Page 591 - SAIT Compendium 2016 Volume2

IN 67 (2) Income Tax acT: InTeRPReTaTIon noTes IN 67 (2)
Result:
D indirectly holds 4% (20% × 20%) of the equity shares in DEF (Pty) Ltd and is not a connected person in relation to DEF (Pty) Ltd since D does not hold, directly or indirectly, at least 20% of the equity shares in DEF (Pty) Ltd. ABC (Pty) Ltd is not a connected person in relation to DEF (Pty) Ltd under paragraph (d)(iv) since a company incorporated under the Companies Act is speci cally excluded from paragraph (d)(iv). However, ABC (Pty) Ltd may be a connected person in relation to DEF (Pty) Ltd under paragraph (d)(v) (see 3.5.4).
3.5.4 Any other company that holds at least 20% of the equity shares or voting rights in the company and no holder of shares holds the majority voting rights [paragraph (d)(v)]
A company that holds at least 20% of the equity shares or voting rights in another company is a connected person in relation to the other company if no holder of shares holds the majority (more than half) voting rights in that other company. In determining the ‘at least 20%’ requirement, only direct holdings of shares are considered since the words ‘directly or indirectly’ are not used.
Paragraph (d)(v) has been amended by the substitution of the word ‘shareholder’ with the words ‘holder of shares’ to denote bene cial ownership of the shares. This amendment makes it clear that a person who is, for example, a registered shareholder and acts in a nominee capacity would not be a holder of shares for the purposes of paragraph (d)(v).* Paragraph (d)(v) will not apply to a company holding at least 20% of the equity shares of or voting rights in another company if a holder of shares bene cially owns the majority voting rights in that other company.
Example 21 – Connected person in relation to a company
Facts:
ABC (Pty) Ltd and MNO (Pty) Ltd each hold 50% of the equity shares and voting rights in XYZ (Pty) Ltd. Are ABC (Pty) Ltd and MNO (Pty) Ltd connected persons in relation to XYZ (Pty) Ltd?
Result:
Both ABC (Pty) Ltd and MNO (Pty) Ltd are connected persons in relation to XYZ (Pty) Ltd under paragraph (d)(v) because each company holds at least 20% of the equity shares in the company and neither company holds the majority voting rights.
Example 22 – Connected person in relation to a company
Facts:
XYZ (Pty) Ltd holds 51% and MNO (Pty) Ltd holds 49% of the equity shares in ABC (Pty) Ltd. Are XYZ (Pty) Ltd and MNO (Pty) Ltd connected persons in relation to ABC (Pty) Ltd?
Result:
XYZ (Pty) Ltd is a connected person in relation to ABC (Pty) Ltd as it holds more than 50% of the equity shares in ABC (Pty) Ltd and is therefore treated as being part of the same group of companies under paragraph (d)(i). As XYZ (Pty) Ltd holds the majority voting rights in ABC (Pty) Ltd, MNO (Pty) Ltd is not a connected person in relation to ABC (Pty) Ltd under paragraph (d)(v) even though it holds at least 20% of the equity shares in ABC (Pty) Ltd.
Example 23 – Connected person in relation to a company
Facts:
DEF (Pty) Ltd and GHI (Pty) Ltd each hold 50% of the equity shares and voting rights in XYZ (Pty) Ltd. ABC (Pty) Ltd holds 100% of the equity shares in DEF (Pty) Ltd. Are ABC (Pty) Ltd, DEF (Pty) Ltd and GHI (Pty) Ltd connected persons in relation to XYZ (Pty) Ltd?
Result:
Both DEF (Pty) Ltd and GHI (Pty) Ltd are connected persons in relation to XYZ (Pty) Ltd under paragraph (d)(v) because each company holds at least 20% of the equity shares in the company and neither company holds the majority voting rights. ABC (Pty) Ltd is not a connected person in relation to XYZ (Pty) Ltd since it does not directly hold at least 20% of the shares or voting rights in XYZ (Pty) Ltd. In the latter regard the word ‘held’ as used in paragraph (d)(v) refers to a direct holding of shares or voting rights and does not include indirect holdings.
3.5.5 Any other company which is managed or controlled by a connected person [paragraph (d)(vA)] Assuming that there are two companies, A and B, this provision makes company B a connected person in relation to company A when company B is managed or controlled by –
• a person who is a connected person in relation to company A [paragraph (d)(vA)(aa)]; or
• a person who is a connected person in relation to a person who is a connected person in relation to company A [paragraph (d)(vA)(bb)].
The second bullet point above can be put more simply as follows: • X is a connected person in relation to Company A
• Y manages or controls Company B
• Y is a connected person in relation to X
• Company B is therefore a connected person in relation to Company A
* See, for example, cases dealing with bene cial entitlement such as Geldenhuys v CIR 1947 (3) SA 256 (c), 14 SATC
419; SIR v Smant 1973 (1) SA 754 (a), 35 SATC 1 and Taxpayer v COT Botswana (1980) 43 SATC 118.
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