Binding Class Ruling 070: Recipients of shares in an "unbundled" company

Binding Class Ruling 070: Recipients of shares in an "unbundled" company

• 01 July 2020
• SARS

Important:

This binding class ruling is valid in respect of the year of assessment during which the proposed transaction is entered into.

Preamble

This binding class ruling is published with the consent of the applicant(s) to which it has been issued. It is binding between SARS and the applicant, any co-applicant(s) and the class members only and published for general information. It does not constitute a practice generally prevailing.

1. Summary

This ruling determines tax consequences for the recipients of listed shares in a company, following an unbundling transaction of that company’s shares by its listed holding company.

2. Relevant tax laws

In this ruling references to sections are to sections of the Act and the STT Act applicable as at 25 February 2020. Unless the context indicates otherwise any word or expression in this ruling bears the meaning ascribed to it in the relevant Act. This is a ruling on the interpretation and application of –

• Section 46 of the Act; and
• Section 8(1)(a)(iv)of the STT Act.

3. Class

The class members to which this ruling applies are all resident and non-resident shareholders of listed shares in the applicant, as reflected on the applicant’s securities register on the last day to trade (LDT).

4. Parties to the proposed transaction

The applicant: A resident listed company

Listco: A resident company and a wholly-owned subsidiary of the applicant which is to be listed

Class members: The members of the class described in 3 above

5. Description of the proposed transaction

The applicant comprises of three principal business units. The purpose of the proposed transaction is to demerge and separately list one of these.

Listco will have a primary listing on the JSE.

The listing of the applicant will be retained.

To implement the transaction, the applicant will take several transaction steps. (See BPR 345 where the steps are set out in full). For purposes of this binding class ruling, the following steps are applicable:

The distribution of shares in Listco (unbundled shares) to the class members will, in certain instances, result in fractional entitlements for shareholders (fractional shareholders), which will be rounded down to the nearest whole number. The aggregated excess fractions of the unbundled shares to which a shareholder would otherwise have been entitled will not be transferred to it following the unbundling, but will be sold on its behalf and with its consent in the market.

In addition, certain foreign shareholders of the applicant will not be entitled to receive the shares in Listco (restricted shareholders). The restricted shareholders will each receive a cash amount corresponding to the net proceeds from the sale of the unbundled shares to which they otherwise would have been entitled following the unbundling. Those shares will also be sold on their behalf and, with their consent, in the market.

6. Conditions and assumptions

This binding class ruling is not subject to any additional conditions and assumptions.

7. Ruling

The ruling made in connection with the proposed transaction is as follows: a) Notwithstanding the disposal of shares on behalf of the restricted shareholders and fractional shareholders with entitlements to unbundled Listco shares, the distribution of the Listco shares to the class members will constitute an “unbundling transaction”, as defined in paragraph (a) of the definition of that term in section 46(1) of the Act.

This article first appeared on sars.gov.za

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