Most Read Contributor in South Africa, September 2016
For years, the South African securities lending industry has
been lobbying for an exemption from securities transfer tax
("STT") for the outright transfer of
listed equity securities as collateral. On 8 January 2016, the
Taxation Laws Amendment Act 25 of 2015 was promulgated, which
includes the long-awaited introduction to the Securities Transfer
Tax Act 25 of 2007 (the "STT Act") of
such an exemption. This is very good news for the South African
securities lending market and others, but parties will need to
clear a few hurdles before availing themselves of the
Market participants will likely be familiar with the existing
STT exemption for securities lending arrangements. The definition
of a "lending arrangement" in the STT Act has always
required, amongst other things, that lent securities be returned to
the lender within 12 months of transfer; that lent securities be
on-delivered by the borrower within 10 business days; and that the
lender be compensated for any dividends paid on the lent securities
during the term of the loan.
The new STT exemption for "collateral arrangements"
generally tracks the requirements of the lending arrangement
exemption, except in that collateral securities need not be
on-delivered. It should be noted, however, that in order for an
outright transfer of equity securities collateral to qualify for
the new exemption, certain technical requirements must be met in
the transaction documentation. As such, amendments to standard
Global Master Securities Lending Agreements (GMSLAs), Credit
Support Annexes (CSAs) and Global Master Repurchase Agreements
(GMRAs)are likely be required in order to fulfil the requirements
and ensure that outright transfers of equity securities as
collateral or margin remain exempt from STT. Parties should
carefully measure their own practices and existing documentation
against the collateral arrangement definition in the STT Act prior
to shifting to this method of providing collateral or margin.
Finally, parties availing themselves should note that, like the
lending arrangement exemption, the collateral arrangement exemption
falls away if the collateral securities are not, in fact, returned
within the 12-month period. The consequence is that should the
secured party keep the collateral for any reason (default or
agreement), the transfer of the collateral will not have been
exempt, and STT will become due, together with interest and
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.
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