Page 189 - SAIT Compendium 2016 Volume1

s 23N INCOME TAX ACT 58 OF 1962 s 23N
23N Limitation of interest deductions in respect of reorganisation and acquisition transactions
(1) For the purposes of this section—
‘acquired company’ means—
(a) a transferor company or a liquidating company
that disposes of assets pursuant to a reorganisation
transaction; or
(b) a company in which equity shares are acquired by
another company in terms of an acquisition transaction; ‘acquiring company’ means—
(a) a transferee company contemplated in the de nition of ‘intra-group transaction’ in section 45 (1);
(b) a holding company contemplated in the de nition of ‘liquidation distribution’ in section 47 (1); or
(c) a company that acquires an equity share in another company in terms of an acquisition transaction;
‘acquisition transaction’ means any transaction—
(a) in terms of which an acquiring company acquires an equity share in an acquired company that is a company as contemplated in paragraph (a) or (b) of the de nition of ‘acquisition transaction’ in section 24O (1); and
[Para. (a) substituted by s. 40 (1) of Taxation Laws Amendment Act, 2015 – date of commencement: 1 January 2016; the substituted paragraph applies iro years of assessment ending on or after that date.]
(b) as a result of which that acquiring company, as at the end of the day of that transaction, becomes a controlling group company in relation to that acquired company;
[Para. (b) substituted by s. 40 (1) of Taxation Laws Amendment Act, 2015 – date of commencement: 1 January 2016; the substituted paragraph applies iro years of assessment ending on or after that date.]
‘average repo rate’ in relation to a year of assessment means the average of all ruling repo rates determined by using the daily repo rates during that year of assessment;
‘interest’ means interest as de ned in section 24J;
‘issue’ in relation to a debt, means the creation of a liability to pay or of a right to receive an amount in terms of that debt;
‘reorganisation transaction’ means—
(a) an intra-group transaction as de ned in section 45 (1)
to which section 45 applies; or
(b) a liquidation distribution as de ned in section 47 (1)
to which section 47 applies;
‘repo rate’ means the interest rate at which the South
African Reserve Bank enters into a repurchase agreement contemplated in section 10 (1) (j) of the South African Reserve Bank Act.
(2) Where an amount of interest is incurred by an acquiring company in terms of a debt—
[Words preceding para. (a) substituted by s. 38 (1) (e) of Act 43 of 2014 – date of commencement:
1 January 2015; this subparagraph applies iro years of assessment commencing on or after that date.]
(a) directly or indirectly assumed or applied for the purpose of procuring, enabling, facilitating or funding the acquisition by that acquiring company of any asset in terms of a reorganisation transaction;
(b) used directly or indirectly for the purpose of redeeming, re nancing or settling the debt contemplated in paragraph (a);
(c) issued, assumed or used in terms of an acquisition transaction; or
(d) used directly or indirectly for the purpose of redeeming, re nancing or settling the debt contemplated in paragraph (c),
the amount of interest allowed to be deducted must not exceed the amount determined in terms of subsection (3). (3) The amount of interest allowed to be deducted in
terms of all debts owed as contemplated in subsection (2), in respect of any year of assessment in which the acquisition transaction or reorganisation transaction is entered into and in respect of ve years of assessment immediately following that year of assessment, must not exceed the sum of—
(a) the amount of interest received by or accrued to the
Prelex
Wording of paras. (a) and (b) in force until 1 January 2016
(a) in terms of which an acquiring company acquires
an equity share in an acquired company that is an
operating company as de ned in section 24O; and (b) as a result of which that acquiring company, as at the close of the day of that transaction, becomes a controlling group company in relation to that
operating company;
‘adjusted taxable income’ means taxable income—
(a) reduced by—
(i) any amount of interest received or accrued;
(ii) any amount included in the income of a person
as contemplated in section 9D (2);
(iii) any amount recovered or recouped in respect of
an allowance contemplated in this Act in respect
of a capital asset as de ned in section 19; and
(b) with the addition of—
(i) any amount of interest incurred;
(ii) any amount allowed as a deduction in terms of
this Act in respect of a capital asset as de ned in section 19 for purposes other than the determination of any capital gain or capital loss;
(iii) 75 per cent of the receipts or accruals derived from the letting of any immovable property; and (iv) any assessed loss or balance of assessed loss allowed to be set off against income in terms of
section 20;
[Sub-para. (iv) added by s. 38 (1) (d) of Act 43 of 2014 – date of commencement: 1 January 2015; this subparagraph applies iro years of assessment commencing on or after that date.]
(b)
acquiring company; and
a percentage calculated in terms of the amount of the adjusted taxable income of that acquiring company in accordance with the formula contemplated in subsection (4) determined in respect of the year of assessment—
(i) in which the acquisition transaction or reorgani- sation transaction is entered into;
(ii) in which the amount of interest is incurred by that acquiring company; or
(iii) prior to the year of assessment contemplated in subparagraph (i),
whichever is the highest,
reduced by any amount of interest incurred by the acquiring company in respect of debts other than debts contemplated in subsection (2).
[Para. (b) and words following para. (b) substituted by s. 38 (1) (f) of Act 43 of 2014 – date of commencement: 1 January 2015; this substitution applies iro years of assessment commencing on or after that date.]
(4) The percentage contemplated in subsection (3) (b) must be determined in accordance with the formula—
A = B × _C_ D
in which formula—
(a) ‘A’ represents the percentage to be determined;
SAIT CompendIum oF TAx LegISLATIon VoLume 1
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INCOME TAX ACT – SECTIONS