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Will SARS be satisfied with the proceeds from a sale if they feel the buyer overpaid?

12 December 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: Our client owns shares in a company that is going to be bought out by a non-related listed company for a value (proceeds) of Rx million. It looks like the company is worth less than what is being offered in the sales transaction. Our question is whether SARS will have a problem with a higher value than what the company looks on paper.

Our question then is whether SARS will be satisfied with the estimated proceeds (value of shares in company), even if the value is higher than it looks on paper due to the tremendous potential the buyer sees in the company.

A: We can’t comment on the value placed on the shares for purposes of the transaction.  SARS, similarly, (in terms of section 80(a)(i) of the Tax Administration Act) SARS may reject an 'application' for an 'advance ruling' if the 'application' requests or requires the rendering of an opinion, conclusion or determination regarding the market value of an asset.  

In section 1, of the Tax Administration Act, "fair market value” means the price which could be obtained upon a sale of an asset between a willing buyer and a willing seller dealing at arm's length in an open market.  We submit that the value used for the transaction (which is not in terms of section 42 – 47 of the Income Tax Act) must just be a fair value and there must be no tax benefit (for either party) in using a specific value.  

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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