ARTICLE · 09 JANUARY 2018

Dividend-Stripping And Share Buy-Back Transactions

Pieter van der Zwan & Associates

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Dividends paid by one South African company to another have been exempt from both normal tax and dividends tax since April 2012 when dividends tax came into effect.

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Pieter Van Der Zwan

The National Treasury introduced anti-avoidance rules that target dividend-stripping and share buyback transactions with effect from 19 July 2017. These rules result in certain dividends being taxed as proceeds upon the disposal of shares. Share buy-backs from and extraction of value by significant corporate shareholders will require careful attention going forward.

Dividends paid by one South African company to another have been exempt from both normal tax and dividends tax since April 2012 when dividends tax came into effect. This has created opportunities for taxpayers to structure transactions where shares are disposed of in a manner that the value is unlocked in the form of exempt dividends rather than proceeds on the sale of the shares, which would have attracted capital gains tax. As share buy-back transactions constitute dividends for tax purposes these transactions posed a particular risk to the fiscus.

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