1681. Recovery of Securities Transfer Tax
December 2008 – Issue 112
The Securities Transfer Tax Act, 2007 ("the STT Act"), and the Securities Transfer Tax Administration Act, 2007 ("the STT Administration Act") were passed into law on 1 July 2008. The STT Act provides that securities transfer tax ("STT") must be levied in respect of the transfer of every security. The STT Administration Act contains the administration provisions governing the payment of STT. The STT Act merges the taxes imposed by the Stamp Duties Act, 1968 ("Stamp Duties Act") and the Uncertificated Securities Tax Act, 1998 ("UST Act"). The two taxes were combined in an attempt to simplify the administration of the taxes imposed on the transfer of all securities and to ensure that the rules governing both listed and unlisted securities are consistent.
Previously, stamp duty was levied on the transfer or cancellation or redemption of an unlisted marketable security and uncertificated securities tax was levied in respect of every change in beneficial ownership of a listed security.
STT is a combination of stamp duty and uncertificated securities tax and is charged at a rate of 0,25% on the taxable amount of the transfer of every security issued by a company or a close corporation incorporated in SA, or a company incorporated outside SA but listed on an exchange in SA, subject to certain exemptions.
A de minimis exemption has been introduced into the STT Act by the Revenue Laws Amendment Bill No. 80 of 2008, to lessen the administrative burden of paying small amounts of STT. In terms of the exemption, taxpayers will be exempt from paying STT of less than R100 in respect of the transfer of all securities during a month. This exemption comes into operation on 1 January 2009 and applies in respect of the transfer of a security on or after that date. The exemption will ease the administrative burden particularly on the acquisition of shelf companies where the shares in the company are usually acquired for a nominal amount.
The transfer of any qualifying share in a company or a member’s interest in a close corporation is subject to STT. The word "transfer" is broadly defined and includes the transfer, sale, assignment or cession or disposal in any other manner of a security. The cancellation or redemption of a security is also regarded as a transfer unless the company is being liquidated. However, the issue of a security that does not result in a change in beneficial ownership is not regarded as a transfer. The STT Act does not define the term "beneficial ownership" in relation to a security. Through this exclusion it is intended that only a transfer of the economic ownership of a security is subject to STT. However, if the term "beneficial ownership" is narrowly interpreted, certain temporary transfer arrangements could be excluded from the tax.
STT is levied on the taxable amount of a security. The taxable amount of a listed security is the greater of the consideration for the security declared by the transferee or the closing price of that security. The taxable amount of an unlisted security is the greater of the consideration given for the acquisition of the security or the market value of the unlisted security. The taxable amount is specifically defined to prevent the manipulation of the amount of STT payable by ensuring the amount of tax paid is based on the market value of the security where the consideration paid for the security is not market-related. In the case of a transfer of a listed security, either the member or the participant or the person to whom the security is transferred is liable for the tax. The tax must be paid within a period of 14 days from the transfer. The liability for tax in respect of the transfer of listed securities lies with the party facilitating the transfer or the recipient of the security, which is consistent with the previous UST Act.
However, where the listed security is still in certificated form and is held in custody by either a member or participant, the company issuing the listed security is responsible for the payment of the STT, unlike previously where the payment of the tax was the responsibility of the recipient of the listed security.
The liability for STT in respect of the transfer of unlisted securities differs from the previous Stamp Duties Act. Under the Stamp Duties Act, the recipient of the unlisted security was liable for the payment of stamp duty; however, under the STT Act the company that issues the unlisted security is liable for the payment of such tax. It is understood that the reason for this change was to streamline the collection process of STT in respect of unlisted securities by having a centralised collection point. However, this collection mechanism places an increased responsibility on the company issuing the shares when compared with the previous Stamp Duties Act.
The STT must be paid by the company issuing the unlisted security within two months from the date of the transfer of such security. It is the responsibility of the recipient of the unlisted security to inform the company which issued such security of the transfer within 30 days from the date of transfer. The STT Act provides that the company that issued an unlisted security may recover the tax paid by it from the recipient of such security. However it does not place any obligation on the recipient of the unlisted security to reimburse the tax paid by the company. Accordingly, it may be difficult for the issuer of the unlisted security to recover the STT from the recipient.
Furthermore, where a listed company holds shares in certificated form, it is responsible for the payment of STT on the transfer of its shares, but there is no provision in the STT Act which allows the listed company to recover the tax paid by it from the recipient of the shares, similar to that provided for in respect of unlisted securities. In this situation, the listed company may not be able to recover the tax paid.
The STT Administration Act provides that the Commissioner for the South African Revenue Service may declare the person to whom a security was transferred to be liable for the tax payable; however, this is at the discretion of the Commissioner and it is unclear if and how the Commissioner will exercise this discretion.
Therefore, when entering into any agreement in respect of the transfer of any unlisted security or a listed security in certificated form, it would be prudent to include a clause that will secure the recovery of the tax from the recipient before the STT is due to be paid by the company. This would ensure the tax is recovered from the recipient and also alleviate any possible cash flow constraints for the issuing company that may result from the payment of the tax.
Edward Nathan Sonnenbergs Inc.
Securities Transfer Tax Act No. 25 of 2007
Securities Transfer Tax Administration Act No. 26 of 2007