The South African Revenue Services (SARS) issued a binding private ruling (BPR 253) on 19 October 2016. A BPR is issued in response to an application and clarifies how the Commissioner would interpret and apply the provisions of the tax laws relating to a specific proposed transaction.
In this case, the ruling deals with the tax consequences in respect of a situation where a new Black Shareholder enters into a BBBEE transaction with a group of companies in order to benefit all the subsidiary companies within that particular group so as to optimise their BBBEE scorecard ratings.
SARS had to determine whether the disposal of a Selling Shareholder’s shares at a discounted price and the subsequent acquisition of the shares by a new Black Shareholder at a nominal subscription price will constitute a donation in terms of the Income Tax Act, No 58 of 1962 (the Act) (specifically sections 55(1), 57 and 58(1)).
Section 55 of the Act defines a donation as: “Any gratuitous disposal of property including any gratuitous waiver or renunciation of a right.”
SARS considered the facts of the proposed transaction and the wording of the relevant sections of the Act and ultimately ruled that:
- Neither the disposal by the Selling Shareholder at a discounted price nor the subsequent acquisition by the new Black Shareholder at a nominal subscription price will constitute a “donation” as defined in Section 55(1) of the Act;
- Neither of these transactions will be deemed to be a donation as envisaged in Section 58(1); and
- Section 57 of the Act will not be applicable to the proposed transaction.
It is furthermore important to take into consideration that SARS ruled that BPR 253 is always subject to the additional condition (and assumption) that the Selling Shareholder and the new Black Shareholder are independent parties dealing at arm’s length.
In summary, the regulations surrounding BBBEE transactions are complex and it is of the utmost importance to always consult qualified professionals.
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