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South Africa: Proposal to disallow certain tax-neutral transfers between group companies

South Africa: Proposal on certain tax-neutral transfers

A bill—Taxation Laws Amendment Bill, 2019—would no longer allow tax-neutral transfers of interest-bearing instruments and exchange items between group companies.

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Provisions in South African income tax law allow groups of companies to reorganise themselves without incurring tax liabilities under certain circumstances.  This means that assets can be transferred in a tax-neutral manner between group companies.

Until now, it has been understood that these “group relief” rules applied to transfers between group companies of interest-bearing instruments (for example, debenture notes) and exchange items (such as loans denominated in foreign currency). 

A proposal would clarify that these assets would be excluded from the group relief rules. Thus, companies that transfer these assets in the course of corporate restructuring would have to account for unrealised interest and exchange differences in their income tax returns. The amendments, if enacted, would be effective from the date of promulgation of the bill.

Read an October 2019 report [PDF 344 KB] prepared by the KPMG member firm in South Africa

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