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Recent Binding Private Rulings, Binding Class Rulings and Binding General Rulings

SARS has recently released, inter alia, the following binding private rulings (“BPR”), binding class ruling (“BCR”) and binding general ruling (“BGR”): BPR 230: Disposal of an asset in terms of an asset-for-share transaction within 18 months of its acquisition in terms of an intra-group transaction This ruling determines the income tax consequences under section 45(5) of the Income Tax Act in respect of the disposal of an asset in terms of an asset-for-share transaction as contemplated in section 42, within 18 months of the acquisition of that asset in terms of an intra-group transaction contemplated in section 45. Find a copy of the ruling here.

All in one: another ruling regarding an amalgamation transaction

Author: Dries Hoek and Louis Botha (Cleffe Dekker Hofmeyr). In our Tax and Exchange Control Alert of 20 May 2016, we discussed Binding Private Ruling 231 (Overruled: SARS expresses an interesting view on be an amalgamation transaction), in which the South African Revenue Service (SARS) ruled on whether the roll-over relief provisions in s44 of the Income Tax Act, No 58 of 1962 (Act) could be applied. In this article, we discuss Binding Private Ruling 232 (Ruling),

SARS rules again on the capitalisation of loan accounts

Author: Ben Strauss (Director at Cliffe Dekker Hofmeyr). The South African Revenue Service (SARS) has now issued a number of rulings on the matter of the “conversion” of debt to equity. We have discussed previous rulings on this topic in our Tax Alerts of 15 January 2016 and 9 October 2015. On 31 May 2016 SARS issued Binding Private Ruling 236 (Ruling) which again deals with the issue.

Overruled: SARS expresses an interesting view on an amalgamation transaction

The South African Revenue Service (SARS) has traditionally adopted a conservative approach in issuing rulings which approve a tenuous interpretation of provisions of the Income Tax Act, No 58 of 1962 (Act), in favour of the taxpayer. However, in Binding Private Ruling 231 (Ruling), which was issued by SARS on 10 May 2016, SARS adopted an interesting interpretation of the corporate roll-over relief provisions in s44 of the Act, which raises a number of questions. The Ruling is quite long and therefore we will only discuss the manner in which SARS applied the provisions of s44, relating to corporate roll-over relief in the case of so-called amalgamation transactions (s44 transaction).

SARS ruling on a share subscription transaction followed by a share

Author: Mansoor Parker (Tax Executive at ENSAfrica). On 17 March 2016, the South African Revenue Service (“SARS”) issued an interesting binding private ruling (“BPR 227”) concerning a share subscription transaction which was followed by two share buyback transactions. BPR 227 deals with an area that National Treasury and SARS have identified as a problem, namely where a shareholder disposes of its shares through means of a share buyback as opposed to selling the shares outright to a third party. Before dealing with BPR 227 we will explain the background to this issue, the steps taken by National Treasury and SARS to deal with this issue and why BPR 227 was treated differently.

SARS issues important tax ruling for renewable energy financing structures

Author: Mansoor Parker (ENSAfrica). On 13 April 2016, the South African Revenue Service (“SARS”) issued Binding Private Ruling 228 (“BPR 228”), which dealt with the issue whereby a project company becomes an operating company for the purpose of s8EA of the Income Tax Act, No 58 of 1962 (“ITA 1962”). This question is an important one in the context of financing the activities of renewable energy project companies but its relevance stretches further to many other infrastructure-related project companies.

The complex world of hybrid debt instruments: a ruling applicable to non-resident issuers

On 1 March 2016, the South African Revenue Service (SARS) issued Binding Private Ruling 225 (Ruling), dealing with the dividends tax consequences for a non-resident issuer of hybrid debt instruments. By way of background, according to the Explanatory Memorandum on the Revenue Laws Amendment Bill, 2004 (Explanatory Memorandum) s8F of the Income Tax Act, No 58 of 1962 (Act) was introduced to draw a distinction between debt and equity for tax purposes. The section was further introduced to limit the deductibility of interest by persons other than natural persons in respect of hybrid debt instruments which are debt in legal form, but have sufficient equity features to place them clearly at the equity end of the debt/equity spectrum.

Binding Ruling – SARS ruling on preference share transaction

Binding Private Ruling No 191 (Ruling) was released by the South African Revenue Service (SARS) on 26 March 2015. The Ruling relates to the refinancing of debt through means of preference share funding. Having regard to the terms and conditions of the preference shares and the proposed cash-flows of the transaction, the applicant sought a ruling confirming that: the preference shares to be issued would not constitute ‘hybrid-equity instruments’ and ‘third-party backed shares’, as respectively defined in s8E(1) and s8EA(1) of the Income Tax Act, No 58 of 1962 (Act);

SARS clamps down on share buy backs followed by the issue of shares

In practice taxpayers often enter into arrangements in terms of which a company buys back its own shares held by certain shareholders, and immediately thereafter issues new shares to new shareholders. This practice has long caused tax avoidance concerns for the South African Revenue Service (SARS), as it could circumvent the payment of capital gains tax (CGT) by the shareholder whose shares are bought back.

Binding Ruling – Draft ruling on unbundling transactions

Author: Emil Brincker – Tax Director (Cliffe Dekker Hofmeyr) The South African Revenue Service (SARS) recently issued a draft Binding General Ruling (BGR) that addresses the interpretation of the words “at the end of the day after that distribution” as used in s46(3)(a)(v) of the Income Tax Act 58 of 1962 (Act). Section 46 of the Act deals with unbundling transactions and provides parties to such a transaction with relief from various taxes that would otherwise become payable.