Tax on a liquidating distribution validating national provider identifier
This specifically targets ‘phoenixism’, where profits are retained within a company, the company is wound up (with the individual shareholders benefiting from capital treatment), followed by any of the individuals setting up a business carrying on the same or similar trade or activity within two years of the winding up.
These draft provisions are so wide they will even apply, if enacted as currently drafted, where the individual is only involved in the trade or activity of a business carried out by a person connected to him (such as a family member).
The Applicant and Co-Applicant proposed that the following steps would be undertaken to achieve the abovementioned result: Step 1Sub Co would distribute all its assets to the Applicant in terms of a ‘liquidation distribution’, following which, its corporate existence will be voluntarily terminated within 36 months of such distribution.
Step 2In terms of an amalgamation agreement as envisaged in s113 of the Companies Act, No 71 of 2008 (Companies Act), the Applicant and Co-Applicant will be amalgamated as follows: For purposes of the Ruling, it has been assumed that the shareholders of the Applicant hold the shares in the Applicant on capital account.
This is a significant extension to the scope of these provisions, although ‘normal commercial transactions’ (i.e.
those where the main purpose is not for the avoidance of tax) should be unaffected.
Secondly, the repayment of originally subscribed share capital is also excluded from the scope of the TAAR.
There has been a lot of speculation that these provisions could apply to non-statutory demergers (i.e.