We have previously written on the mismatch between the statutory merger provisions in section 113-116 of the new Companies Act 71 of 2008 (“Companies Act”) and the current tax legislation. In part 1 of this article we considered the interplay between statutory merger provisions and the tax rollover relief provisions contained in sections 41 to 47 of the Income Tax Act 58 of 1962 (“ITA”) and explained how a statutory merger transaction may not necessarily qualify for the tax rollover relief. We also considered the implications that the transfer of administrative tax obligations from a target company or companies (“TargetCo”) to the acquiring company or companies (“AcquireCo”) may have on parties entering into an “amalgamation or merger,” as this term is defined in the Companies Act.
In part 2 of the article we focus on the possible income tax, capital gains tax (“CGT”), value-added tax (“VAT”), transfer duty and securities transfer tax (“STT”) effects of a statutory merger on the assumption that the tax rollover relief to corporates does not apply. In our discussion we will continue the distinction we made in part 1 regarding the two possible underlying legal causes for the transfer of property and liabilities in terms of section 116(6) and (7) of the Companies Act. Whichever of these two possible scenarios is the correct interpretation could have far-reaching tax implications for both TargetCo and AcquireCo. To recap, the two possible causes are:
- Scenario 1: the typical contractual causes for the transfer of assets and liabilities (i.e. sale, cession, delegation etc.) as per the agreement between the parties; or
- Scenario 2: the automatic operation of law alone where assets and liabilities pass ex lege.
We also mention briefly the impact that the imminent Tax Administration Bill (“TAB”) may have on the tax obligations and liabilities of the parties involved.
consequences if no rollover relief applies
- income tax
1.1 If trading stock of TargetCo is transferred to AcquireCo, the definition of “gross income” in section 1 of the Act requires that any “amount, in cash or otherwise, received by or accrued to or in favour of” TargetCo, must be included in its “gross income”. 1.1.1 In the case of scenario 1, TargetCo will accrue an amount equal to the value of its liabilities which AcquireCo assumes (plus any other consideration given). 1.1.2 As the operation of law is the causa of the transaction in scenario 2, assets and liabilities are transferred automatically and not in return for a quid pro quo. Arguably TargetCo will not become entitled to something in return for the transfer of its assets. This argument however ignores the ordinary meaning of the word “amount” which does not implicitly involve the concept of a quid pro quo. However, in determining the revenue or the capital nature of a receipt, it is practically necessary to have regard to the nature of the asset which is disposed of in return therefor. There could therefore be conceptual difficulties in dealing with any “amount” accruing to Targetco in the form of relief from liabilities, without connecting this to the disposal of assets of either a capital or revenue nature. 1.2 Even though it was recently announced in the 2012 Budget Review that government is considering removing the anti-avoidance connected-person rules relating to the sale of trading stock, these rules currently still apply and their impact must therefore be considered. In terms of section 22(8) of the ITA, if a “taxpayer has disposed of trading stock, other than in the ordinary course of his trade, for a consideration less than the market value thereof … the taxpayer shall be deemed to have recovered or recouped … an amount equal to the market value of such trading stock”. 1.2.1 In the context of scenario 1, section 22(8) will only apply to TargetCo in instances where the market value of the trading stock exceeds the amount accrued to TargetCo in terms of the agreement. Should section 22(8) apply, TargetCo would have a deemed accrual of an amount equal to the market value of the trading stock at the date of the disposal. 