ARTICLE · 05 AUGUST 2019

Debt Capitalisations Between Two Controlled Foreign Companies

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The various changes to the so-called debt waiver provisions in section 19 of the South African Income Tax Act, 1962 (the "Act")

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Gustav Van Den Berg

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The various changes to the so-called debt waiver provisions in section 19 of the South African Income Tax Act, 1962 (the “Act”) and paragraph 12A of the Eighth Schedule to the Act in terms of the Taxation Laws Amendment Acts of 2017 and 2018 have come and gone. It is understood that there is now finality in terms of the debt waiver provisions as contained in the Act, which we discussed in a previous article. However, the tax implications for controlled foreign companies or (“CFCs”) in relation to debt capitalisations may be different despite section 19 and paragraph 12A of the Eighth Schedule. This is especially so in the context of a capitalisation of debt owing by one CFC to another CFC that is a shareholder of the first CFC.

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