Page 587 - SAIT Compendium 2016 Volume2

IN 67 (2) Income Tax acT: InTeRPReTaTIon noTes IN 67 (2)
3.5.2 A company that would form part of the same group of companies [paragraph (d)(i)]*†
A company that forms part of the same ‘group of companies’‡ as another company, is a connected person in relation to the other company.§ The terms ‘group of companies’, ‘controlling group company’ and ‘controlled group company’ are de ned in section 1(1) as follows:
3.5.2 A company that would form part of the same group of companies [paragraph (d)(i)]¶**
A company that forms part of the same ‘group of companies’†† as another company, is a connected person in relation to the other company.‡‡ The terms ‘group of companies’, ‘controlling group company’ and ‘controlled group company’ are de ned in section 1(1) as follows:
‘[G]roup of companies’ means two or more companies in which one company (hereinafter referred to as the ‘controlling group company’) directly or indirectly holds shares in at least one other company (hereinafter referred to as the ‘controlled group company’), to the extent that—
(a) at least 70 percent of the equity shares in each controlled group company are directly held by the controlling
group company, one or more other controlled group companies or any combination thereof; and
(b) the controlling group company directly holds at least 70 per cent of the equity shares in at least one controlled
group company;
‘controlling group company’ means a controlling group company contemplated in the de nition of ‘group of companies’;
‘controlled group company’ means a controlled group company contemplated in the de nition of ‘group of companies’;
In applying the de nition of a ‘group of companies’ in section 1(1), paragraph (d)(i) provides that the expression ‘at least 70 per cent of the equity shares in’ is replaced with ‘more than 50 percent of the equity shares or voting rights in’. A company will thus form part of the same group of companies if more than 50% of its equity shares or voting rights are directly owned by a controlling company, one or more other controlled group companies or any combination of such companies. The controlling group company should directly hold more than 50% of the equity shares or voting rights in at least one controlled group company.
In determining the ‘more than 50%’ requirement a simple summation of direct holdings of controlling and controlled group company holdings in the company in question must be made. The calculation is not based on the determination of an effective percentage interest. For example, if A owns 60% of B and B owns 60% of C, A’s 60% interest in B and B’s 60% interest in C will determine whether A and B, B and C, or A and C are part of the same group of companies. Taking into account A and B’s 60% shareholdings, A, B and C are part of the same group of companies for purposes of the de nition of a ‘connected person’ in section 1(1). A’s effective interest in C of 36% (60% × 60%) is not relevant for this purpose.
The reference to a controlling group company’s indirect holding of shares in the opening words of the de nition of a ‘group of companies’ con rms that a group of companies can include multiple tiers. An ‘equity share’ is de ned in section 1(1) as follows:§§
* A portfolio comprised in any collective investment scheme in securities was deleted from the de nition with effect from the commencement of years of assessment commencing on or after 1 January 2010. However, for purposes of the de nition of a ‘connected person’, a portfolio of a collective investment scheme in securities is deemed to be a company (see 3.7).
† A portfolio of a collective investment scheme in property was inserted in the de nition with effect from the commencement of years of assessment commencing on or after 1 April 2013. Paragraph (e)(iii) was amended by section 4(1)(f) of the Taxation Laws Amendment Act No. 31 of 2013 with effect from years of assessment commencing on or after 1 January 2015 to restrict its ambit to a portfolio of a collective investment scheme in property that quali es as a REIT.
‡ For the purposes of the de nition of a connected person paragraph (d)(i) refers to and modi es the de nition of a ‘group of companies’ in section 1(1), not the narrower de nition of the same term in section 41.
§ Effective as from the commencement of years of assessment ending on or after 1 January 2007.
¶ A portfolio comprised in any collective investment scheme in securities was deleted from the de nition with effect from the commencement of years of assessment commencing on or after 1 January 2010. However, for purposes of the de nition of a ‘connected person’, a portfolio of a collective investment scheme in securities is deemed to be a company (see 3.7).
** A portfolio of a collective investment scheme in property was inserted in the de nition with effect from the commencement of years of assessment commencing on or after 1 April 2013. Paragraph (e)(iii) was amended by section 4(1)(f) of the Taxation Laws Amendment Act No. 31 of 2013 with effect from years of assessment commencing on or after 1 January 2015 to restrict its ambit to a portfolio of a collective investment scheme in property that quali es as a REIT.
†† For the purposes of the de nition of a connected person paragraph (d)(i) refers to and modi es the de nition of a ‘group of companies’ in section 1(1), not the narrower de nition of the same term in section 41.
‡‡ Effective as from the commencement of years of assessment ending on or after 1 January 2007.
§§ Substituted in this form by section 7(1)(i) of the Taxation Laws Amendment Act No. 24 of 2011 with effect from 1 April 2012.
saIT comPendIum oF Tax LegIsLaTIon VoLume 2 579
‘[E]quity share’ means any share in a company, excluding any share that, neither as respects dividends nor as respects returns of capital, carries any right to participate beyond a speci ed amount in a distribution;