1.2.2 In scenario 2 it should first be considered if TargetCo can be said to “dispose” of trading stock. The word “disposed” is not defined in the ITA (except for purposes of the Eighth Schedule to the ITA, which does not apply in this context). Ordinarily the words “dispose” and “disposal” envisage the actions of bestowing, making over, dealing out, dispensing, distributing, formally assigning or handing over, getting rid of, dealing conclusively with or transferring something into the hands of another care or possession, for example by sale or bequest1. Although these meanings seem to be very wide, it seems that the words presuppose a voluntary or positive action on the part of the person disposing, which may suggest a narrowed interpretation. The decision of Shell’s Annandale Farm (Pty) Ltd v Commissioner for South African Revenue Service 62 SATC 97 (“Shell’s Annandale”) may be noteworthy here. In this case the court considered the ordinary meaning of a “supply” in the context of VAT. In his judgement, Davis J emphasised that, as supplies are made in the course or furtherance of an enterprise for purposes of VAT, “supply” must be interpreted in an active manner and that an expropriated property by operation of law excluded any positive action on the part of the vendor. The “disposal” of trading stock could arguably also presuppose a positive action, as trading stock is ordinarily disposed of in the course of a scheme of profit making2 and should therefore also be interpreted in an active manner. Such an interpretation would be in line with the ordinary meaning of “disposal” discussed above. It is debatable whether the ex lege transfer of trading stock in accordance with the statutory merger provisions and an ex lege expropriation of property are analogous (i.e. that both necessarily exclude a positive action on the part of the transferee). Arguably, the mere fact that a TargetCo voluntarily entered into an amalgamation or merger agreement may in itself constitute a positive action. Moreover, by stating that the disposal must be “other than in the ordinary course of his trade” in the proviso to section 22(8), it may well be that section 22(8) includes a disposal that involves no positive action. 1.2.3 Should it be assumed that TargetCo “disposed” of trading stock, such disposal will, arguably, be for no consideration as the transfer of trading stock will be effected by force of law, rather than by a reciprocal agreement3. Section 22(8) will apply, as the consideration (i.e. nil) would be less than the market value of the trading stock. TargetCo would therefore have a deemed accrual of an amount equal to the market value of trading stock at the date of the disposal. 1.3 Next, we consider whether AcquireCo will be allowed to claim deductions in respect of the acquisition of trading stock. In terms of section 11(a) of the ITA, deductions from income are, generally, only allowed in respect of “expenditure and losses actually incurred in the production of the income, provided such expenditure and losses are not of a capital nature”. In this context, the word “expenditure” arguably includes outlays of amounts in a form other than cash. This follows from the case of Caltex Oil (SA) Ltd v SIR 1975 (1) SA 665 (A), in which it would appear that, in a transaction of barter, the value of the commodity promised in satisfaction of the obligation incurred, would constitute expenditure incurred. 1.4 According to Meyerowitz4, “where the expenditure is not in cash, the expenditure will be the cost to the taxpayer e.g. of the asset transferred, and where the asset had not been previously purchased by the taxpayer, its value. Where the asset consists of trading stock its value is its market value at the date of acquisition in terms of section 22(4) of the Act. Where it is not trading stock its value, it is considered, is its market value as at the date it is given in consideration.” 1.4.1 AcquireCo in scenario 1 would therefore be able to deduct as expenditure in accordance with the timing rules of section 22 the cost paid for trading stock, in terms of the agreement. 1.4.2 AcquireCo in scenario 2 will arguably acquire trading stock for no consideration. Section 22(4) will therefore deem the cost of the trading stock to be equal to the current market price thereof. Section 22(4) applies where “trading stock has been acquired by any person for no consideration or for a consideration which is not measurable in terms of money.” Should AcquireCo acquire any revenue assets which do not fall within the definition of “trading stock”, it seems that no deduction will be allowed in respect thereof. 