Debt capitalisation: investigating the term ‘reduction amount’ in the Income Tax Act 58 of 1962
| dc.contributor.advisor | Nel, Rudie | en_ZA |
| dc.contributor.author | Janse van Rensburg, Pieter Johan | en_ZA |
| dc.contributor.other | Stellenbosch University. Faculty of Economic and Management Sciences. School of Accountancy. | en_ZA |
| dc.date.accessioned | 2017-11-21T07:45:18Z | |
| dc.date.accessioned | 2017-12-11T10:49:11Z | |
| dc.date.available | 2017-11-21T07:45:18Z | |
| dc.date.available | 2017-12-11T10:49:11Z | |
| dc.date.issued | 2017-12 | |
| dc.description | Thesis (MAcc)--Stellenbosch University, 2017. | en_ZA |
| dc.description.abstract | ENGLISH SUMMARY : The capitalisation of debt in exchange for the issuance of shares is a common occurrence, not only in South Africa, but also internationally. Generally, there are three methods through which debts are capitalised, being the direct issue of shares (with or without cash flow), capitalisation through set-off and the conversion of debt instruments into shares. Since the introduction of section 19 of the Income Tax Act 58 of 1962 (‘the Act’) and paragraph 12A to the Eighth Schedule of the Act on 1 January 2013, there has been uncertainty whether any of the methods of debt capitalisation would result in a ‘reduction amount’ in terms of which the debt reduction regime applies. The number of taxpayers that have approached the South African Revenue Service (‘SARS’) to issue Binding Private Rulings (‘BPRs’) on the various methods of debt capitalisation highlights the uncertainty. The study addresses these uncertainties through a critical analysis of the terms ‘amount applied’ and ‘consideration’. Each of the methods of capitalisation are separately evaluated in terms of these definitions, as well as considering issues that are specifically related to the respective methods of capitalisation. Furthermore, the study analyses BPRs on debt capitalisation that have been issued by the SARS to determine if current practices of debt capitalisation support the analysis in terms of income tax legislation. Uncertainties from recent proposed tax legislative amendments dealing with debt capitalisation are also discussed. The conclusion is reached that all of the methods of capitalisation considered constitute an ‘amount applied’ as ‘consideration’ towards the reduction of debt as contemplated in section 19 of the Act and paragraph 12A to the Eighth Schedule of the Act. To the extent that the market value of shares issued equals the face value of the capitalised debt, no ‘reduction amount’ arises. The study shows that this conclusion can be aligned with the limited precedent in case law on debt capitalisation. A significant finding is that for set-off as a method of debt capitalisation, value mismatches between subscription loans and the market value of shares issued could attract adverse tax consequences in terms of section 24BA if shares have been issued at a discount or a premium to the value of the subscription loan. Based on the research findings it is suggested that if the factual circumstances do not provide for an exclusion from the application of section 24BA, set-off could be regarded as a less favourable method of debt capitalisation. | en_ZA |
| dc.description.abstract | AFRIKAANSE OPSOMMING : Die kapitalisering van skuld in ruil vir die uitreiking van aandele is ʼn algemene verskynsel, nie net in Suid-Afrika nie, maar ook internasionaal. Oor die algemeen is daar drie wyses waarop skuld gekapitaliseer kan word, naamlik deur die direkte uitreik van aandele (met of sonder kontantvloei), deur skuldvergelyking en die omsetting van skuldinstrumente in aandele. Sedert die inwerkingtreding van artikel 19 van die Inkomstebelastingwet 58 van 1962 (‘die Wet’) en paragraaf 12A van die Agste Bylaag van die Wet op 1 Januarie 2013, heers daar onsekerheid of enige van die metodes van skuldkapitalisering aanleiding gee tot ʼn ‘verminderingsbedrag’ ten opsigte waarvan die skuldverminderingsreëls van toepassing is. Die aantal belastingpligtiges wat die Suid-Afrikaanse Inkomstediens (‘SAID’) onlangs genader het om Privaat Bindende Beslissings (‘PBBs’) uit te reik oor die verskillende metodes van skuldkapitalisering beklemtoon die onsekerhede. Die studie spreek die onsekerhede aan deur ʼn kritiese ontleding van die terme ‘bedrag aangewend’ en ‘vergoeding’. Elk van die metodes van kapitalisering word individueel ontleed in terme van hierdie definisies, sowel as die oorweging van aspekte wat spesifiek van toepassing is op die onderskeie metodes van kapitalisering. Die studie ontleed verder die PBBs wat deur die SAID uitgereik is wat handel oor skuldkapitalisering, om vas te stel of huidige praktyke van skuldkapitalisering die ontleding daarvan in terme van inkomstebelastingwetgewing ondersteun. Onsekerhede wat voortspruit uit onlangse voorgestelde belastingwetwysigings word ook bespreek. Daar word bevind dat al die metodes van skuldkapitalisering wat oorweeg is ʼn ‘bedrag aangewend’ as ‘vergoeding’ behels vir doeleindes van skuldvermindering soos beoog in artikel 19 van die Wet en paragraaf 12A van die Agste Bylaag van die Wet. Na die mate wat die markwaarde van aandele uitgereik gelyk is aan die sigwaarde van die gekapitaliseerde skuld, ontstaan daar geen ‘verminderingsbedrag’ nie. Die studie bevind dat hierdie gevolgtrekking versoenbaar is met die beperkte regspraak oor skuldkapitalisering. ʼn Betekenisvolle bevinding is dat met skuldvergelyking as metode van skuldkapitalisering, verskille tussen die waardes van lenings wat voortspruit uit die inskryf op aandele en die markwaarde van aandele wat uitgereik word nadelige belastinggevolge mag inhou in terme van artikel 24BA, indien aandele teen ʼn diskonto of premie uitgereik is. Op grond van die resultate van die navorsing, word daar aan die hand gedoen dat indien die omstandighede nie voorsiening maak vir verligting van die toepassing van artikel 24BA nie, kan skuldvergelyking as ʼn minder gunstige metode van skuldkapitalisering beskou word. | af_ZA |
| dc.format.extent | vi, 88 pages ; illustrations | |
| dc.identifier.uri | http://hdl.handle.net/10019.1/102747 | |
| dc.language.iso | en_ZA | en_ZA |
| dc.publisher | Stellenbosch : Stellenbosch University | |
| dc.rights.holder | Stellenbosch University | |
| dc.subject | Income tax -- Law and legislation -- South Africa | en_ZA |
| dc.subject | South Africa -- Income Tax Act 58 of 1962 | en_ZA |
| dc.subject | Debt-to-equity ratio | en_ZA |
| dc.subject | UCTD | |
| dc.title | Debt capitalisation: investigating the term ‘reduction amount’ in the Income Tax Act 58 of 1962 | en_ZA |
| dc.type | Thesis | en_ZA |