Abstract
Abstract : The primary reason for companies entering into a Black Economic Empowerment (hereafter BEE) transaction is to achieve regulatory compliance. In a BEE transaction companies either issue new shares or sell existing shares, at a discount. The purpose of this study is to identify whether this discount element has donations tax implications. Donations tax is triggered by either actual or deemed donations. No actual donation takes place when new shares or existing are issued at a discount. The issue of new shares does not constitute property for purposes of section 54 of the South African Income Tax Act. The sale of existing shares at a discount in a BEE transaction lacks liberality or generosity. However, even if no actual donation takes place, a deemed donation can still take place in terms of section 58(1) of the Income Tax Act. A deemed donation takes place where property is disposed of for a consideration that is not adequate. The South African Revenue Service (SARS) have interpreted, that adequate consideration does not necessarily mean “fair market value”. SARS ruled in a Binding Private Ruling that specifically addressed the issue at hand, that the disposal of the shares (at a discount) comprised an adequate consideration, hence no donations tax arises. SARS unfortunately did not give a reason for their ruling. The issue remains contentious and unclear. The recommendation is made, in the interest of certainty, that a legislative amendment be introduced into section 56, which will exempt BEE transactions from donations tax.