1.5 If TargetCo previously claimed allowances in respect of capital assets, those amounts may be recovered or recouped by TargetCo in terms of section 8(4)(a) of the ITA. In Omnia Fertilizer Ltd v C SARS 65 SATC 159 (“Omnia”), the court considered the meaning of “recovered or recouped” within the context of section 8(4)(a) and held that it essentially meant to “return to the taxpayer’s pocket” something which had previously been an expense. In this regard section 8(4)(k) may also be relevant. This section will apply where the specific requirements of this section have been met (the outcome of which would vary from a case to case basis).5 1.5.1 Assuming that the consideration received for the transfer of assets exceeds the written down value of such assets, TargetCo in scenario 1 will have recoupments in respect of all allowances previously claimed in respect of those assets. If section 8(4)(k) applies, TargetCo will be deemed to have disposed of the assets for market value and the recoupment must then be determined accordingly. 1.5.2 It is unclear if TargetCo in scenario 2 “returns” anything to its “pocket” when the assets are transferred ex lege. However, it should be noted that in the Omnia case, it was held that the taxpayer concerned “returned” something to its pocket by merely reversing an expense for accounting purposes, without actually receiving anything. The court also noted that, as long as an amount previously expended in the eyes of the tax law has reverted to the taxpayer’s pocket for all practical purposes, such taxpayer recouped those amounts. Arguably, this occurs when AcquireCo assumes the liabilities of TargetCo by operation of law. According to the Omnia case, the legal cause for the extinction of a liability is not necessarily decisive in determining whether an amount has been recouped or not. The court held that in this regard, one should rather look at the meaning of the words “recovered or recouped” in section 8(4)(a), than, for example, at the words “prescription, agreement or otherwise, i.e. extinction of the liability”. Section 8(4)(m) of the ITA should also be considered. This section specifically deals with the scenario where a taxpayer is “relieved from the obligation to make payment of any expenditure actually incurred”. Only once the amounts are no longer legally enforceable, due to “prescription, waiver or release of a claim for payment”, are they recouped under section 8(4)(m). It may be argued that TargetCo is per se released from a claim for payment of its incurred liabilities when these liabilities are automatically transferred to AcquireCo. (To the extent that section 8(4)(k) may also apply, the value of such recoupments must be calculated with reference to the market value of the relevant assets.) 1.6 Where AcquireCo acquired capital assets from TargetCo, AcquireCo may be entitled to claim capital allowances in respect of these assets. The majority of capital allowances are calculated with reference to the “cost” of the asset or the “expenditure actually incurred” in respect of the asset. 1.6.1 AcquireCo in scenario 1 should be able to allocate a cost to each asset acquired from TargetCo (which would typically be the purchase consideration in respect of the asset) and should be entitled to claim allowances accordingly. 1.6.2 AcquireCo in scenario 2 will arguably incur no expenses or cost in respect of assets acquired, as ownership was transferred to AcquireCo by mere operation of law, without AcquireCo having to give anything (i.e. a consideration) for the acquisition, with consequential implications for claiming of capital allowances.
2.1 CGT is determined with reference to the “disposal” of an asset. The ordinary meaning of the word “disposal” (as discussed above) will not apply here, as the Eighth Schedule to the ITA6 defines “disposal” for purposes of CGT as “any event, act, forbearance or operation of law which results in the creation, variation, transfer or extinction of an asset”. Due to this wide definition, TargetCo will in both our scenarios “dispose” of assets (whether by means of a sale or by the operation of law) by way of the amalgamation or merger transaction. 2.2 The capital gain (or loss) of TargetCo will be the difference between the “proceeds” from the disposal and the “base cost” of the asset. In terms of paragraph 35, “the proceeds from the disposal of an asset by a person are equal to the amount received by or accrued … in respect of that disposal”. Paragraph 38 applies where a person “disposes of an asset by means of a donation, or for a consideration not measurable in money, or to a person who is a connected person in relation to that person for a consideration which does not reflect an arm’s length price. 2.2.1 TargetCo in scenario 1 will therefore have proceeds equal to the consideration value received or accrued as stated in the agreement, which might include any debt assumed. Depending on the facts, paragraph 38 may apply to deem the disposal proceeds to equal the market value of the asset. 