The relevant provisions of the Income tax Act, No.
This annexure sets out the information required to be submitted in accordance with section 76(E) of the Act.
This section should provide a complete description of the proposed transaction in respect of which the ruling is sought (section 76E (2) (c)). This should include as much information as possible about the applicant and the transaction to ensure SARS' understanding of the proposed transaction.
This section should set out the transaction step by step.
Statement of the relevant statutory provisions or issues (section 76 E (2) (g)). This section should set out a statement providing the interpretation of the relevant statute to the proposed transaction.
It is our opinion that the proceeds to be received by the applicant from the disposal of the shares do not fall within the "gross income" of the applicant and are therefore not subject to income tax in the hands of the trust. Our reasons for this conclusion are set out in detail below.
The relevant portion of the definition of "gross income" in section 1 of the Act refers to "in the case of any resident, the total amount, in cash or otherwise, received by or accrued to or in favour of such resident during such year of assessment, excluding receipts or accruals of a capital nature ..."
It follows that the amounts in question would be subject to the CGT provisions of the Act. The applicable provision is paragraph 2(1) of the Eighth Schedule.
This section should set out a comprehensive description of the impact the proposed transaction may have upon the tax liability of the applicant or co-applicant, and where relevant, any connected person in relation to the applicant, including any and all relevant information regarding the financial or tax implication of the proposed transaction (section 76E (d)).
This section should provide the applicant's interpretation of the relevant statutory provisions or issues (section 76E (2) (i)). It should therefore briefly provide the rationale for interpreting the specific section/s of the Act on which a ruling is being sought in the manner as requested.
We believe that the proceeds from the disposal of the shares to investors do not fall within the "gross income" of the applicant's trust. This is because we believe that these proceeds will be of a capital nature in the hands of the applicant. It is in respect of this conclusion that we seek a binding private ruling. We consider below the relevant case law which provides support for conclusion.
This section should provide an analysis of the relevant authorities either considered by the applicant or of which the applicant is aware, whether those authorities support or are contrary to the proposed ruling being sought (section 76E(2)(i)). Therefore case law for and against the specific ruling should be given.
We request SARS' confirmation that, for the reasons outlined above, the proceeds from the disposal from the shares in NewCo would not constitute "gross income" in the hands of the applicant because they will be receipts of a capital nature. Therefore the proceeds will be subject to paragraph 2(1) of the Eighth Schedule.
Should you require any additional information or have any questions regarding this application please contact Mr X on (011) xxx-xxxx.
Detailed below is the information required to be submitted in accordance with section 76(E) of the Act a.
Fax Number: (011) xxx-xxxx b.
We submit that the proposed ruling should be granted so as to enable the applicant to dispose of the shares in NewCo.
This ruling application has fully considered the relevant statutory provisions and case law and it is considered that this ruling is consistent with such provisions and law.
To the best of the applicants' knowledge, and the applicants' representative's knowledge, the same or substantially the same issue upon which this ruling has been sought is not the subject of an audit examination, investigation, ruling application, objection, appeal, or other proceedings currently before SARS or the courts involving the applicant or any connected person in relation to the applicant.
All references to the applicant's name should be deleted from the final ruling before publication in order to protect the applicant's confidentiality. We further suggest that the name of the companies forming part of the proposed transaction should also be deleted.
Letter of Consent a.
This ruling letter has been applied for by ABC Company, tax registration number 123. The co-applicants for this ruling are PQR Company, tax registration number 456, and XYZ Company, tax registration number 789.
Section 76E (2) (m) and 76 (O) of the Income Tax Act.
The applicants represented by XYZ legal firm, herewith consent to the publication of the advance tax ruling by the Commissioner in accordance with S76Q and S76R, provided that the publication is in such a form as does not reveal the identity of the applicants or class members. Prior to the final publication, the Commissioner will provide a draft copy of the edited ruling for review and comment. It is understood that the Commissioner's determination regarding the contents of the published ruling is final.
All legislative references are to the Income Tax Act No. 58 of 1962 (ITA).
The specific ruling has been requested in respect of section 45(4) of the ITA.
ABC Company, PQR Company and XYZ Company are all South African companies and are currently members of the same group of companies. ABC Company is the holding company for the group and currently owns 100% of the equity shares of both PQR Company and XYZ Company. PQR Company and XYZ Company are engaged in complementary lines of trade. In order to simplify the structure of the group and to improve efficiency, PQR Company is proposing to transfer all of its assets and liabilities to XYZ Company. Both companies will elect to have section 45 apply to the transaction in accordance with section 45(1)(c). Upon the completion of the transfer, PQR Company will liquidate into ABC Company. ABC Company and XYZ Company will continue to be members of the same group of companies.
The transfer by PQR Company to XYZ Company constitutes an intra-group transaction, as defined in section 45(1).
ABC Company and XYZ Company will continue to be members of the same group of companies following the proposed transaction.
This ruling letter does not apply in respect of any tax consequences that may arise if XYZ Company ceases to be a member of the same group of companies as ABC Company.
The proposed transaction is not part of or connected with any other transaction, operation or scheme.
Pursuant to paragraph (c) of section 45(4), ABC Company and PQR Company will be deemed to be one and the same company for purposes of paragraph (b) of section 45(4).
This ruling letter will remain valid until XX December.