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The source of a debt defeasance receipt

Saturday, 01 November 2003   (0 Comments)
Posted by: TaxFind™
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The Source of a Debt Defeasance Receipt


A debt defeasance arrangement is an arrangement whereby a debtor’s obligation to pay a creditor is nullified.The debtor and other parties perform a variety of legal and other actions in order to effect a valid debt defeasance arrangement.One of the actions that should be taken by the debtor is to pay an amount to a third party who takes over the obligation to pay the debt.The money received by the third party is referred to as a debt defeasance receipt.

Debt defeasance arrangements are used in countries such as the United States of America and Australia.The financial community in South Africa is becoming increasingly interested in the debt defeasance arrangement.

As South Africa is becoming part of the global community, more foreign companies are doing business in South Africa.Because it is a relatively unfamiliar arrangement, that has not yet been addressed by the South African taxation authorities, there are probably a number of unanswered tax questions regarding the arrangement.One issue that is not yet clear is what the source of a debt defeasance receipt would be if it were to be received by a non-resident in South Africa.

A survey was done among South African banks, auditing firms and taxation senior counsel to determine the majority opinion of South African respondents regarding the source of a debt defeasance receipt.Although a variety of alternatives are identified as possible sources, the majority view is that the source is the debt defeasance business activities that are conducted by the recipient.It therefore follows that if the recipient of a debt defeasance receipt conducted his or her debt defeasance business activities in South Africa, the receipt will be of a South African source.

Key words

Debt defeasance arrangement, Source, Non-resident, South Africa

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