Article by IBFD
On 13 February 2020, the South African Revenue Service (SARS) published a draft Binding General Ruling (Income Tax) (the draft BGR) on the unbundling of unlisted companies and the impact of the unbundling on non-participating shareholders. The purpose of the draft BGR is to provide clarity on what constitutes an unbundling transaction when an unbundling company having non-qualifying shareholders unbundles shares in an unlisted unbundled company. A non-qualifying shareholder is a shareholder of the unbundling company that does not form part of the same group of companies as the unbundling company.
This draft BGR examines the qualifying shareholders’ requirement under the definition of “unbundling transaction” in the context of a resident unbundling company holding shares in a resident unlisted unbundled company.
According to the draft BGR, when an unbundling company distributes unlisted unbundled company equity shares to a company forming part of the same group of companies as the unbundling company, as well as to non-qualifying shareholders, the distribution to shareholders forming part of the same group of companies as the unbundled company constitutes an unbundling transaction, while the distribution to the non-qualifying shareholders does not constitute an unbundling transaction.
The draft BGR will apply from the date of issue of the final BGR until it is withdrawn or amended, or if the relevant legislation is amended.
Comments on the draft BGR may be submitted to email@example.com by 31 March 2020.