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.

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.

When are funds used for a ‘qualifying purpose’? a ruling regarding s8EA in the context of a BEE transaction

On 13 April 2016, the South African Revenue Service (SARS) issued Binding Private Ruling 228 (Ruling), which dealt with s8EA of the Income Tax Act, No 58 of 1962 (Act). Section 8EA is an anti-avoidance provision, which treats the yield on third-party backed shares as income instead of dividends in the hands of the holder.

Impact of tax on investment returns

Saving more and investing through a tax-free savings account is a very tax efficient way of ensuring maximum after-tax returns for your hard earned money, according to Francis Marais, research and investment analyst at Glacier by Sanlam. “Fortunately, in South Africa, we have a few tools to help with achieving maximum tax efficiency. Some are explicit tax savings vehicles, while some are less explicit, but worth keeping in mind,” said Marais.

South African budget takes aim at hybrid debt instruments, share buybacks

Author: Peter Dachs (MNE Tax). South Africa’s Minister of Finance has announced tax changes affecting business in the 2016 budget, including a measure to curb perceived abuses associated with hybrid debt instruments and a warning about future action on share buybacks Under South African domestic law, hybrid debt instruments, i.e. debt instruments with certain equity features, result in the return thereon being treated as a tax-exempt dividend. The budget, issued February 24, states that with immediate effect in circumstances where a nonresident issuer obtains a tax deduction for a payment on a hybrid debt instrument, the South African taxpayer receiving the return will be taxable thereon.

Budget 2016 – The re-characterisation of proceeds in the case of a share buyback

It was announced as part of the Budget proposals that National Treasury may recharacterise the proceeds that are received by a shareholder that is a company in circumstances where it disposes of its shares through means of a share buyback as opposed to selling the shares outright to a third party. This conundrum is currently arising on a daily basis where a shareholder in a company has two ways in which to dispose of the shareholding in the company, being:

Is dividends tax payable on the distribution of dividends to employees through a discretionary trust?

Authors: Gigi Nyanin and Nicole Paulsen The South African Revenue Service (SARS) released Binding Private Ruling 209 (BPR 209), on 21 October 2015, which deals with whether dividends tax must be withheld from dividends distributed in cash by a company to a discretionary trust that in turn distributes such dividends to the beneficiaries of the trust. The beneficiaries of the trust are either employees of the company or its subsidiaries.

Another ruling on the capitalisation of shareholder loans

Author: Heinrich Louw The South African Revenue Service (SARS) released Binding Private Ruling 208 (Ruling) on 8 October 2015. The Ruling concerned the use of subscription proceeds to repay a shareholder loan. Company A and Company B each held 50% of the issued shares in Company C. Company A wanted to acquire Company B’s shares (Shares) in Company C. Company B had a loan claim against Company C, which was used to finance operational expenditure of Company C. Company A only wanted to acquire the Shares and not the loan claim.

Disposal by share block company of sectional title units to its shareholders

Author: Heinrich Louw (Senior Tax Associate – Cliffe Dekker Hofmeyr) The South African Revenue Service (SARS) released Binding Private Ruling, No 206 (Ruling) on 14 September 2015. The Ruling dealt with the disposal by a share block company of sectional title units to its share block holders. A resident company (Applicant), and a resident trust (Trust), held shares in a resident share block company (Share Block Company). The Share Block Company owned three sectional title units.

Validity of attachment of shares to found or confirm jurisdiction

Author: Mareli Treurnicht (Senior Associate at Clifee Dekker Hofmeyr) The South African common law, read with the Superior Courts Act, No 10 of 2013 (the Superior Courts Act), provides for the rules pertaining to the attachment to either found or confirm jurisdiction in South Africa. The attachment of property to found or confirm jurisdiction is regarded as an extraordinary remedy and, according to case law, should be granted with caution. Section 28 of the Superior Courts Act further prohibits the attachment of property against a person who is a resident in South Africa in order to found jurisdiction. However, the common law provides for the attachment of the property of a person who is not a resident, whether such property is immovable, movable or incorporeal (such as shares).