Income Tax Act, 1962 (Act 58 of 1962)
Department of Finance
Practice Note No. 41
Stamp duty: Exemption from Stamp duty in terms of Item 15(3)(nA) of Schedule 1 to the Stamp Duties Act, 1968 (the Act), in respect of the Registration of Transfer of Marketable Securities resulting from Arbitrage Transactions
Date: 18 October 1995
Inland Revenue has been approached with regard to the application of the exemption from stamp duty contained in Item 15(3)(nA) of Schedule 1 to the Act in respect of certain asset swap transactions in terms of which shares in South African companies are exchanged for a matching portfolio of international assets. Such transactions arose from a recent announcement by the South African Reserve Bank that financial institutions will be allowed to invest abroad by way of the exchange of their South African assets with those of overseas institutions.
The above-mentioned exemption was introduced during 1980 in order to attract additional business to the Johannesburg Stock Exchange (JSE) and is limited to the purchase of marketable securities listed on the JSE, by a broker in terms of an arbitrage transaction where the purchaser is not resident in the Republic as contemplated in the relevant section.
The crux of the matter is whether the registration of the transfer of the South African shares as a result of such an asset swap transaction is effected in terms of an Arbitrage transaction. The concept of an arbitrage transaction is defined in section 23(1) of the Act and strictly speaking it means the purchase or sale by a broker of marketable securities listed on the JSE where such a transaction is effected in order to take advantage of the difference in prices of such marketable securities on the markets in the Republic and another country and in consequence of such a purchase or sale the ownership in such marketable securities passes from a resident of the Republic to a non-resident.
In view of the above, the submission that asset swap transactions fall within the concept of arbitrage transactions is not supported by this Office and the exemption provided for in Item 15(3)(nA) of the Act is, therefore, not applicable.
Furthermore, it has come to the attention of this Office that a practice has developed in the market whereby instruments of transfer are endorsed as being exempt from stamp duty in terms of the aforementioned Item in cases where a resident of the Republic sells marketable securities through the JSE to a foreign broker, who acts on behalf of a non-resident of the Republic, notwithstanding the fact that such a registration of transfer does not take place in consequence of a bona fide arbitrage transaction. Persons who are responsible for the endorsement of instruments of transfer must, therefore, ensure that all the requirements of the relevant exemption are met before an endorsement in terms of the provisions of section 23(4)(viiA) is made, as the above-mentioned practice is not acceptable.