While we still find ourselves navigating the COVID-19 pandemic in the heat of the third wave, the onset of the pandemic almost a year and a half ago forced management in every organisation and sector to promptly evaluate their individual situations and provide an immediate response.

Evaluating cash flow and ensuring survival were the primary objectives but the reality is that the various levels of lockdown had a severe impact on the already fragile South African economy, ultimately leading to closure of businesses and loss of jobs.

Cost cutting and improving efficiencies were probably the most common strategies employed by organisations in an attempt to stay afloat during the last year, with these strategies likely to continue for the foreseeable future.

Aligned to the strategy of cost cutting and improvement in efficient use of resources, is the concept and implementation of a corporate restructure. Corporate structures are often inherited and new management or staff tend to follow legacy instead of assessing whether or not the existing structures are fit for purpose or are suited to the current economic environment.

Some of the features and characteristics of corporate restructuring are as follows:

  • Alignment of common practices
  • Drawing on synergies within the group
  • Centralised processes
  • Centralised payroll

Sections 41 to 47 of the Income Tax Act No.58 of 1962, more commonly referred to as the rollover relief provisions, provide for a deferral of certain tax consequences as a result of corporate restructures. Asset-for-share, intragroup or amalgamation transactions, meeting the specific criteria within the rollover relief provisions, could effectively be done on a tax neutral basis, with no immediate tax exposure.

Each of the rollover provisions could be utilised in various ways to achieve the restructuring objectives of an organisation.

In recent times we have seen organisations effectively use the rollover relief provisions in setting up their structures to align with their Black-Broad Black Economic Empowerment (B-BBEE) needs while in the last few months, organisations have used the rollover relief provisions to simplify their group structures and save on administration costs.

While the rollover relief provisions are certainly not new, the current economic situation presents the opportunity for corporate organisations to assess the appropriateness of their current structures and the ability to tap into the relief measures available.

The tax consequences specific to a corporate restructure is certainly an important factor but other relevant matters such as company secretarial compliance, legal documentation, human resources and valuation matters should also be considered when embarking on a corporate restructure.

Ozeyr Ahmed

Divisional Director: Corporate Tax, Johannesburg

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