Corporate Restructuring
Presenters : Fathima Dawood CA(SA)
Overview
The webinar examined the tax framework that applies when companies restructure: to introduce new shareholders or BBBEE partners, to plan for succession, to insert a holding or intermediate company, or to allow a shareholder to exit. It began with the key definitions of a share, an equity share, an asset for CGT purposes and a group of companies. It then set out the general tax consequences when a company issues shares in exchange for an asset.
The session then covered the anti-avoidance and valuation rules that apply to share issues. These were section 40C for shares issued for no consideration, section 24BA where the value of the asset and the value of the shares do not match, and section 40CA for the company's deemed expenditure on the asset acquired, each illustrated with a worked example. It addressed share buy-backs from Companies Act, income tax, dividends tax and securities transfer tax perspectives, including when a buy-back is a reportable arrangement. It explained the anti-dividend stripping rules in section 22B and paragraph 43A of the Eighth Schedule, with a worked example of a buy-back funded by a new subscriber, and the deemed-disposal rule for dilutive share issues.
The second part dealt with the corporate roll-over relief provisions that allow tax-neutral transfers within groups: asset-for-share transactions (section 42), substantive share-for-share transactions (section 43), amalgamations (section 44), intra-group transactions (section 45), unbundlings (section 46) and liquidation distributions (section 47). For each, the session covered the qualifying requirements, the 18-month and six-year anti-avoidance rules, and the opt-out elections. It closed with a practical checklist for restructuring agreements covering tax, Companies Act, MOI, SARS and JSE requirements.
Topics covered
- Foundations: reasons for restructuring, definitions of a share, an equity share, an asset and a group of companies (sections 1 and 41)
- Share issues: general principles of a share issue for an asset, section 40C (no consideration), section 24BA (value shifting where asset and share values differ), and section 40CA (the company's deemed expenditure), with worked examples
- Share buy-backs: commercial reasons, Companies Act requirements (sections 46 and 48), dividend versus contributed tax capital, dividends tax, securities transfer tax, the reportable arrangement threshold and GAAR
- Anti-dividend stripping: how dividend stripping works, the definitions of exempt dividend, extraordinary dividend and qualifying interest, section 22B for trading stock, paragraph 43A for capital assets, a worked example, and dilutive arrangements
- Corporate roll-over relief: sections 42 to 47, covering the qualifying requirements, tax-neutral transfer of capital assets, trading stock and allowance assets, the 18-month and six-year anti-avoidance rules, the 36-month liquidation requirement and the opt-out elections
- Practical checklist: confirming the relief provision applies, group and holding requirements, base cost and roll-over consequences, STT and VAT, MOI and Companies Act requirements, SARS requirements, JSE requirements and record-keeping
Learning outcomes
Practitioners will be able to:
- Determine the tax consequences for both parties when a company issues shares in exchange for an asset, including under sections 24BA, 40C and 40CA
- Analyse the income tax, dividends tax, securities transfer tax and reporting consequences of a share buy-back
- Apply the anti-dividend stripping rules in section 22B and paragraph 43A to extraordinary dividends received before a disposal
- Identify which corporate roll-over relief provision applies to a proposed restructuring and confirm that its requirements are met
- Recognise the anti-avoidance rules, holding periods and elections that can reverse or exclude roll-over relief
Who should attend
Tax practitioners, accountants, auditors, corporate advisers, company secretaries and financial managers involved in planning or implementing group restructurings, share transactions or shareholder exits.