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.
Category: Shares
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).
Buying back shares from shareholders: dividends tax liability
Many issues arise when a company enters into an agreement to buy-back shares from its shareholders. If a company enters into an agreement with a particular shareholder to buy-back a certain number of ordinary shares, whereby the shares will be returned and cancelled on the effective date of the agreement, but the payment for the buy-back will be made in instalments over several years. This raises the issue of when liability to pay dividends tax will arise? Section 1 of the Income Tax Act No. 58 of 1962 (the “Act”) defines a “dividend” as inter alia: “Any amount transferred or applied by a company that is a resident for the benefit or on behalf of any person in respect of any share in that company, whether that amount is transferred or applied…as consideration for the acquisition of any share in that company…”
New Binding Private ruling issued in respect of renunciation of a usufruct over shares
On 17 August 2015 the South African Revenue Service (SARS) issued Binding Private Ruling 203 (Ruling) relating to the question as to whether securities transfer tax (STT) would be payable on the renunciation of a usufruct over shares. The Ruling specifically dealt with the interpretation of sections 1, 2 and 5 of the Securities Transfer Tax Act No. 25 of 2007 (STT Act). In respect of s1 of the STT Act, the Ruling pertained to the definitions of “security” and “transfer”. Section 1 of the STT Act defines a “security” as:
Binding Ruling on issue of capitalisation shares
The South African Revenue Service (SARS) issued Binding Private Ruling No 201 (Ruling) on 13 August 2015. The Applicant, being a natural person, held 100% of the equity shares in a resident operating company (OpCo). OpCo, in turn, owned 100% of the shares in a dormant resident company (Co-Applicant). The parties wished to introduce a black-owned company (BEECo) as a shareholder in OpCo in order to improve its Black Economic Empowerment (BEE) credentials.
Acquisition of shares using interest-bearing funding – refinements to section 24O
Authors: Denny da Silva and Elandre Brandt (Webber Wentzel) Section 24O was introduced in 2012 as an alternative to so-called “debt push-down structures”. The provision allows a company to claim a deduction for interest incurred on debt used to acquire shares in a company, under qualifying circumstances (subject to certain interest deduction limitation provisions in the Income Tax Act). Under current law, the interest deduction is allowed where a company acquires equity shares in another company that is an operating company (being a company that carries on business continuously and in the course or furtherance of that business provides goods or services for consideration) or a company that holds more than 70% of the shares of an operating company, and that acquiring company becomes the controlling group company of the acquired company at the end of the day of the transaction.
Proposed amendment to anti-avoidance rule in respect of asset-for-share transactions
Author: Heinrich Louw (DLA Cliffe Dekker Hofmeyr) Section 42 of the Income Tax Act, No 58 of 1962 (Act) provides for tax roll-over relief in respect of asset-for-share transactions as defined. Such a transaction generally entails the disposal by a person of an asset to a company, and the issue by that company of new shares to the person as consideration. One of the requirements is that the nature of the asset must be retained. In other words, if the person held the asset as trading stock, the company must acquire it as trading stock, and if the person held it as a capital asset, the company must acquire it as a capital asset. If the person held the assets as a capital asset, the company may acquire it as a capital asset if the person (where the person is a company) and the company do not form part of Read More …
Shares incentive schemes – Innocuous binding private ruling or perhaps not
We often comment that the tax legislation applicable to share incentive schemes is complex and, as a result, a number of advance tax rulings have been published by the South African Revenue Service (SARS) dealing with the issues. Another Binding Private Ruling, No 199 (Ruling), was released by SARS this week which dealt with the questions of whether: the participation rights held by beneficiaries of a share incentive trust constituted “restricted equity instruments” for purposes of s8C(7) of the Income Tax Act, No 58 of 1962 (Act); and the dividends received by the beneficiaries by virtue of these participation rights will be tax as income or exempt from normal tax in terms of s10(1)(k)(i) of the Act.