2.2.2 TargetCo in scenario 2, however, will arguably have no proceeds. The words “from” and “in respect of” envisage a direct or causal relationship between the disposal and the proceeds7, and such a causal link may be absent if the disposal is caused by operation of law and the agreement is silent. The application of paragraph 38 should be considered to determine if TargetCo may be deemed to have proceeds. The disposal to AcquireCo will not be a donation, as a donation envisages an entirely separate causa. However, TargetCo will arguably dispose of assets for no consideration as a quid pro quo. This lack of consideration, however, remains measurable (i.e. nil). Accordingly, paragraph 38 should only apply in those instances where AcquireCo is a connected person in relation to TargetCo, as the nil consideration would probably not reflect an arm’s length price. Should paragraph 38 apply, the disposal will be deemed to take place for proceeds equal to the market value of the assets. 2.3 From AcquireCo’s perspective, the base cost of assets acquired must be determined (for the purpose of a possible future disposal). Paragraph 20 deals with the base cost of an asset, which generally consists of “expenditure actually incurred in respect of the cost of acquisition” and “amounts actually incurred as expenditure directly related to the acquisition”. 2.3.1 AcquireCo in scenario 1 should be entitled to treat the consideration, in terms of the agreement, as the base cost of the assets acquired from TargetCo. 2.3.2 In our view, the wording of paragraph 20 may prevent AcquireCo in scenario 2 from having any base cost, as AcquireCo will arguably incur no actual expenses or costs as a consideration for the assets acquired. Arguably, nothing will be incurred “in respect of” or “directly related” to the acquisition, as AcquireCo automatically becomes the owner of the assets by virtue of statute. (It should be noted that paragraph 38 could also deem AcquireCo to acquire the assets for expenditure equal to their market value in certain circumstances.) Much will turn on the drafting of the merger agreement. The case we have described here might well be on the extreme end of the spectrum.
3.1 The Value-Added Tax Act No. 89 of 1991 (“VAT Act”) levies output VAT on the supply of goods and services by a vendor in the course or furtherance of an enterprise. “Supply” is widely defined and includes any “performance in terms of a sale, rental agreement, installment credit agreement, and all other forms of supply, whether voluntary, compulsory or by operation of law”. 3.1.1 Provided that TargetCo in scenario 1 is a vendor, a “supply” will be made to AcquireCo in respect of goods sold for a consideration. 3.1.2 The transfer of goods to AcquireCo will also constitute a “supply” in scenario 2, as the definition of “supply” specifically includes performances “by operation of law”. It should be noted that this inclusion was the result of legislative intervention in response to the Shell’s Annandale decision, which we briefly discussed above. To refresh, land was expropriated from a vendor in this case and the court had to consider whether such an ex lege transfer would constitute a “supply”. The court held that, since supplies are made in the course or furtherance of an enterprise, the word “supply” suggests an active interpretation. Expropriation excluded any positive act on the part of the vendor and therefore no “supply” was made. However, in light of the subsequent amendments to the definition of a “supply”, a different conclusion would be reached today. 3.2 Once a transfer constitutes a “supply”, the VAT Act further requires that the value of such supply must be determined with reference to its “consideration”. The VAT Act essentially envisages “consideration” as payments (whether in cash or otherwise) in respect of or in response to a supply8. Even if there is no consideration, in certain specific circumstances in terms of section 10(4) of the Vat Act, the consideration for the supply is deemed to be the open market value of the supply, if all of the following requirements are met:
- the supply must be made for no consideration or for a consideration which is less than the open market value of the supply;
- the supplier and recipient must be connected persons in relation to each other; and
- the recipient may not be entitled to make a deduction of the full amount of VAT in respect of the supply if VAT was charged.
