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Income Tax Act, 1962 (Act 58 of 1962)

Department of Finance

Practice Note No. 38

Exemption of Stamp Duty or Transfer Duty Relating to the Transfer of Marketable Securities or Property or of Rights or Obligations under Bonds in terms of a Scheme for the Rationalisation of a Group of Companies and the Assessment of Such Group of Companies for Income Tax Purposes in Certain Circumstances

 

 

Date: 5 May 995

 

1) In order to facilitate the rationalisation of groups of companies, provision has been made in the Taxation Laws Amendment Act, 1994 (Act No. 20 of 1994) (hereinafter referred to as the Amendment Act), for a moratorium on the payment of stamp duty and transfer duty in respect of a rationalisation scheme of a "group of companies" (as defined), approved by the Commissioner for Inland Revenue. The provisions governing the rationalisation are contained in section 39 of the Amendment Act.

The purpose of this practice note is to inform such groups of companies, whose intention it is to rationalise their trading activities, with regard to—

1.1 the detail and documentation that should accompany an applicant's application; and
1.2 the offices of the respective Receivers of Revenue with whom applications should be lodged.

 

2) In order to qualify for the exemption the following must inter alia, be met:
2.1 The rationalisation scheme must be implemented in terms of a written agreement entered into on or after 4 November 1994.
2.2 The controlling company must be a listed company.
2.3 The controlling company must (directly or indirectly) hold at least 75 per cent of the controlled company's (ies') equity share capital. These shares must on 4 November 1994 (or in the event of a controlled company being incorporated after 4 November 1994 to give effect to the rationalisation scheme), on the date of incorporation, and at the time of the relevant rationalisation agreement, be held by the controlling company.

 

3) The following detail must accompany the statement that is to be submitted to the Commissioner:
3.1 The written agreement in terms of which the rationalisation scheme is to be effected.
3.2 A mandate from each controlled company which empowers the controlling company of the group of companies which is to be rationalised to act on behalf of such companies, confirmed by the directors' or shareholders' resolutions of each controlled company.
3.3 The above-mentioned statement must, inter alia, also contain the following information:
3.3.1 Background—a short review of the group's activities.
3.3.2 Flowcharts setting fourth the structure of the group as at 4 November 1994, the date of the agreement and thereafter. The percentage holdings must be clearly indicated on the flowcharts. Details of all classes of shares issued by each company in the group, by whom the shares are held, and the nature of the voting rights coupled to each class of share.
3.3.3 The income tax, employees tax, value added tax and regional services levy reference numbers of each company involved in the rationalisation.
3.3.4 The reasons why the transaction should be regarded as a scheme for the rationalisation of the activities of the group.
3.3.5 The sole or main purpose of the scheme. Depending on the circumstances one or more of the following aspects must be explained:
3.3.5.1 How substantial and enduring savings in operational expenditure or substantial and enduring operational or administrative advantages will be achieved within the group; or
3.3.5.2 how the scheme is devised for the purposes of the furtherance of and for the purpose of benefiting some or all of the trading activities of the said group which before the transfer thereof where carried on by one or more companies of the said group and after the transfer thereof will be carried on by one or more other companies of the said group; or
3.3.5.3 detail to satisfy the Commissioner that such scheme was devised sorely or mainly to effect an unbundling transaction as contemplated in section 60 of the Income Tax Act, 1993 (Act No. 113 of 1993).
3.3.6 The nature of the consideration agreed upon between the seller and the purchaser in terms of the agreement and how it was determined, as well as the following information in respect of all assets transferred:
3.3.6.1 Original cost;
3.3.6.2 estimated market value as at the date of the agreement;
3.3.6.3 net book value as at the date of the agreement;
3.3.6.4 tax value as at the date of the agreement;
3.3.6.5 if the proposed transfer value is not market value, reasons for selecting a different value for transfer purposes.
3.3.7 A certificate signed by a director of the controlling company in substantiation of the share holdings within the group.
3.3.8 Full details of the income tax position of each company within the group before and after the rationalisation, e.g.—
3.3.8.1 nature of all special tax allowances claimed;
3.3.8.2 cost on which annual allowances were claimed;
3.3.8.3 accumulated tax allowances claimed to the date of the agreement; and
3.3.8.4 assessed loss/taxable income of transferee and transferor companies as per last year of assessment.
3.3.9 The following details regarding any marketable securities, property and rights and obligations under bonds transferred:
3.3.9.1 Marketable securities:
* Description of marketable securities transferred and the certificate numbers.
* Name of transferor.
* Name of transfereer.
3.3.9.2 Property:
* Full title deed description of the property.
* Name of transferor.
* Name of transferee.
3.3.9.3 Bonds:
* Cession(s) of bonds.
* Full details of bond number, cedent and cessionary.)
* Substitution of debtor.
* Full details of bond number, debtor and substituting debtor.)
* The registered and current values of cessions of bonds, as well as substitutions of debtors.)
3.3.9.4 Marketable securities, property and bonds held as trading stock should be listed separately.
3.3.10 Details of—
3.3.10.1 businesses transferred as going concerns,
3.3.10.2 the transfer of shares of operating companies;
3.3.10.3 the transfer of shares of holding or dormant companies;
3.3.10.4 the number of companies earmarked for ultimate liquidation/deregistration;
3.3.10.5 shareholdings held by nominees in and for the companies in the group; and
3.3.10.6 the proposed timing of the implementation of the scheme.
3.4 The tax rulings requested should be listed.
3.5 Documents to substantiate the aforementioned information should be attached.

 

4) With whom applications should be lodged:

The administration of section 39 of the Amendment Act has been delegated on a regional basis to certain offices of the Receiver of Revenue and exemption certificates will be issued by regional offices. Applications must be submitted to the Receiver of Revenue in whose area the controlling company is on registered for income tax purposes.

The regional and satellite offices, which will be assisted by each regional office, are as follows:

 

Regional office

Satellite office.

Receiver of Revenue, Cape Town

Bellville, Paarl, Worcester and Beaufort West.

Receiver of Revenue, Port Elizabeth

Uitenhage, East London and George.

Receiver of Revenue, Pretoria

Rustenburg, Pietersburg, Witbank, Standerton and Nelspruit.

Receiver of Revenue, Johannesburg

Vereeniging, Krugersdorp, Roodepoort, Randfontein and Klerksdorp.

Receiver of Revenue, Sandton

None.

Receiver of Revenue, Germiston

Brakpan, Benoni, Boksburg, Springs and Nigel.

Receiver of Revenue, Bloemfontein

Welkom, Kroonstad and Kimberley.

Receiver of Revenue, Durban

Pietermaritzburg.