The aim of the corporate rules contained in Part III of the
Income Tax Act, 58 of 1962 ("the Act")
is to facilitate transactions between groups of companies or
between companies and shareholders by ensuring that the
transactions inherent in any restructuring occur on a tax neutral
basis in South Africa.
Until recently, the corporate rules aimed to promote only
onshore restructurings, as the tax relief in terms of the corporate
rules only applied to the reorganisation of South Africa resident
companies. However, with effect from 1 January 2012, the corporate
rules facilitate, to a limited extent, offshore restructurings as
well by applying to the reorganisation of non-South African
resident companies. The corporate rules override the normal
provisions of the Act and we set out below a summary of the
relevant corporate rules contained in section 42 of the Act,
dealing with 'offshore' asset-for-share transactions.
An 'offshore' asset-for-share transaction is a
transaction in terms of which a person disposes of an equity share
in a foreign company to another foreign company, in exchange for an
equity share in that other foreign company and immediately before
and at the end of the day on which the asset is disposed of:
the person holds a qualifying interest in the other
foreign company; and
the other foreign company is a controlled foreign
company in relation to any company that forms part of the same
group of companies as the disposing company.
A 'qualifying interest' is defined in section
an equity share held by a person in a company which is a listed
company, or will become a listed company within twelve months after
the transaction as a result of which that person holds that
equity shares held by that person in an unlisted company that
constitute at least 20% of the equity shares and voting rights of a
an equity share held by a person in a company that forms part
of the same "group of companies" as that person.
A 'controlled foreign company' is defined in
section 9D(1) of the Act as any foreign company where:
more than 50% of the voting rights in that foreign company are
held, directly or indirectly by one or more SA tax residents;
more than 50% of the total participation rights in that foreign
company are held, directly or indirectly, by one or more SA tax
A foreign company is a company which is not a SA tax resident,
such as a foreign incorporated company which is effectively managed
outside of SA.
The 'offshore' asset-for-share transactions, essentially
allow the restructuring of offshore companies that remain under the
control of the same South African group of companies and
accordingly, limits the relief on the premise that the
reorganisation rollover relief should not result in the tax-free
externalisation of corporate value outside the South African
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