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Consecutive asset-for-share transactions

Monday, 22 January 2018   (0 Comments)
Posted by: Author: Ben Strauss
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Author: Ben Strauss (Cliffedekkerhofmeyr)

Section 42 of the Income Tax Act, No 58 of 1962 (Act) allows taxpayers to transfer assets to a company free of immediate tax consequences, provided certain requirements are met; there is a “roll-over” for tax purposes. However, certain anti-avoidance provisions may be triggered if the company that acquired the assets, disposes of the assets within 18 months of acquisition.

A question that has often been posed is whether the anti-avoidance provisions will apply if the company that acquired the asset, within 18 months of the acquisition, disposes of those assets to another company in terms of an asset-for-share transaction under s42 of the Act.

The South African Revenue Service (SARS) has provided some guidance in Binding Private Ruling 288 (BPR 288).

In BPR 288 the taxpayer sought a ruling from SARS on the following proposed transactions.

Company B and the MD will then dispose of 19.5% of their shares in Company A to Company R in exchange for shares in Company R in quantities proportionate to their respective shareholding in Company A. Company B will transfer those shares as an asset-for-share transaction under s42 of the Act. Company R intends holding the shares in Company A on capital account.

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