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Another ruling on share schemes, but questions remain

Monday, 12 February 2018   (0 Comments)
Posted by: Author: Heinrich Louw
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Author: Heinrich Louw (CDH)

The South African Revenue Service (SARS) published Binding Private Ruling 290 (Ruling) on 24 January 2018. The Ruling deals with the application of paragraph 38(1) of the Eighth Schedule to the Income Tax Act, No 58 of 1962 (Act), to the distribution of shares by a trust to certain beneficiaries in the context of an employee share scheme.

It appears from the Ruling that the applicant, being a local trust (Trust), held shares in a certain special purpose vehicle (SPV), being a local company. The SPV in turn held certain shares in a locally listed company (ListCo).

The beneficiaries of the Trust are employees of ListCo and its subsidiaries, as part of a scheme to facilitate participation of historically disadvantaged employees in owning shares in ListCo.

After the expiry of a certain lock-up period, and the repayment of the acquisition funding, the SPV distributed shares in ListCo to the Trust. 

In terms of the rules of the scheme, the Trust was obliged to distribute the ListCo shares to the beneficiaries on certain vesting dates.

It appears to have been accepted that, upon distribution of the ListCo shares by the Trust to the beneficiaries, the market value of the shares would be included in their income in terms of s8C of the Act.

Without providing any specific details about the nature of the Trust, and the rights of the beneficiaries in respect of the income, assets or gains of the Trust, the Trust appears to have been concerned about the possible application of paragraph 38(1) of the Eighth Schedule to the Act upon distribution of the ListCo shares to the beneficiaries.

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