SECONDARY TAX ON COMPANIES
1943. Liquidation distributions
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 a 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 March 1993 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 Secondary Tax on Companies (STC) in respect of such
dividends would remain intact until the implementation of the new dividends tax regime.
The 2010 Taxation Laws Amendment Act, (TLAA) was released by National Treasury on 10 May
2010. The TLAA2010 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. The 2010 Bill was enacted as the Taxation Laws Amendment Act, 7 of 2010 (TLAA).
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 had little opportunity to act before the withdrawal of
these subsections took effect.
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 TLAA 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 TLAA. 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 that 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.
Edward Nathan Sonnenbergs
IT Act: s 64B(5)(c)
The 2010 Taxation Laws Amendment Act
The Taxation Laws Second Amendment Act, No. 28 of 2010