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Income Tax Act, 1962 (Act 58 of 1962)

Chapter II: The Taxes

Part I: Normal Tax

23K. Limitation of deductions in respect of reorganisation and acquisition transactions

 

 

(1)        For the purposes of this section—

 

acquiring company’ means—

(a) a transferee company contemplated in the definition of ‘intra-group transaction’ in section 45(1);
(b) a holding company contemplated in the definition of ‘liquidation distribution’ in section 47(1); or
(c) a company that acquires an equity share in another company in terms of an acquisition transaction;

 

'acquisition transaction' means an acquisition transaction as defined in section 240(1) to which section 240 applies;

 

debt instrument

[Deleted by the Taxation Laws Amendment Act, 2012 (Act No. 22 of 2012)]

 

interest’ means interest as defined in section 24J;

 

reorganisation transaction’ means—

(a) an intra-group transaction as defined in section 45(1) to which section 45 applies; or
(b) a liquidation distribution as defined in section 47(1) to which section 47 applies.

 

(2) Subject to subsections (3), (9) and (10), no deduction is allowed in respect of any amount of interest incurred by an acquiring company in terms of—
(a) a debt if that debt was issued, assumed or used directly or indirectly—
(i) for the purpose of procuring, enabling, facilitating or funding the acquisition by that acquiring company of any asset in terms of a reorganisation transaction; or
(ii) in substitution for any debt issued, assumed or used as contemplated in subparagraph (i); or
(b) a debt if that debt was issued, assumed or used—
(i) for the purpose of financing the acquisition of an equity share in a company in terms of an acquisition transaction; or
(ii) in substitution for any other debt issued, assumed or used as contemplated in subparagraph (i).

 

(3) Subject to subsection (5), the Commissioner may, on application by an acquiring company, issue a directive that subsection (2) does not apply in respect of an amount of interest incurred as contemplated in that subsection.

 

(4) In considering an application for a directive contemplated in subsection (3), the Commissioner—
(a) must take into account—
(i) the amount of interest incurred as contemplated in subsection (2) by an acquiring company in terms of a debt contemplated in that subsection; and
(ii) all amounts of interest incurred, received or accrued in respect of all debts issued, assumed or used directly or indirectly to fund a debt in respect of which any amount of interest is incurred by an acquiring company as contemplated in subsection (2); and
(b) may only issue a directive contemplated in subsection (3) if and to the extent that the Commissioner is, having regard to the criteria prescribed by the Regulations contemplated in subsection (7), satisfied that the issuing of that directive will not lead nor be likely to lead to a significant reduction of the aggregate taxable income of all parties who incur, receive or accrue interest—
(i) in respect of; and
(ii) for all periods during which any amounts are outstanding in terms of,

any debt contemplated in subparagraphs (i) and (ii) of paragraph (a):

Provided that in determining whether a reduction of taxable income is significant for the purpose of this subsection, the Commissioner must have regard to the criteria prescribed by the regulations contemplated in subsection (7).

 

(5) Any directive issued by the Commissioner in terms of subsection (3) may be made subject to such conditions and limitations as may be determined by the Commissioner.

 

(6) A directive issued by the Commissioner in terms of subsection (3) in respect of an amount of interest incurred in terms of a debt must be effective from—
(a) the date on which that debt was issued or assumed if the application for that directive is made—
(i) on or before 31 December 2011, where that debt was issued or assumed before 25 October 2011; or
(ii) within 60 days of the date of issue of that debt, where that debt is issued or assumed on or after 25 October 2011; or
(b) the date on which the application for that directive is made if—
(i) that debt was issued or assumed before 25 October 2011 and that application is made after 31 December 2011; or
(ii) that debt is issued or assumed on or after 25 October 2011 and that application is made later than 60 days after the date of issue or assumption of that debt.

 

(7) The Minister must make regulations that prescribe criteria that the Commissioner must, in terms of subsection (4)(b), have regard to in considering any application made in terms of subsection (3) by an acquiring company in respect of any amount of interest incurred by such an acquiring company in terms of any debt, which criteria must relate to—
(a) all amounts of debt in relation to total equity of such an acquiring company;
(b) total amounts of interest to be incurred by such an acquiring company in relation to total income of such an acquiring company;
(c) terms of such a debt, including the economic effect of such a debt, having regard to any debt or equity features of such a debt;
(d) the direct or indirect holding of shares in such an acquiring company by any holder (or any company that forms part of the same group of companies as the holder) of such a debt; and
(e) any other factor prescribed by the Minister.

 

(8)        

(a) If, subsequent to the date on which a directive is issued by the Commissioner pursuant to an application made by an acquiring company in terms of subsection (3)—
(i) there is any material change in respect of any fact or circumstance which influenced any decision of the Commissioner relating to the issuing of that directive; and
(ii) that change would, had the change been anticipated by the Commissioner at the time of issuing the directive, have resulted in the Commissioner not issuing the directive or issuing the directive on terms that are less favourable to that acquiring company,

the directive will cease to apply with effect from the date on which that change takes effect.

(b) Where any decision relating to the issuing of a directive by the Commissioner in terms of subsection (3) was made by the Commissioner as a direct or indirect result of fraud, misrepresentation or non-disclosure of material facts, that directive will cease to apply with effect from the date that the directive took effect.

 

(9) The Minister may make regulations prescribing circumstances in which subsection (2) does not apply.

 

(10) Subsection (2) does not apply in respect of any amount of interest incurred by an acquiring company—
(a) in terms of a debt if that debt was issued, assumed or used directly or indirectly for the purpose of—
(i) procuring, enabling, facilitating or funding the acquisition by that acquiring company of any asset in terms of a reorganisation transaction entered into on or after 1 April 2014; or
ii) redeeming, refinancing, substituting or settling, on or after 1 April 2014, a debt issued, assumed or used directly or indirectly for the purpose of procuring, enabling, facilitating or funding the acquisition by that acquiring company of any asset in terms of a reorganisation transaction entered into on or after 3 June 2011 and on or before 31 March 2014; or
b) in terms of a debt—
i) issued, assumed or used in terms of an acquisition transaction entered into on or after 1 April 2014; or
ii) issued, assumed or used, on or after 1April 2014, directly or indirectly for the purpose of redeeming, refinancing, substituting or settling a debt that was issued, assumed or used in terms of an acquisition transaction entered into on or after 1 January 2013 and on or before 31 March 2014.
c) [Paragraph (c) deleted by section 39 of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

[Subsection (10) amended by section 39 of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]