In terms of section 64B(5)(c) of the Act the following amounts will be exempt when distributed in the course of or in anticipation of the liquidation, winding up, deregistration or final termination of the corporate existence of a company or close corporation, provided that certain steps are taken within 18 months from the date of the liquidation distribution, namely;
- pre-31 March1993 profits;
- pre-1 October 2001 capital profits; and
- profits arising before the company became a South Africa resident.
It had been expected that the exemption from STC in respect of such dividends would remain intact until the implementation of the new dividends tax regime.
The Draft Taxation Laws Amendment Bill, (“2010 Draft Bill) was released by National Treasury on 10 May 2010. The 2010 Draft Bill, together with its Draft Explanatory Memorandum, remained silent on this topic.
On 18 May 2010 National Treasury held an initial briefing on the Draft Bill, while public hearings were held on 1 and 2 June in respect of many controversial proposals. Again, all of these discussions failed to make mention of any proposed amendment to section 64B(5)(c).
The Taxation Laws Amendment Bill 28 of 2010 (“2010 Bill”) was introduced to Parliament on 24 August 2010. It repeals section 64B(5)(c) from 1 January 2011. Accordingly the three categories of profits referred to above will be subject to STC when distributions are made, even where the company is in the course of or in anticipation of liquidation, winding up or deregistration.
Given the apparent lack of prior notice, taxpayers will have little opportunity to act before the withdrawal of these subsections.
However, the National Treasury recently issued an invitation in terms of which proposals could be made for miscellaneous and technical tax law amendments with reference to the possible inclusion thereof in Annexure C of the 2011/2012 Budget Cycle. It is believed that representations have been made by the National Law Society to reinstate the exemption, at least until the introduction of the new Dividends Tax regime.
It is recognised that the profits of a non-resident company will be catered for by including same in Contributed Tax Capital by reason of the revised definitions contained in the 2010 Bill. A possible solution to the adverse consequences of the deletion of section 64B(5)(c) could be for the definition of “Contributed Tax Capital” to be amended so as to incorporate therein the amounts which previously would have been exempted from STC in the same way as the revised definition has accommodated the profits of a company arising prior to becoming resident in South Africa