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South African draft tax amendment targets share buybacks

Wednesday, 16 August 2017   (0 Comments)
Posted by: Authors: Robert Gad and Megan McCormack
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Authors: Robert Gad and Megan McCormack (ENSafrica)

The first draft Taxation Laws Amendment Bill, 2017 (the “2017 TLAB”) was released on 19 July 2017 for public comment (due by 18 August 2017).

Among other things, it is proposed that the current section 22B of the Income Tax Act, 1962 (the “Act”) and paragraph 43A of the Eight Schedule to the Act, be substituted with a new section 22B and paragraph 43A.

This proposal follows the announcement made in the 2017 Budget Speech on 22 February 2017 that:

“In the 2016 Budget Review, tax avoidance schemes involving share buybacks were highlighted for review. Such schemes involve a company buying back shares from its current shareholders to avoid the tax consequences of share disposals. The seller receives payment in the form of a dividend that may be exempt from normal tax and dividends tax, instead of paying tax on the sale of shares. Following the announcement in 2016, no specific countermeasures were introduced. It is therefore proposed that specific countermeasures be introduced to curb the use of share buyback schemes.”

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This article first appeared on ensafrica.com.


 

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