Treasury battles to shut BEE loophole

BEE deals are being caught in the crossfire of proposed amendments to section 45 of the Income Tax Act, said Wouter Scholtz, a director of Mazars Moores Rowland.

BEE deals are being caught in the crossfire of proposed amendments to section 45 of the Income Tax Act, said Wouter Scholtz, a director of Mazars Moores Rowland.

He said the amendments put forward in the draft Bill would have put an end to the role so usefully played by section 45 in BEE transactions.

Scholtz says the key impediment to BEE transactions is that prospective black participants generally cannot afford to pay for shares in established enterprises and white shareholders are understandably averse to giving shares away at a discount. Section 45 lent itself to an approach which overcame this impasse.

"What miffed Treasury was the use of section 45 in a manoeuvre called a 'debt push-down', whereby debt incurred to purchase shares was replaced with debt incurred to acquire business assets.

Scholtz says Treasury's initially proposed amendments would have stopped BEE transactions dead in their tracks. Their revised amendments would have impeded them.

Late last week, Treasury again revised their approach to section 45, but no details are yet available. It is to be hoped that the latest approach is more workable

Scholtz says a simple, yet effective answer to debt push-downs would be to provide that if the sale proceeds were to be distributed by the transferor company within 12 months of a section 45 transaction, the section 45 roll-over would be annulled.- I-Net Bridge

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