Originally published in Recent Developments in Taxation,
The hiatus of section of 45 of the Income Tax Act, No. 58 of
1962 (the Act) with effect from 3 June 2011 has been highlighted
quite significantly in the press. This section of the Act deals
with the tax-free transfer of assets within a group of companies.
In an attempt to address the uproar, the National Treasury and the
South African Revenue Service (the SARS) issued a joint media
statement on 29 June 2011 (the media statement) in terms of which
an accelerated process to provide certainty in respect of section
45 was announced.
Interested parties were invited to meet with National Treasury
and the SARS with the aim of determining, "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
It is unclear at this stage how successful this consultation
process proved to be as the information and feedback provided by
those who came forward will be used to formulate the
"rules" which will form part of the amended section
The media statement advises that further opportunities for
consultation will be provided before the final response document is
published in mid-August.
Despite the media statement and the stated timeframes, there is
still no clear indication on whether tax relief for intra-group
transfers will be available within the near future. Unfortunately
as a result of the "shotgun" approach by the National
Treasury and the SARS, all taxpayers are affected, even if a
taxpayer's intended transaction does not include any of the
tainted elements sought to be prevented by the suspension.
Members of Werksmans Tax Practice have provided the National
Treasury with comments on this issue, and remain of the view that
any new policy should be adopted in phases so as to avoid
prejudicing parties who have bona fide structured their affairs in
accordance with the section as it stands.
The fact that there might be perceived abuse in an intra-group
transaction under section 45, is merely a symptom of an underlying
gap in the Act itself. Our tax system is becoming increasingly
sophisticated, and the current year's amendments add to that
There are two basic areas in which our tax system woefully lags
behind other sophisticated tax systems. They are, in no small
measure, the reason for all the complex restructurings undertaken
The need to allow a deduction for interest on debt raised to
acquire a business by buying its shares (i.e.: where a business is
acquired, not by acquiring the business itself but rather by
acquiring the shares in the company as a whole).
The delay in implementing group taxation - a more holistic
approach, of treating a group as an economic unit with intra-group
transactions effectively being disregarded for tax purposes, is now
A reasonable and rational implementation of amendments to
address these two areas would greatly reduce the need for complex,
and in some cases artificial, structuring to achieve results which
should be granted automatically in the law, and are to be found in
most sophisticated tax systems.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Effective collaboration amongst government agencies, automation of processes and capacity building by tax authorities have always been identified by stakeholders as strategies for achieving an efficient tax system.
In response to information provided by FIRS, NSE has sent letters to publicly listed companies, who were purportedly identified by FIRS as non-compliant.
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