Investigating whether the granting of services and the right of use of assets would constitute dividends in specie
Year: 2018
Type: dissertation
Abstract: ENGLISH SUMMARY : Dividends in specie are not defined by the Income Tax Act (ITA), which gives rise to uncertainty as to what could possibly fall within its ambit, specifically regarding the granting of services or the right of use of assets. This study investigates the uncertainty regarding the meaning of dividends in specie. The objectives were firstly to investigate whether the granting of services or the right of use of assets could constitute a dividend as defined in the ITA; secondly, to investigate whether or not the meaning of “dividend” in the Companies Act and the Internationale Financial Reporting Standards (IFRS) could provide guidance for purposes of the ITA; and thirdly, to investigate whether or not international practices in the context of taxing shareholder benefits provide tax guidance on whether the granting of services or the right of use of assets constitute a dividend in specie for tax purposes internationally. This was done by investigating the tax amendments to the definition of “dividend”, the ordinary English meaning of the words contained in the definition, as well as the intention of the legislator in this regard. Guidance was also obtained from explanatory guides from the South African Revenue Service (SARS), the Companies Act, the IFRS and the international practices of selected countries. This study established that a broad interpretation should be ascribed to the meaning of “dividend” and “in specie” based on the ordinary meaning of the words used and the amendments to the definition. The tax amendments also indicate that the intention of the legislator could be to include the granting of services or the right of use of an asset within the ambit of dividends for ITA purposes. The Companies Act also indicated that a broad interpretation is applied to the meaning of “dividend” and could possibly include benefits like the granting of services or the right of use of assets to constitute dividends in specie. Guidance obtained when applied in the context of dividends would suggest that the ITA should also consider these benefits to be dividends in specie. The investigation regarding the purpose of the Seventh Schedule to the ITA determined that the purpose of the introduction of the taxation of fringe benefits was to prevent loopholes to avoid taxation as these benefits were granted in lieu of remuneration. This study concluded that the meaning of dividends should include the granting of services and the right of use of assets in order to avoid potential tax loopholes as these benefits are granted to beneficial owners in lieu of cash dividends. International practices also indicated that the granting of services or the right of use of assets is considered dividends or taxed as shareholder benefits. This study found that in a South African context, the granting of services and the right of use of assets could also constitute dividends in specie, similar to some other countries. This is due to the intention of the legislator to align dividends tax to that of other countries by replacing Secondary Tax on Companies (STC) with dividends tax. The study also investigated different techniques for determining the value of and the timing for paying dividends tax on the granting of services and the right of use of assets based on international practices.
Author: Michael J. Kok
Language: English
Topic: Taxation and Legal Issues
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2943798943