SA Budget 2024/25 – Tax policy on Corporate reorganisation rules

Corporate reorganisation rules

Clarifying the interaction of the value shifting provisions and the definition of value shifting arrangement in paragraph 1 of the Eighth Schedule

Disposals between group companies falling within the ambit of the corporate rollover relief provisions should, in principle, be tax neutral. In essence, rationalising a group of companies can result in the market value of an existing shareholding of one group entity decreasing and another group entitys newly acquired shareholding increasing (this would trigger the application of the value shifting rules). However, commercially, the market value of the ultimate holding companys combined direct and indirect interests in all the subsidiary companies remains unchanged. It is proposed that the definition of value shifting arrangement be amended to exclude certain corporate rollover transactions between groups of companies or where the value of the effective interest of the connected person remains unchanged.


Reviewing the prohibition against transfers of assets to non‐taxable transferees in terms of an amalgamation transaction

In general, amalgamation transaction rules do not apply if assets are transferred to companies that are wholly or partially exempt or fall outside the South African tax base because they are not fully taxable, in order to ensure that rollover relief is not used to obtain a permanent exemption. It has come to governments attention that the interaction between the definition of amalgamation transaction and the aforementioned rule, its reference to an amalgamated company and cross‐ references to a resultant company that is a foreign company that does not have a place of effective management in South Africa seem to be misaligned and unclear. It is proposed that this interaction be reviewed and clarified.


Reviewing the ambit of the de‐grouping charge in intra‐group transactions

The anti‐avoidance measures of the intra‐group corporate reorganisation rules set out the tax consequences for capital assets, allowance assets and trading stock in the event of de‐grouping subsequent to an intra‐group transaction. This is commonly referred to as a de‐grouping charge and is applied when the transferee company and a transferor company cease to form part of the same group of companies or when the transferee company ceases to form part of the same group as any controlling group company in relation to the transferor company. For the de‐grouping charge to be triggered, the de‐grouping must take place within six years of the transfer of the assets if the assets were transferred between group companies as envisaged in paragraph (a) of the definition of intra‐ group transaction. It is proposed that the scope of the de‐grouping charge be narrowed to avoid the de‐grouping charge being triggered when there is a change in shareholding affecting a group of companies, while the companies involved in the original intra‐group transactions are still part of another group of companies.