|
South Africa: Intermediaries and Administration in Terms of the Dividends Tax
In South Africa, legislation that would provide for a dividends tax regime is pending.
For a discussion of the basic principles of a new dividends withholding tax regime, see
TaxNewsFlash-Africa 2009-09.
The following discussion focuses on the distinction between regulated and unregulated intermediaries as well as the onerous requirements that would be imposed on companies and/or regulated intermediaries in the administration of the proposed dividends withholding tax.
Regulated and Unregulated Intermediaries
Unregulated intermediaries are generally the registered shareholders who hold the dividends paid by companies (in an unlisted environment) before it is paid to the beneficial owner. Regulated intermediaries on the other hand can be described as the dividends tax agent that hold the dividends paid by companies in a listed environment before the dividends are eventually paid to the ultimate beneficial owner. Regulated intermediaries—as contemplated in the Taxation Laws Amendment Act, No. 17 of 2009—includes the Central Securities Depository Participants (CSDPs), Collective Investment Schemes (CIS) in securities, long-term insurers, stock brokers, and certain regulated or approved nominee companies.
The general rule is that the company paying the dividends would be liable for withholding the dividends withholding tax. However, tax on dividends paid by a company to a regulated intermediary would not have to be withheld by the company declaring the dividend because the responsibility to withhold would shift to the regulated intermediary. The withholding tax treatment would be different for dividends paid by a company to unregulated intermediaries, since the responsibility to withhold would remain with the company declaring the dividend.
As mentioned above, the legislation allows for a regulated intermediary to step into the shoes of the company declaring the dividend, so that the primary withholding obligation would fall on the regulated intermediary. This scenario would be more likely in a listed environment in which the regulated intermediaries hold shares in their share registers on behalf of others (and accordingly, the regulated intermediaries would be better situated to determine the tax status of the beneficial owners of dividends declared by companies to determine whether they are exempt from dividends withholding tax).
The obligation of the regulated intermediary could be eliminated or reduced when: (1) the beneficial owner is exempt; (2) the beneficial owner is entitled to a reduction of dividends withholding tax in terms of a income tax treaty; or (3) the dividend is payable to another regulated intermediary.
|
Administration Requirements
Administratively, there would be little distinction between companies and regulated intermediaries. Both parties would be subject to similar requirements in that they each would have to:
- Identify the beneficial owner of the dividend
- Request a written declaration from beneficial owners who are exempt from dividends withholding tax (e.g., South African resident companies) and those who are entitled to relief in terms of an income tax treaty
- Set a deadline for the receipt of the written declaration
- Facilitate the recovery of the amount of dividends tax withheld and paid over to the South African Revenue Service (either by the company or the regulated intermediary) in error
- Determine which party is responsible for withholding and paying the correct amount of dividends tax or otherwise would be subject to possible interest and penalties
The major difference between companies and regulated intermediaries as regards to their administrative duties concerns the manner in which the company could facilitate the recovery of dividends withholding tax paid to the South African Revenue Service in error.
In the case of a company, to the extent that a refund cannot be sourced from future dividends within the one-year period from date of submission of the written declaration, the company could claim a refund of the shortfall from the South African tax authority. However, the company might not recover any amount from the tax authority if the claim is made after four years from the date the dividend accrued to the beneficial owner. In the case of a regulated intermediary withholding, no rights of recovery would exist from the South African Revenue Service.
Refunds
As indicated above, the legislation provides for a refund of dividends withholding tax in instances when the dividends tax was incorrectly withheld. This could happen, for example, when an exempt beneficial owner fails to submit a written declaration (supporting their exempt status) by the time the dividends tax was withheld and paid over to the South African Revenue Service. The beneficial owner would, in terms of the legislation, be entitled to a refund from either the company or a regulated intermediary (depending on the party required to withhold the dividends tax), if such beneficial owner submits the written declaration within three years after the date on which the dividend accrued to the beneficial owner.
In order to facilitate the refund of dividends withholding tax, the company declaring the dividend, or the regulated intermediary, could reduce the amount of dividends tax withheld (if any) on subsequent dividend declarations/payments made to beneficial owners, within a period of one year after the submission of the late declaration) in order to refund the shareholder.
|
Conclusion
Since the collection and refunds of dividends withholding tax are the responsibility of companies and regulated intermediaries (and not that of the tax authority), the legislative imposes logistical and administrative aspects for those persons required to withhold dividends tax. In some instances, the sheer volume and activity of investors would necessitate dedicated resources to collect and review written declarations, calculate the dividends withholding tax, and manage refunds. This adds to the responsibility of, for example, company secretaries in the unlisted environment. Clarification regarding the management of these administrative requirements is anticipated from the South African Revenue Service at a time closer to the effective date of the dividends withholding tax.
For more information, contact a tax professional with KPMG in South Africa:
Teresa Calvert, + 27 (0) 11 647 6887,
teresa.calvert@kpmg.co.za
Roné la Grange, +27 (0) 11 647 5721,
rone.lagrange@kpmg.co.za
|
