Arrangements whereas companies buy back their own shares immediately before issuing new shares has previously been used in South Africa causing the South African Revenue Service (SARS) concerns over payment of capital gains tax (CGT).
This arrangement had proved favourable for all parties involved for a variety of reasons however in a recent clamp down there is now a risk that this may be viewed as a disguised sale.
On the 16 March 2015 SARS have issued a government notice in which the following arrangement has been identified as a ‘reportable arrangement’.
- Where a company buys back shares on or after the date of publication of this notice from one or more shareholders for an aggregate amount exceeding R10million, and
- That company issued or is required to issue any shares within twelve months of entering into that arrangement or of the date of any buy back in terms of that arrangement.
Basically share buy-back and issue arrangements now place an obligation to disclose within forty five days of the arrangement.
This disclosure must include the following information;
- Detailed description of all steps and key features of the arrangement including in the case where this is part of a larger arrangement all steps and key features of the larger arrangement.
- A detailed description of the assumed tax benefits for all parties including tax deductions and deferred income
- The names, registration numbers and addresses of all parties
- A list of all agreements of the arrangement
- Any financial model that embodies the projected tax treatment of the arrangement.