An evaluation of South Africa's approach to tax avoidance through dividend stripping
type: CreativeWork
description: Dividend stripping is a form of tax avoidance, a prevalent and universal problem in tax systems, originating from unavoidable tax law inconsistencies exploited by taxpayers. It entails the extraction of value from shares held in a target company by effectively selling the shares through tax-exempt dividends. These schemes involve millions of Rands and could potentially erode the South African tax base. South Africa has enacted specific dividend stripping rules to counteract this practice. Extraordinary tax-exempt pre-sale dividends accrued or received in respect of disposed target company shares will be taxable in the shareholder's hands as either income, for shares held as trading stock, or as proceeds, for shares held as capital assets. Furthermore, capital losses arising on the disposal of shares after receiving extraordinary tax-exempt dividends are disregarded to a certain extent. The specific dividend stripping rules of South Africa are in line with the established principle in Commissioner for Inland Revenue v Nemojim (Pty) Ltd (1983) that any such dividends are sine qua non to the transaction's profitability. General anti-avoidance provisions are also available to serve as a safety-net if the specific dividend stripping rules fail to curtail the tax avoidance and the South African Revenue Service is not precluded from applying this statutory mechanism merely because specific rules exist. The anti-dividend stripping provisions however continue to expand within the South African tax law, but time and again, it is circumvented by more aggressive and costly substitute dividend stripping schemes in reaction thereto. In the light of these recurrent amendments the difficult question arises as to whether South Africa's approach to tax avoidance through dividend stripping is appropriate, robust and inclusive of all permutations of dividend stripping, or whether it is too restrictive and unnecessarily aggravating for commercial transactions. New Zealand and Australia …
abstract: Dividend stripping is a form of tax avoidance, a prevalent and universal problem in tax systems, originating from unavoidable tax law inconsistencies exploited by taxpayers. It entails the extraction of value from shares held in a target company by effectively selling the shares through tax-exempt dividends. These schemes involve millions of Rands and could potentially erode the South African tax base. South Africa has enacted specific dividend stripping rules to counteract this practice. Extraordinary tax-exempt pre-sale dividends accrued or received in respect of disposed target company shares will be taxable in the shareholder's hands as either income, for shares held as trading stock, or as proceeds, for shares held as capital assets. Furthermore, capital losses arising on the disposal of shares after receiving extraordinary tax-exempt dividends are disregarded to a certain extent. The specific dividend stripping rules of South Africa are in line with the established principle in Commissioner for Inland Revenue v Nemojim (Pty) Ltd (1983) that any such dividends are sine qua non to the transaction's profitability. General anti-avoidance provisions are also available to serve as a safety-net if the specific dividend stripping rules fail to curtail the tax avoidance and the South African Revenue Service is not precluded from applying this statutory mechanism merely because specific rules exist. The anti-dividend stripping provisions however continue to expand within the South African tax law, but time and again, it is circumvented by more aggressive and costly substitute dividend stripping schemes in reaction thereto. In the light of these recurrent amendments the difficult question arises as to whether South Africa's approach to tax avoidance through dividend stripping is appropriate, robust and inclusive of all permutations of dividend stripping, or whether it is too restrictive and unnecessarily aggravating for commercial transactions. New Zealand and Australia …
author: Van Rooyen, Ruve
language: en
keywords: Tax avoidance, dividend stripping, anti-dividend stripping rules, capital gains tax, dividends tax, dividend capturing, limitation of capital losses
date published: 2021
date modified: 2026-07-24T03:33:42Z
provider: North-West University (South Africa)
publisher: Networked Digital Library of Theses and Dissertations
type: WebPage
source organization: North-West University (South Africa)

PropertyValue
property ID: Handle
value: http://hdl.handle.net/10394/37474