The degree to which black people participate in the ownership of an entity is an important measure of an entity’s compliance with the black economic empowerment (BEE) legislation and the amended codes. The difficultly with many BEE transactions is that the participants do not have the funding available to acquire ownership (shares) in the measured entity. Historically, where the participants have used third party funding (eg preference shares) to finance the acquisition of shares in the measured entity, the funding has proved too costly, leaving the participants with no meaningful ownership in the measured entity.
Category: Shares
Cross-issue of shares
Generally, the issue of a share by a company does not constitute a disposal for purposes of capital gains tax. However, in 2013, paragraph 11(2)(b) of the Eighth Schedule to the Income Tax Act was amended to the effect that the issue of shares by a resident company for the exchange, whether directly or indirectly, of shares in a foreign company would constitute a disposal.
Securities lending arrangements
A securities lending arrangement entails a lender advancing shares to a borrower to enable such borrower to on-deliver the marketable security in terms of a sale or on-lending transaction. The borrower is obliged to deliver the equivalent marketable security (in kind, quality and quantity) to the lender within a specified period of the original advance and to compensate the lender for any distributions to which he would have been entitled to during such period.
Tax on proceeds received for the disposal of shares – how long is ‘for keeps’ these days?
Authors: Andrea Minnaar and Scott Salusbury When disposing of an asset, it is critical to determine whether the proceeds of the disposal are of a capital nature, since if they are, they will be taxed in terms of the capital gains tax regime at a much lower effective rate than if they were of a revenue nature. Certain shares, if held for a continuous period of three years prior to disposal, are deemed to yield capital proceeds in terms of section 9C of the Income Tax Act. In the case of shares which fall outside the provisions of section 9C we must turn to the case law, which over the years has become rather extensive in this area. The enquiry is essentially one into the intention of the taxpayer in acquiring, holding and disposing of the asset. If the taxpayer’s intention was such that they ‘entered into a scheme of Read More …
Interpretation of fiscal legislation
Introduction In Commissioner SARS v Bosch (394/2013) [2014] ZASCA 171 (November 19 2014), the Supreme Court of Appeal dealt with the fiscal consequences of a deferred delivery transaction. The judgment is important not only in the context of the meaning of simulation, but also with reference to the way in which legislation should be interpreted. In Bosch, the question arose as to the meaning of Section 8A of the Income Tax Act (58/1962), which read that a taxpayer’s income should include any gain made by the exercise, cession or release of any right to acquire a marketable security during the year of assessment.
The tinderbox of asset-for-share transactions
Author: Andrea Minnaar – Tax Director at ENSafrica The Income Tax Act No. 58 of 1962 (“the Act”) contains a number of provisions in terms of which assets may be transferred from one taxpayer to another on a tax-free basis, with the tax in relation to such an asset being deferred until the transferee eventually disposes of the asset. One such provision is contained in section 42, dealing with “asset-for-share transactions”.
Share lending arrangements – more tax changes!
Author: Magda Snyckers – Tax Director at ENSafrica The securities lending industry has seen many changes to the taxation of share lending arrangements in South Africa during the last couple of years. In particular, since the introduction of dividends tax on 1 April 2012, the provisions in the Income Tax Act (“the Act“) which relate to the income tax and dividends tax treatment of dividends received by borrowers of JSE listed shares and payments made by such borrowers have been regularly amended, often with retrospective effect. The Draft Taxation Laws Amendment Bill which was released on 17 July 2014 (“2014 Draft Bill”) is no exception, and again contains changes to the dividends tax provisions relating to payments made by such borrowers.
Disposal of foreign equity shares – proceed with caution
In advising on international corporate transactions we often advise taxpayers that directly, or indirectly through a foreign subsidiary, dispose of their equity shares in foreign subsidiaries or equity investments resulting in a taxable capital gain. What looks like a simple transaction, capable of being executed in a tax neutral manner, could very easily result in adverse tax implications for the disposing shareholder.
Sale of shares by special purpose vehicle
Author: Heinrich Louw – DLA Cliffe Dekker Hofmeyr Author page » Judgment was handed down by a full bench of the High Court, Western Cape Division, in the matter of Capstone 556 (Pty) Ltd v Commissioner for the South African Revenue Service, on 26 August 2014. The matter was on appeal from the Tax Court (ITC 1867 75 SATC 273), on which we reported in our Tax Alert of 5 July 2013.
Securities transfer tax and earnout provisions
Introduction Often the parties to a sale of shares agreement agree to an earnout clause – a provision that part of the price will be paid in future if certain conditions are met. For example, the parties may agree that while the seller must transfer ownership of all the shares to the purchaser at the time of the sale, the purchaser will pay part of the purchase price only if the company reaches specified financial targets in future.