CATEGORIES
- (1) Negotiating Tax Debt and Payment Arrangements with SARS
- (31)Accounting
- (2)Accounting for Income Tax
- (1)Accounting for Income Tax
- (7)Administration of Estates
- (1)Advisory Services
- (1)Application of tax rates, s6(2) rebates
- (1)Assessed losses
- (4)Audit, Reviews & Other Services
- (9)Blogs
- (8)Capital Gains Tax
- (1)Capital Gains Tax - Individuals Tax
- (1)Capital Gains Tax Implications of Trusts
- (2)Case study: Home office expense
- (1)Case study: Travel allowances
- (1)Company Formations
- (1)Compliance
- (123)Corporate Tax
- (9)Customs and Excise
- (2)Deceased Estate
- (1)Deductions Pre-trade and prepaid expenses
- (1)Deregistration
- (2)Employer and Employee (PAYE and UIF Specific)
- (1)Estate Duty
- (1)Events / Webinars
- (9)Faculty News
- (2)Farming
- (152)Individuals Tax
- (1)Input - Customs Duty
- (3)Interest
- (13)International Tax
- (17)Legislation
- (1)Low interest rate loans and loan subsidies
- (1)Nature of the rights of beneficiaries
- (1)Notional input tax
- (9)Payroll
- (2)Practical Payroll
- (2)Provisional tax (Link with other Taxes)
- (2)SARS Dispute Resolution
- (4)SARS Issues
- (1)Salaried Employees
- (134)Tax Administration
- (2)Tax Administration Part 2B: Resolving Problems with SARS using the Tax Ombud
- (1)Tax Administration Part 3B Dispute Resolution - Objection and appeal
- (3)Tax Update
- (1)Tax implications of loans to trusts
- (1)Tax residence
- (1)Tax returns and payments
- (2)Transfer-Pricing
- (1)Trust Income / Gain Allocations
- (1)Trust types and income allocations
- (6)Trusts
- (70)VAT
- (3)VAT periods
- (1)Wear and tear allowances
- (1)Wills, Estates & Trusts
- (1)Zero Rated
- (1)eFiling
- Show All
Cross-issue of shares
- 02 March 2015
- Corporate Tax
- Heinrich Louw
Important:
This article is based on tax law for the tax year ending 28 February 2016.
Author: Heinrich Louw (DLA Cliffe Dekker Hofmeyr)
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.
The reason for the change was that certain companies were entering into transactions involving, among others, the cross-issue of shares between a resident and non-resident company. These transactions would result in a shift of control of the resident company to an off-shore jurisdiction, and effectively a tax-free corporate migration. By treating the issue of the shares as a disposal by the resident company, it would generate an immediate capital gain for the resident company equal to the market value of the foreign shares (because the shares issued by the resident company would have no base cost).
The amendments were therefore introduced as an anti-avoidance measure, and as part of South Africa’s broader plan to curtail base erosion and profit shifting.
However, it is now recognised that the anti-avoidance provision has had unintended side-effects, specifically in that it stifles the growth and expansion of South African multinational companies. Without providing much detail, it is indicated in the Budget that the provision would be relaxed, but not necessarily scrapped.
The change is welcomed, and it is a particularly positive indication that the Minister is alert to the constraining effect that certain 'blunt instrument' anti-avoidance provisions can have on legitimate commercial transactions.
Please click here to view special edition budget alert.
This article first appeared on cliffedekkerhofmeyr.com