South Africa Consults On Intra-Group Tax Rules

by Lorys Charalambous, Tax-News.com, Cyprus

05 July 2011

The South African Revenue Service (SARS) and the National Treasury have announced an accelerated consultation process on proposed anti-avoidance measures to be inserted into the 2011 Taxation Laws Amendment Bill, intended to ensure the free movement of tax-neutral assets between members of a corporate group.

The National Treasury and SARS wish to notify key stakeholders about an accelerated process to eliminate the current uncertainty about restructurings and acquisitions, under Section 45 of the tax code, that do not pose a significant risk to the tax base. Flexibility has, however, been promised if key stakeholders come forward with a detailed presentation of facts, provide full disclosure, and constructively engage with SARS.

Firstly, it is confirmed that the government remains committed to allowing the use of Section 45 to facilitate the tax neutral movement of assets between members of a group of companies, which do not give rise to artificial structuring to avoid paying taxes.

Nevertheless, the government is concerned about the use of section 45 to facilitate, for example, leveraged buyouts and other restructuring where the tax base is at risk, and will take appropriate steps to reduce such risk. The National Treasury and SARS will close “unacceptable avoidance schemes”.

The National Treasury and SARS have reiterated their commitment to the rollover relief provisions and the need to ensure that “non-cash out” mergers and acquisitions should ideally be free from an immediate tax charge. On the other hand, “seemingly neutral transactions cannot be condoned if these transactions set the stage for future tax losses (or other tax benefits) via excessive leverage or other means so as to partially or wholly eliminate on-going operational income for many years to come,” the government said.

It is confirmed that the final proposals will accordingly safeguard this certainty for non-tax motivated transactions that are commercially driven, but “taxpayers engaged in aggressive tax transactions should not view the concept of ‘certainty’ as an automatic safe haven so as to deprive wrongly the tax authorities (even if these tax transactions reach closure before a set legislative date).”

In view of the above, the National Treasury and SARS have announced that interested parties can take the opportunity to meet on an urgent basis from June 30 until July 8, 2011. It is foreseen that these consultations will determine the characteristics of transactions that do not represent a potential threat to the tax base, so that underlying principles or rules can be refined for a more targeted approach to be effective as soon as possible.

Further opportunities will be provided to engage with the proposed rules and the National Treasury and SARS after mid-July, when they may be published for further comment. Following this, a final response document which will be published in mid-August, followed by a revised set of Taxation Laws Amendment Bills to be introduced in Parliament in September 2011. Parliament is expected to pass the bills by 30 November, 2011.

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