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In media statements released by the Competition Commission (“Commission”) on 23 September 2022 and 28 September 2022, the Commission reiterated its concerns that potential anti-competitive acquisitions in the digital or technology markets may escape regulatory scrutiny. These concerns emanate from such acquisitions usually taking place at an early stage in the life of the target companies. This results in target companies not having generated sufficient turnover or assets for purposes of monetary thresholds which would trigger mandatory merger notification in terms of the Competition Act, Act 89 of 1998 (the “Act”).

As general rule, a Vendor [a taxpayer registered for VAT] may only claim input-VAT on goods purchased from another Vendor under the provisions of the Value-Added Tax Act (the “Act”). As always with tax, there are exceptions to the general rule, one of which is when a Vendor purchases fixed property from a seller that is not registered for Value-Added Taxes (“VAT”).

The acquisition of an asset / business may trigger various regulatory obligations on the entities to the transaction, which generally involve observing the provisions of the Companies Act and the respective Tax Acts. In certain instances, the entities may also be required to notify the Competition Commission (“Commission”) of the acquisition transaction.

The Supreme Court of Appeal (“SCA”) delivered judgment in Commissioner for the South African Revenue Service v Capitec Bank Limited (94/2021) [2022] ZASCA 93 (“Capitec-case”) on 21 June 2022. The case, where the South African Revenue Service’s (“SARS”) appeal was upheld, mainly concerned Capitec’s entitlement to claim Value-Added Tax (“VAT”) deductions.

On 11 March 2022, the Constitutional Court (“CC”) handed down judgment in the matter of Barnard Labuschagne Incorporated / South African Revenue Service and Another CCT60/21. This case concerns the rescindability of civil judgments obtained by SARS in terms of the Tax Administration Act No. 28 of 2011 (“TAA”).

The South African Revenue Service (“SARS”), is empowered to scrutinize and make a finding on any transactional agreement concluded between parties in respect of a taxing position taken in terms of a provision of Tax Act.

The date (“Redemption Date”) on which a Preference Share is redeemed [buy-back] is significant when considering the definition of a ‘Hybrid Equity Instrument’ as defined in Section 8E of the Income Tax Act (“ITA”).

Section 48 of the Companies Act No 71 of 2008, permits a company to acquire its own share equity issued to its shareholder/s by means of a transaction colloquially known as a ‘share buy-back transaction’ (“Buy-Back”).

The Value-Added Tax Act No 89 of 1991 (“VAT Act”) contains certain rules in Section 8(25) to provide for Value-Added Tax (“VAT”) relief by treating the supplier and the recipient of goods or services as the same taxpayer during corporate reorganisation transactions (“Restructuring Transactions”) as provided for in Part III of the Income Tax Act No. 58 of 1962 (“ITA”). The effect thereof is that the Restructuring Transaction is concluded on a tax-neutral basis.

Section 19(1)(b) of the Companies Act, Act 71 of 2008 (the “Act”) provides that a company has all legal capacity and powers of a natural person as far as it can be applied. The purposes and powers of a company may be limited, restricted, or qualified in the Memorandum of Incorporation (“MOI”).

The disclosure process in a Sale of Shares / Business Agreement (the “Sale Agreement”) provides the seller the opportunity to disclose liabilities / potential liabilities to the purchaser which could avoid liability against a future claim for breach of warranty.

It is not uncommon for companies to raise capital by preference share funding (i.e. issuing preference shares to investors) as an alternative to debt funding for new business ventures and / or fulfilment of contractual obligations.