A critical analysis of the meaning of beneficial owner of dividend income received by a discretionary trust

[摘要] ENGLISH ABSTRACT: The term beneficial owner is most commonly found in the dividend, interest and the royaltyarticles of tax treaties (Baker, 2007:15), yet there is still uncertainty surrounding the actualmeaning of the term (Du Toit, 2010: 500).Since Dividends Tax became effective in South Africa as from 1 April 2012, it has becomenecessary to clarify what the term beneficial owner means to correctly apply section 64E ofthe Income Tax Act No 58 of 1962 ('Act').Section 64EA(a) of the Act determines that the Dividends Tax liability falls on the'beneficial owner of a dividend [Emphasis added]. Section 64D of the Act does define thebeneficial owner as 'the person entitled to the benefit of the dividend attaching to theshare, the application of this definition to a discretionary trust may be challenging sincelegal ownership must be distinguished from economic ownership (PWC Synopsis, 2012:6).In the absence of guidance by the South African Revenue Service ('SARS'), the firstproblem arises as to the interpretation of this term within the context of dividend incomereceived by a discretionary trust (Louw, 2012:1). This leads to a second problem relatingto the correct application of section 64G(3)(a)(i) of the Act, which makes provision for areduced rate of dividends tax.The purpose of this study is to set parameters for determining who the beneficial owner ofdividend income within the context of a discretionary trust is, where the dividend is paid inrespect of shares held in a resident company, and to the extent that the dividend does not consist of a distribution of an asset in specie. The instances when the reduced rate isapplicable in terms of section 64G(3) of the Act will also be clarified.In order to achieve these objectives, an analysis of factors that should be taken intoaccount to define and determine beneficial ownership, was undertaken. Common- and civillaw definitions were investigated. The Organisation for Economic Co-operation andDevelopment's ('OECD') Model Tax Conventions (MTCs') and its Commentaries providedpossible factors to assist in identifying the beneficial owner. In the absence of a decisionby a South African court, the judgements in the five international court cases wereconsulted. Four steps were formulated to reach a conclusion.In terms of the these steps, the trust beneficiary remains the beneficial owner of dividendincome received by a trust in the case of the income having been distributed by thetrustees in having exercised their discretion in terms of the trust deed. In the case ofcontingent beneficiaries it is suggested that the trust, with the trustees, acting in theirofficial capacity on behalf of the trust, would be seen as the beneficial owner of thedividend income.In terms of section 64G(3) of the Act, where a foreign trustee or a foreign trust beneficiaryhas been identified as the beneficial owner(s) of a dividend, the rate at which DividendsTax is withheld could be reduced as a result of the application of a double tax agreement.

[发布机构] Stellenbosch University