This binding private ruling is valid for a period of one year from 12 March 2020.
This ruling determines the income tax and dividends tax consequences of the redemption of intra-group loans by way of set-off against dividends payable.
2. Relevant tax laws
In this ruling references to sections are to sections of the Act applicable as at 11 March 2020. Unless the context indicates otherwise any word or expression in this ruling bears the meaning ascribed to it in the Act.
This is a ruling on the interpretation and application of –
3. Parties to the proposed transaction
The below-mentioned companies belong to the same group of companies as defined in section 41(1).
The applicant: A private company and a resident
Co-applicant A: A private company and a resident
Co-applicant B: A private company and a resident
Co-applicant C: A private company and a resident
4. Description of the proposed transaction
The applicant is an investment holding company. It owns all the equity shares in co-applicant A and co-applicant B.
Co-applicant B holds 100% of the share capital of co-applicant C.
The following loan accounts exist between the applicants –
• loan 1 receivable by co-applicant A from the applicant;
• loan 2 receivable by co-applicant A from co-applicant B;
• loan 3 receivable by co-applicant C from the applicant;
• loan 4 receivable by co-applicant C from co-applicant A; and
• loan 5 receivable by co-applicant B from the applicant.
The loans arose from ongoing advances by the group companies to one another to fund operations within the group. None of the funds were used to fund the acquisition of assets. The loans were used to fund the day-to-day operations of the group companies.
The group wishes to eliminate the intra-group loans as far as possible. The steps to implement the proposed transactions are as follows:
5. Conditions and assumptions
This binding private ruling is not subject to any additional conditions and assumptions.
The ruling made in connection with the proposed transaction is as follows:
a) The dividend to be declared by co-applicant A, which equals the amount owed by virtue of loan 1 by the applicant, will be exempt from dividends tax under section 64F(1)(a).
b) The dividends to be declared by co-applicant C in steps 2 and 3 will be exempt from dividends tax under section 64F(1)(a).
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This article first appeared on sars.gov.za.
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