In terms of the Tax Administration Act, the South African Revenue Service (“SARS”) can issue Binding Class Rulings (“BCR”) in response to an application by a class or group of persons and clarifies how the Commissioner would interpret and apply the provisions of the tax laws relating to a specific proposed transaction. BCR70 deals with the tax consequences of recipients of listed shares in a company after an unbundling of its shares from the holding company. Although the ruling only applies to members of a specific class, it is relevant to take note thereof, since it offers guidance on how SARS interprets relevant provisions of tax acts. The ruling refers to the interpretation and application of section 46 of the Income Tax Act (the ITA) and section 8(1)(a)(iv) of the Securities Transfer Tax Act (the STT Act).
The class members to which this ruling applies are all resident and non-resident shareholders of listed shares in the applicant company and reflected as such on the applicant’s securities register on the last day to trade.
Parties to the proposed transaction
In the current instance, the applicant was a resident listed company and an entity referred to as “ListCo” was a resident company and a wholly-owned subsidiary of the applicant, which is to be listed in due course.
Description of the proposed transaction
The applicant company comprises of three main business units. The purpose of the proposed transaction is to demerge one of these business units and separately list the unit on a recognised stock exchange. ListCo will have a primary listing on the JSE, whilst the listing of the applicant will be retained (i.e. the applicant will not de-list). To implement the transaction, the applicant will take several transaction steps, being the following:
Although not a comprehensive list, the following are some of the more pertinent rulings that SARS made, which will bind the class members:
Although taxpayers might not be members of the relevant class, it is always insightful to consider SARS’s interpretation of tax acts, as it could similarly apply in their circumstances.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).