Tax implications of liquidating a company updating software hardware in computer lab

The South African Revenue Service (SARS) released Binding Private Ruling 210 (Ruling) on 11 November 2015.

An interesting issue arises whether the provisions of section 47 of the Income Tax Act (“Act”) may be used in circumstances where a company transfers a business including liabilities to its parent company.

In essence the section is intended to cater for situations where a subsidiary is liquidated and its assets are therefore transferred to its holding company.

In order for the provisions to apply, the holding company must form part of the same group of companies as the subsidiary.

The consequence is, therefore, that the liabilities of the company are simply not dealt with in section 47 and does not fall within its ambit.

If so, then the transfer of the liabilities of a company must be separately analysed in order to determine the tax effect thereof.

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