n Business Tax and Company Law Quarterly - Tax relief within a group - a potentially unpleasant result

Volume 2, Issue 1
  • ISSN : 2219-1585


Section 45 of the Income Tax Act provides roll-over relief in respect of capital gains tax and income tax where assets are disposed of in terms of a qualifying intra-group transaction, that is, a transaction between companies within the same group of companies. Commercial transactions undertaken within that group subsequent to the application of the intra-group provisions may cause de-grouping : simply put, adverse tax implications are triggered in respect of the assets disposed of, or deemed to have been disposed of, within the group. The de-grouping provisions, which are essentially anti-avoidance provisions, are in section 45(4)(b) and (4B).Tax (income tax and capital gains tax) is triggered in terms of section 45(4)(b) of the Income Tax Act where the group of companies de-groups (i.e. falls below a 70% qualifying shareholding) within a period of six years from the date of the intra-group transaction. The difficulty with the application of this provision is that a company high up in a hierarchy of companies within a group whose equity shareholding falls below 70% could trigger an unintended tax consequence for the transfer of company (i.e. the seller) in relation to the disposal, intra-group, of assets. A de-grouping can also be triggered under section 45(4B) where any consideration in relation to a section 45 intra-group disposal, or any amount derived directly or indirectly from such consideration, leaves the qualifying 'group of companies' within a period of two years from the date of disposal.These specific anti-avoidance measures form part of section 45 of the Act and trigger premature tax events, regardless of the rationale for any commercial decisions that may have been taken. This article discusses the application of these unpleasant measures.

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