Binding private ruling 366: Distribution in specie of shares

A number of restructuring steps were entered into.  The final step in the restructuring is that the applicant will distribute all the shares it holds in Company C (a non-resident company) to its shareholders, with the distribution occurring from the applicant’s contributed tax capital (“CTC”). 

Important to note that one of the assumptions made by SARS was that the directors of the applicant will pass a resolution specifically stating that the in specie distribution will be funded out of amounts representing CTC (i.e. return of capital).  If the resolution authorising the distribution is/was silent then the default position would be that the distribution is out of non-CTC amounts i.e. a dividend.

SARS ruled that:

• the in specie distribution, funded out of CTC, will constitute a return of capital; and
• the in specie distribution falls within the ambit of paragraph 75 i.e. a disposal by the applicant of the Company C shares for an amount equal to market value on date of distribution.

Find a copy of BPR 366 here. 

02/07/2021