The South African Revenue Service recently released Binding Private Ruling No 237 (Ruling), which dealt with the reinstatement of a deregistered company in the context of the transfer of immovable properties in terms of an amalgamation transaction.
A company (Company) had previously sold its business as a going concern to another company (Applicant) in terms of an amalgamation transaction as defined in s44 of the Income Tax Act, No 58 of 1962 (Act). The assets of the business included certain immovable properties.
In order for a transaction to qualify as an amalgamation transaction, the existence of the amalgamated company has to be terminated. Accordingly, the Company was deregistered with the Companies and Intellectual Properties Commission (CIPC).
Unfortunately, due to a bona fide error, the relevant immovable properties were never transferred from the Company to the Applicant prior to the Companys deregistration.
Accordingly, the Company was still reflected as the owner of the immovable properties in the deeds registry, despite the Companys deregisteration.
It appears that, in order to effect the transfer of the immovable properties to the Applicant, the Companys registration with the CIPC had to be reinstated. It was accordingly proposed that application would be made to the CIPC for such reinstatement.
In order to reinstate the registration of the Company, the steps set out in the CIPCs Practice Note 6 of 2012, will have to be followed. These steps include:
- Receiving confirmation from National Treasury, as well as the Department of Public Works, that they have no objection to the reinstatement of the registration. This step is specifically intended to address the issue of the assets of a deregistered company being forfeited to the State as bona vacantia.
- Advertising the application for reinstatement of the Company in a local newspaper, giving third parties an opportunity to object.
It was further proposed that, once the Companys registration was reinstated, the immovable properties would be transferred to the Company. Thereafter the Company would again be deregistered.
From a tax point of view, the concern for the Applicant and the Company appeared to be whether they would still enjoy the relief provided by s44 of the Act, as well s8(25) of the Value-added Tax Act, No 89 of 1991 (VAT Act), in respect of the transfer of the immovable properties after reinstatement.
Specifically, s44(13)(b) of the Act provides that the relevant roll-over relief will be denied where any step taken to deregister the amalgamated company is withdrawn, or if anything is done to invalidate such step, with the result that the amalgamated company is not deregistered.
In addition, it appears that the process would cause the final deregistration of the Company, after transfer of the immovable properties, to only occur after the 36 month period allowed for in terms of s44(13)(a) of the Act.
In this regard SARS ruled that:
- the roll-over relief provided for in s44 of the Act would continue to apply;
- the reinstatement of the Companys registration, and subsequent deregistration after transfer of the immovable properties, will not be in breach of s44(13)(b) of the Act;
- the 36 month period provided for in s44(13)(a) of the Act would be extended;
- the transfer of the immovable properties would be treated as a non-supply in terms of s8(25) of the VAT Act; and
- the transfer of the immovable properties would be exempt from transfer duty in terms of s9(1)(l)(iB) of the Transfer Duty Act, No 40 of 1949.