3.3 Whether section 10(4) applies should be determined on a case by case basis, especially taking into account whether or not AcquireCo would be entitled to deduct the full input credit (which is discussed in more detail below). 3.3.1 TargetCo in scenario 1 will levy VAT on the amount of consideration received in exchange for the goods. (It should be considered with reference to the facts whether section 10(4) applies to adjust the value of the consideration). 3.3.2 In scenario 2, supplies will arguably have no consideration, as the supplies are caused by operation of law and arguably AcquireCo will not be required to give anything “in respect of” or “in response to” such supplies. However, if section 10(4) applies to the facts, it may deem TargetCo to make the supply for a “consideration” equal to the open market value of the supply. In these scenarios the supplier may have an output tax liability. 3.4 If the transaction was subject to VAT, AcquireCo may claim an input credit. However, this input credit will be limited in certain circumstances. The issue of payment is particularly important in property transactions. Problems in deducting the full amount of VAT charged will especially arise where TargetCo makes a mixed supply, i.e. a supply that is partially subject to VAT and partially exempt from VAT, as only the portion of input tax that relates to taxable supplies can be claimed by AcquireCo. The statutory merger rules do not eliminate this exposure. If TargetCo is not a vendor and for this reason no VAT was charged, AcquireCo may still be eligible for a notional input credit. Broadly speaking, this special credit is allowed where a non-vendor supplies second-hand goods by way of a sale. 3.4.1 Provided that the requirements of the relevant sections are met, AcquireCo in scenario 1 could claim this credit with reference to the consideration paid in terms of the agreement. 3.4.2 AcquireCo in scenario 2 should also be able to claim a credit, but the value of its credit will be nil. This follows from the definition of “sale” in section 1 of the VAT Act which includes “any transaction or act whereby or in consequence of which ownership of goods passes”. As the ex lege transfer of goods by means of an amalgamation or merger transaction is a transaction in consequence of which ownership of the goods passes, the transaction should accordingly qualify as a “sale” for VAT purposes. The amount to be claimed should then be calculated as the tax fraction of either the lesser of “any consideration in money given” or “the open market value of the supply”. As the consideration given by AcquireCo in terms of scenario 2 would arguably be nil, the notional input credit would also be nil. 3.5 Where an asset is disposed of as part of an enterprise as a going concern, the supply may be zero-rated provided the requirements of section 11(1)(e) are met. For the zero-rating to apply (i) the parties must agree in writing that the enterprise will be an income-earning activity on the date of transfer thereof, (ii) the parties must agree in writing that the consideration for the supply will be inclusive of VAT at the rate of zero percent, and (iii) all assets necessary for carrying on such enterprise must be disposed of. 3.5.1 Depending on the facts and provided the specific requirement of section 11(1)(e) are met, assets supplied as part of an enterprise as a going concern may be zero rated in the case of scenario 1. 3.5.2 As previously mentioned, supplies will arguably have no consideration in scenario 2 as they are caused by operation of law. Parties may therefore struggle to meet the second requirement of section 11(1)(e) mentioned above, i.e. that it must be agreed that the consideration for the supply will be inclusive of VAT at the rate of zero percent., in circumstances where the merger agreement does not stipulate any consideration. Apart from this challenge there seems to be no reason in principle that zero rating could not be applicable to a qualifying disposal of a going concern.
- Transfer Duty
4.1 Transfer duty is imposed on the transfer of immovable property. Generally, either transfer duty or VAT will apply to a transaction, but not both. AcquireCo may in certain circumstances incur a transfer duty liability in respect of its acquisition of immovable property. 4.1.1 If transfer duty is levied in scenario 1, AcquireCo will be liable for a duty equal to 8% of the consideration paid for the property or the market value, whichever is higher. 4.1.2 AcquireCo in scenario 2 will arguably acquire immovable property for no consideration. Accordingly, if transfer duty is levied, it will be calculated with reference to the fair market value of the property.
