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The second issue of the Business Tax and Company Law Quarterly has been published. Abstracts of each article can be viewed below.

Company Law in Transition:
FROM THE FAMILIAR TO THE UNKNOWN

MILTON SELIGSON SC

The new Companies Act 71 of 2008, which extensively reforms and overhauls our company law, is not yet in force, but is expected to come into operation in the near future. When it does so, it will repeal the existing Companies Act 61 of 1973. Section 224(1) of the new Act, however, provides that the repeal of the 1973 Act does not affect the transitional arrangements set out in Schedule 5 to the new Act. This article is intended to provide a guide to the transitional provisions in Schedule 5. It discusses their scope and effect and assesses their impact on pre-existing companies incorporated or recognized under the 1973 Act. The transitional provisions dealt with include the following subjects: (a) the continuation of pre-existing companies under the new Act; (b) provisions relating to the Memorandum of Incorporation and the rules which respectively replace the traditional Memorandum and Articles of Association of the 1973 Act; (c) the retention for a 2-year period of a pre-existing company’s Memorandum and Articles (under their new names, during which their provisions prevail in the event of a conflict with the Act); (d) the continuation of par-value shares issued by a pre-existing company until such time as the Minister makes regulations providing for their conversion, subject to the rights of shareholders; (e) the proposed draft regulations published for comment pertaining to the conversion of par-value shares; (f) continuity of the board of directors and financing of pre-existing companies; (g) the application to preexisting companies of the stricter standards of directors’ conduct and duties and the takeover provisions in the new Act; (h) the continued application of the winding-up and liquidation provisions of the 1973 Act until a date determined by the Minister; (i) the preservation of rights, duties and notices under a provision of the 1973 Act, where there is a corresponding provision under the new Act; (j) the transition of regulatory agencies and their officers and staff from Companies and Intellectual Property Registration Office (CIPRO) to the newly established Companies and Intellectual Property Commission and from the SRP to the new Takeover Regulation Panel.

Value-Added Tax and the Export of Goods:
THERE BE DRAGONS TOO!

DES KRUGER

While most vendors are aware that they are required to issue valid ‘tax invoices’ in respect of every taxable supply made by them that exceeds R50 in value, few seem to be aware that in order to claim zero-rated status, the supply must not only meet the requirements of section 11(1) and (2) of the VAT Act, but the vendor must also obtain and retain certain prescribed documentation. In absence of this documentation, the supply will not qualify for zero-rating. SARS Interpretation Note 31 prescribes the documentation that must be held by the vendor to generally substantiate zero-rating. However, when it comes to the export of goods, separate documentation is required,
depending on the manner in which the goods are exported. In the case of a so-called ‘direct export’, the documentation prescribed in SARS Interpretation Note 30 must be available, while in the case of an ‘indirect export’, the documentation prescribed by the VAT Export Incentive Scheme must be held by the vendor to substantiate zero-rating. The importance of a vendor meeting these documentary requirements cannot be overemphasized. This aspect of zero-rating provides a happy hunting ground for SARS auditors, who easily recharacterize zero-rated supplies as standard-rated supplies on the basis of a single prescribed document being absent. This article highlights the documentary requirements that apply in the case of the export of goods and points out areas that need special attention by vendors.

The Companies Act and its Impact on the Income Tax Act

MICHAEL RUDNICKI

The Companies Act 71 of 2008, upon becoming effective, will present challenging income tax issues for taxpayers. In addition, the recent draft Taxation Laws Amendment Bill, 2010 seeks to cater for some of the changes to the
Companies Act. This article scans the Companies Act and highlights some of the key tax issues that will require consideration as a result of specific changes to the Companies Act as well as variations of shareholder rights that may be necessitated by the advent of the Companies Act. The article also examines relevant proposed tax amendments as they relate to the Companies Act. The article examines the tax consequences of the variation of rights in relation to shareholders, particularly from a Capital Gains Tax (CGT) perspective, and includes a discussion on whether a change in voting rights could result in a CGT disposal. The concept of ‘adequate consideration’ for the issue of shares is discussed, as well as how this will impact shares issued to employees, and the quantification of employees’ employment gains. The formalities around share buy-backs for company-law purposes appear
to have been reduced. The tax consequence thereof in terms of the timing of the recognition of Secondary Tax on Companies may vary.

About the authors:

Milton Seligson SC
BA LLB (UCT), LLM (Harvard) Member, Cape Bar
Advocate Seligson is one of the most senior silks practising in South Africa. He is a member of the Cape Bar and is involved mainly in the areas of tax and corporate law. He has acted as a judge of the High Court and the Special Income Tax Court. Advocate Seligson is also a former Chair of the General Council of the Bar of South Africa and the Cape Bar. He served as a member of the Judicial Service Commission for ten years between 1999 and 2009. He is a former law professor at the University of Hawaii Law School and part-time lecturer on the UCT Law Faculty. He currently serves on the UCT Council as an elected member, representing alumni.

Des Kruger
BCom LL B (KZN), H Dip Tax (Wits), International Tax Program, LLM (Harvard)
Des is a director in the Tax Practice Group at Webber Wentzel Attorneys and has over 30 years of specialized taxation experience. He was recently named one of the top tax consultants in South Africa by the International Tax Review, Chambers Global and The Legal Media Group Guide to the World's Leading Tax Advisors. Des was also selected for inclusion in the inaugural Best Lawyers list for South Africa in the specialty of tax. Prior to taking a position in the private sector, he worked at the Inland Revenue (now the South African Revenue Service – SARS) for nine years, where he held the senior position of Deputy Director in the Tax Structure Development branch. Des is co-author of Value-Added Tax in South Africa and Broomberg on Tax Strategy.

Michael Rudnicki
BCom (Rhodes), Hons BCompt (Unisa), BCom (Hons) (Taxation) (UCT), MComm (UJ), CA (SA) Tax Partner: KPMG
Michael is a Partner in Corporate Tax in Johannesburg and also heads the Tax and Legal Private Equity and M&A Groups. He has been with KPMG since its merger with Andersen in 2002. Prior to this, Michael worked at both Andersen and PWC. He specialises in General Corporate Tax, Specialist Banking Tax, Mergers and Acquisitions Tax; liasing with Senior Counsel on particular matters requiring litigious consideration; implementation of large M&A transactions; Executive Compensation Schemes and Employees’ Tax. He is a member of The South African Institute of Chartered Accountants (SAICA) and The Association of Corporate Treasurers of Southern Africa.