SARS warns of tax implications for investors on SABMiller-AB-Inbev

PUBLISHED: Fri, 30 Sep 2016 09:37:57 GMT

SARS has noted recent media reports on planned transactions that would involve shareholders in the target of a high profile takeover disposing of their shares to Collective Investment Schemes (“Schemes”) by way of an asset-for-share transaction under section 42 of the Income Tax Act, 1962.

The transactions are aimed at postponing any potential capital gains tax liabilities on the disposal of the original shares until the original shareholders dispose of the units received in exchange from the Schemes.

SARS wishes to point out that this may be true for the original shareholders but the tax consequences for the Schemes must also be considered.

It is quite clear that the Schemes would acquire the shares for the purpose of disposing of them within a relatively short period in the takeover.

Thus the Schemes should consider whether the proceeds from the disposal of the shares as part of the takeover would be of a capital nature.

SARS would like to point out that if it is found that the proceeds are instead on revenue account it will have a detrimental effect on the Scheme and particularly current unit holders.

SARS has not made any decision on this question yet. But it is likely that the proceeds from the intended disposal of the shares by the Schemes would not be of a capital nature as the Schemes deliberately acquired the shares with the intention of disposing of them.

Also, the Schemes are unlikely to distribute these profits to unit holders within twelve months. Thus the Schemes will therefore have to pay tax on any profits derived from the transactions. Should the profits be distributed within twelve months, the unit holders in the Schemes will have to pay tax on the profits.

A further question to be considered, both from the perspective of the original shareholders and the Schemes, is whether the transactions are impermissible avoidance arrangements under the Income Tax Act, 1962.

Given that the transactions are aimed at postponing potential capital gains tax liabilities, two of the requirements for the existence of an impermissible avoidance arrangement appear to have been met. These are that the transactions result in a tax benefit, which includes the postponement of tax, and that the transactions’ sole or main purpose was to obtain a tax benefit.

A detailed analysis of the facts and circumstances of the transactions entered into would be required to determine whether these and the remaining requirements have been met.

SARS wishes to advise original shareholders and Schemes to carefully consider the questions set out above with respect to any decisions to enter into the transactions described.

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