5.1 In terms of the Securities Transfer Tax Act (“STT Act”), STT is payable on every transfer of a security at a rate of 0,25% of the higher of the market value or the consideration paid for the security. The tax is payable by the company which issued that security. The STT Act defines “transfer” widely to include “the transfer, sale, assignment or cession, or disposal in any other manner, of a security or the cancellation or redemption of that security”, but specifically excludes “any event that does not result in a change of beneficial ownership”. The STT Act does not define the term “beneficial ownership” in relation to a security and its exact meaning in this context is a contentious issue. It seems that the concept of “beneficial ownership” may relate to the economic ownership of a share (i.e. to the person who is entitled to the pecuniary benefits attached to the share), rather than the registered owner of the shares9. Through this exclusion it may be intended that only a transfer of the economic ownership of a security will be subject to STT. 5.1.1 There is a change in beneficial ownership of the shares in scenario 1, TargetCo will “transfer” shares to AcquireCo in terms of the underlying agreement and STT will be payable at a rate of 0,25% of the higher of the market value or the consideration paid for the security, 5.1.2 In scenario 2, it seems quite clear that there is a change in beneficial ownership of the shares, triggering an STT liability. 5.2 Interestingly, section 113(2) of the Companies Act provide, amongst other things, that: “Two or more companies proposing to amalgamate or merge must enter into a written agreement setting out the terms and means of effecting the amalgamation or merger and, in particular, setting out … (c) the manner in which the securities of each amalgamating or merging company are to be converted into securities of any proposed amalgamated or merged company, or exchanged for other property;
impact of the tax administration bill (‘TAB’)
One effect of the statutory merger rules is to transfer certain (inter alia, tax) obligations to the merged entity. In part 1 of this series of articles we considered how tax obligations imposed by the ITA on the TargetCo, may become enforceable against the AcquireCo. The commercial exposure of the transfer of tax obligations and liabilities may be intensified by the imminent TAB.
The TAB is a legislative initiative to incorporate certain generic administrative provisions which are currently duplicated in the different tax acts. Once incorporated, the TAB will replace the current administrative provisions of the tax acts, including the ITA.
The TAB retains most of the tax obligations that taxpayers currently have under the administrative provisions of the ITA. In addition thereto, the TAB substantially supplements SARS’s powers to gather information regarding taxpayers and to collect outstanding tax debts. The corresponding obligations of taxpayers (and of other persons) are extended likewise. One example is the provisions dealing with the strengthening of SARS’s powers to collect tax debts from so-called “responsible third parties”. Essentially these provisions provide that:
- any third party who holds or owes or will hold or owe any money (including a pension, salary, wage or other remuneration), for or to a taxpayer, may by notice by a senior SARS official be required to pay such amounts to SARS. Should the third party fail to pay the money as so required in the notice, the third party will be held personally liable of the money (clause 179);
- any person who controls or is regularly involved in the management of the overall financial affairs of a taxpayer with outstanding tax debts may be held personally liable for such debts where a senior SARS official is satisfied of negligence or fraud on the part of such person in respect of the payment of tax debt of the taxpayer (clause 180);
- where shareholders received assets from an unlisted company with outstanding tax debts within one year of its winding-up, such shareholders will be held jointly and severally liable to pay the unpaid (clauses 181 and 184);
- where a person (i.e. the “transferee”) receives an asset from a taxpayer (i.e. the “transferor”) who is his connected person without consideration or for consideration below the fair market value of the asset, the transferee may be held liable for the tax debt of the transferor limited to, inter alia, the market value of the assets at the time of the transfer less the consideration paid for the asset (clause 182); and
- SARS will have the same powers of recovery against the assets of the abovementioned “responsible third parties”, as it had against the assets of the defaulting taxpaying (clause 184).
In dealing with the effects of a statutory merger it will be immediately apparent that these types of obligations may give rise to difficulties and the results may be quite unexpected. We will deal with them in a future article.
The TAB has been approved by Parliament and is awaiting the consent of the President. Interestingly, the TAB reserves the President with the power to determine different dates for different provisions of the TAB to come into operation and it seems likely to become effective in this manner. In his 2012 Budget Review, the Minister of Finance announced that the Bill is expected to be promulgated and most of its provisions brought into force in 2012. Unfortunately it remains uncertain exactly when the Bill will become operative.
