical exposition of relevant literature. In addition to the definitions noted in South African tax legislation, South African and New Zealand case law provided guidance to determine whether the VAT implications of a dividend in specie have a resultant effect on the dividends tax calculation. This research assignment found that the distribution of an asset in specie does not lead to the same VAT implications where different assets are distributed in different scenarios as noted during the evaluation of the indicative factors. It was further found that if the VAT implications of a dividend in specie results in output tax levied, the VAT implications (i.e. output tax levied) would meet the definition of a dividend for dividends tax purposes and as a result, dividends tax is calculated on the VAT implications of a dividend in specie. The findings of this research assignment therefore suggest that the VAT implications, depending on the scenario, of a dividend in specie have a resultant effect on the dividends tax calculation.