National Treasury
National treasury has released revised proposals on section 45 intra-group, hybrid share and related matters for public comment.
In a statement published on its website, treasury referred to the release of the Draft Taxation Laws Amendment Bills in June 2011.
The bills contained the 18 month suspension of section 45.
According to treasury, the purpose of the suspension was to “temporarily close section 45 as a tax-free mechanism to obtain interest deductions linked to excessive debt”.
The suspension provided the fiscus with interim protection against the possible loss of R3 to 5 billion per annum.
Treasury and the South African Revenue Service have held a number of meetings with businesses engaged in merger and acquisition transactions since early June.
The outcome of the meetings reaffirmed treasury’s decision to put controls on excessive debt.
As a consequence, treasury is now putting forward a revised short term solution that will seek to meet the needs of the business community while simultaneously ensuring adequate protection for the fiscus.
“It is proposed that a section be introduced to control the interest deductions associated with debt used to fund the acquisition of assets in section 44, 45 or 47 transactions”.
Transactions will be placed into different channels:
• Green channel-interest deductions to be automatically permissible
• Amber channel-interest deductions to be permitted on pre-approval
Transactions that are not approved will not be granted an interest deduction.
In the light of these developments, Treasury also announced the lifting of the section 45 suspension.
Treasury lists four broad sets of section 45 transactions:
• Pure intra-group transfers
• Group vendor financing
• Leveraged buyouts
• Securitisations
The first two will fall into the green channel while the last two will tend to fall into the amber category.
Longer-term solutions to deal with “excessive debt and the characterisation of debt” will be introduced from 2012.
The statement also contains detail on proposals involving hybrid shares and employee and black economic empowerment trusts.
Written comment on the revised proposals is invited until 17 August 2011.
Treasury will publish responses to the written comment received at the end of August.
The Taxation Laws Amendment Bills will be tabled in Parliament in September 2011.
Sabinet Cape Town Office
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