Should an “amalgamation or merger” wholly or partly fall outside the ambit of the tax rollover relief provisions of the ITA, the implementation of the transaction may lead to unexpected income tax, CGT, VAT, transfer duty and STT consequences in the hands of any parties involved, depending on whether or not scenario 1 or scenario 2 correctly describes the causa of the transaction. Should the amalgamation or merger be governed by the underlying contract (i.e. scenario 1), the tax implications of the transaction would be dictated by the type of agreement used (e.g. the transfer of business agreement) and should be in line with the usual tax implications arising from such agreements.
Should assets and liabilities fuse ex lege (i.e. scenario 2) this alternative mechanism may become useful in effecting an amalgamation or merger. However, assets will arguably not be transferred in return for anything (e.g. cash, shares or the assumption of debt) and the transaction would arguably take place for no consideration. Various anti-avoidance provisions in the respective tax acts, which are aimed at non-arm’s length transactions between connected persons, may be triggered. Typically, these provisions deem a transaction to have taken place at market value. The acquisition of fixed or trading assets without a cost can also be problematic if the tax roll-over rules do not apply to the specific case.
A key mismatch between the tax and company law is that the statutory merger rules, on the one hand, envisage the new AcquireCo stepping into the shoes of the old TargetCo, with the position of third parties vis-a-vis the TargetCo simply transferring to the AcquireCo. On the other hand, there are no explicit rules in the ITA treating or deeming these parties to be one and the same person for tax purposes. In this series of articles we have identified some of the anomalies arising in this regard. In his 2012 Budget Review, the Minister of Finance acknowledged the existence of anomalies between the Companies Act and the ITA and announced that the government will hold a series of workshops to review the nature of company mergers, acquisitions and other restructures to better understand their practical use. He also added that these workshops will lay the foundation for tax changes (and possibly changes to company law) over a two year period. The legislature’s immediate focus area is expected to be share-for-share recapitalisations of a single company and it is therefore anticipated that it may be some time before the other issues raised in this article will be addressed.
1 Black’s Law Dictionary 9th Edition; Shorter Oxford Dictionary 5th Edition
2 Trading stock is defined in section 1 of the Act to include “anything produced, manufactured, constructed, assembled, purchased or in any other manner acquired by a taxpayer for the purposes of manufacture, sale of exchange” and “anything the proceeds from the disposal of which forms or will form part of the taxpayer’s gross income”
3 At 722, Clayden FJ held in Barnett v Commissioner of taxes 1959 (2) SA 713 (FC) that “the word [consideration] has an ordinary legal meaning, and that would clearly include a reciprocal undertaking.”
4 Meyerowitz on Income Tax (2007-2008 edition at paragraph 11.32)
5 Section 8(4)(k) applies where a person has “(i) donated any asset; (ii) in the case of a company, transferred in whatever manner or form any asset to any shareholder of that company; or (iii) disposed of any asset to a person who is a connected person in relation to that person, in respect of which a deduction or an allowance has been granted”.
6 All references to paragraphs will refer to the paragraphs of the Eighth Schedule to the Act, unless stated otherwise.
7 In Khaled v Durban Corp 1940 NPD 129 the court held that a tax could not be said to be a tax in respect of a transfer unless it had a direct or causal relationship with such transfer.
8 Section 1 of the VAT Act defines “consideration in relation to the supply of goods or services” to include “any payment made or to be made… in respect of, in response to, or for the inducement of, the supply of any goods or services”.
9 Oakland Nominees (Pty) Ltd v Gelria Mining & Investment Co (Pty) Ltd 1976 (1) SA 441 (A); Commissioner for South African Revenue Service v Metlika Trading Ltd and Others 66 SATC 345 at 350; as read with the Explanatory Memorandum on the Securities Transfer Tax Bill 2007 and dictionary meanings of “beneficial” and “owner”.
Also view: http://www.ensafrica.com/Uploads/Images/news/ENS%20-%2030%20March%202012.pdf
Janel Strauss – associate