2008-06-07
New tax to burn CC's

New tax to burn CC's

A new tax to be introduced on July 1 will clobber close corporations (CCs)

However, the securities transfer tax (STT) in a sense will not be new (other than in name), as it is already imposed under the Uncertificated Securities Tax Act (listed securities) and the Stamp Duties Act (other securities). The object is to merge the provisions of the UST Act and the relevant provisions of the Stamp Duties Act dealing with securities into one Act. 

STT will be imposed on the transfer (ie, a change in beneficial ownership) of a security issued by -

• a close corporation (CC) or a company, incorporated, established or formed in SA; or
• a company incorporated outside SA, in respect of its securities listed on the JSE (that is, dual-listed companies, such as Anglo, BHP Billiton, Old Mutual, Mondi, Sappi, Liberty International, and Investec),

at the rate of 0.25% (the existing rate) of the taxable value (basically, the greater of the consideration paid or market value) of the transferred security.

But there are some important changes.

Close corporations
Previously, the transfer (including a buyback and a cancellation or redemption) of a member's interest in a CC was not subject to stamp duty or UST, but it will be potentially subject to STT (hardly an incentive for small and medium sized enterprises!).

Unlisted securities
The tax trigger for unlisted securities (typically, shares in a private company) will change from registration of transfer to a change in beneficial ownership.

The new, and far-reaching, rule is that the company that issued the transferred unlisted security is liable to pay South African Revenue Service (Sars) the STT (and any interest or penalty) payable for the transfer. But it will have a statutory right of recovery from the transferee of the security. On a cancellation or redemption there will be no transferee (or the company may be regarded as the transferee), so the company will pay and bear the STT.

The person to whom an unlisted security in a company has been transferred must inform the company of the transfer, within 30 days of the date of transfer. This provision is short on details, but presumably the information must, in addition to the fact of the transfer, include information on the ‘taxable value' of the transfer and the transferee's name and contact details. Also, the company would require the return of the share certificate issued to the transferor, and payment of the STT due. If the company is not so informed of the transfer, it will have no liability for the STT...

This could place the company in an invidious position. First, the transferee may inform the company of the transfer, without paying the STT to the company. If the company cannot get the STT from the transferee within two months, it will have to pay the STT out of its own resources, and then try to recover it from the transferee. (However, Sars has the power to release the company from this liability and declare the transferee liable for the STT). Secondly, to determine the correct STC payable, the company would need to be satisfied that the market value of the transferred security does not exceed the consideration paid for it.

*Paul Ferreira is from Maitland

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