40E. Ceasing to be controlled foreign company
Where a controlled foreign company ceases to be a controlled foreign company during any foreign tax year of that controlled foreign company prior to 5 June 2015 solely by reason of the coming into operation of the Taxation Laws Amendment Act, 2015, section 9H(3)(b) must not apply.
[Section 40E inserted by section 60 of Act 25 of 2015 effective on 31 December 2015]
PART II
Special provisions relating to companies
38. Classification of companies
(1) For the purposes of this Act a company shall in respect of each year of assessment be recognized as either a public or a private company, and the Commissioner shall upon the request of any company inform that company whether it is recognized as a public company or as a private company..
(2) The following companies shall, subject to the provisions of section 39, be recognized as public companies, namely –
(a) any company all classes of whose equity shares are publicly quoted on the specified date by a stock exchange in the list issued under its authority, provided-
[Words preceding subparagraph (i) substituted by section 58 of Act 25 of 2015 effective on 8 January 2016]
(i) that the stock exchange is a recognized and bona fide stock exchange under adequate control;
(ii) that the rules and regulations of the stock exchange for granting and continuing a quotation for the purchase and sale of shares provide for full protection of the interests of the public in regard to dealings in the shares of the company;
(iii) that the memorandum of incorporation prohibits such restrictions on the right to acquire or transfer any of its shares as are likely to preclude members of the general public from becoming shareholders in any class of the company’s shares; and
(iv) that the general public was throughout the year of assessment in question interested either directly as shareholders in the company or indirectly as shareholders in any other company, in more than forty per cent. of every class of equity shares issued by the company;
(b) any other company, not being a private company as defined in section 1 of the Companies Act, nor a close corporation, if–
(i) the general public was throughout the year of assessment in question interested either directly as shareholders in the company or indirectly as shareholders in any other company, in more than fifty per cent of every class of equity shares issued by the company; and
(ii) the business of the company is conducted and its profits are distributed in such a manner that no person enjoys or receives or is entitled to enjoy or receive, by reason of shareholding, participation in the management or otherwise, any advantage which would not be enjoyed or received by him if the company had been under the control of a board of directors acting in the best interests of all its shareholders and had been one which could have been recognized as a public company under paragraph (a);
[Paragraph (b) amended by section 16 of Act 90 of 1964, section 31 of Act 85 of 1974, section 24 of Act 121 of 1984 and section 59 of Act 7 of 2010, substituted by section 58 of Act 25 of 2015 effective on 8 January 2016]
(c) any company which has been approved as a public benefit organisation in terms of the provisions of section 30(3);
(d) any co–operative;
(e) any insurance society or company subject to assessment in terms of section 28, 29 or 29A;
(f) any public utility company, established by or under a special Act of Parliament;
(g) any company the sole or principal business of which in the Republic is mining for gold or diamonds;
(h) any company to which the provisions of section thirty–three apply; and
(3) A company which is not recognized as a public company shall be recognized as a private company.
(4) For the purposes of this section –
(a) the general public in relation to any company (in this paragraph referred to as the company) shall be deemed not to include –
(i) any director of the company; or
(ii) any relative of any director of the company, unless such relative, if he is not the spouse or minor child of such director, has at all relevant times exercised his rights as a shareholder in the company or in any other company through which such relative is interested in the shares of the company, independently of such director; or
[Subparagraph (ii) substituted by section 58 of Act 25 of 2015 effective on 8 January 2016]
(iii) the executor of the deceased estate or the trustee of the insolvent estate of any person referred to in sub-paragraph (i) or (ii); or
(iv) any person to the extent that he acts in a fiduciary capacity, or as a nominee, for the benefit of any person who is not in fact or in terms of any other provision of this subsection a member of the general public in relation to the company; or
(v) any man or his wife or any minor child of any man or his wife, if one or more of such persons are directly or indirectly interested (otherwise than by virtue of any shareholding in any public company or any private company which is interested in the shares of the company through a direct or indirect interest in the equity shares in a public company) in altogether more than 15 per cent of any class of equity shares issued by the company;
(b) the general public in relation to any company (in this paragraph referred to as the company) shall be deemed to include –
(i) any benefit fund, pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund or any trust or institution which is of a public character, and
[Subparagraph (i) substituted by section 24 of Act 3 of 2008 and section 58 of Act 25 of 2015 effective on 8 January 2016]
(ii) any person to the extent that he acts in a fiduciary capacity, or as a nominee, for the benefit of any person who is in fact or in terms of any other provision of this subsection a member of the general public in relation to the company;
(c) where any person –
(i) being a public company, is indirectly interested in any shares of any other company; or
(ii) being a member of the general public in relation to any company, is indirectly interested in any shares of that company,
by virtue of the said person being a shareholder in any private company and such interest is not attributable to a direct or indirect interest of such private company in the equity shares in a public company, the said person shall be deemed to be interested in only that portion of such shares as such person would be entitled to receive if every company through which that person is interested in those shares were to be wound up or liquidated and the assets of each such company were, without regard to its liabilities, to be distributed among its shareholders;
[Words following subparagraph (ii) substituted by section 59 of Act 7 of 2010 and section 58 of Act 25 of 2015 effective on 8 January 2016]
(d) where persons are jointly interested, whether directly or indirectly, but otherwise than through a direct or indirect interest in the equity shares of a public company, in the shares of any company, each such person shall be deemed to be interested in only such proportion of those shares as he would be entitled to receive if the joint interest of all such persons in such shares were to be divided between such persons.
[Paragraph (d) substituted by section 59 of Act 7 of 2010 and section 58 of Act 25 of 2015 effective on 8 January 2016]
[Subsection (4) added by section 16 of Act 90 of 1964]
39. Redetermination of company’s status
If owing to changes in the constitution or shareholding of any company which has been recognized as a public company under paragraph (a), (b) or (c) of subsection (2) of section 38, or for any other reason, the Commissioner is no longer satisfied of the matters of which he is in terms of the applicable paragraph required to be satisfied, or the company ceases to comply with the requirements of that paragraph, the Commissioner may notify the public officer of the company that it will as from the next succeeding specified date be recognized as a private company.
40. ……….
40A. Close corporations
(1) Where any close corporation has been converted into a company, such company and such close corporation shall for the purposes of this Act be deemed to be and to have been one and the same company.
(2) ……….
(3) ……….
(4) ……….
40B. Conversion of co–operative to company
Where any co–operative is incorporated as a company in accordance with the provisions of section 161A or 161C of the Co-operatives Act, 1981 (Act No. 91 of 1981) or section 62 of the Co-operatives Act, 2005 (Act No. 14 of 2005), such co–operative and such company shall for the purposes of this Act be deemed to be and to have been one and the same company.
40C. Issue of shares or granting of options for no consideration
Where a company issues a share or grants an option or other right in respect of the issue of a share to a person for no consideration, the expenditure actually incurred by the person to acquire that share, option or right must be deemed to be nil.
[Section 40C inserted by section 47 of Act 60 of 2008, substituted by section 70 of Act 22 of 2012, section 87 of Act 31 of 2013 and section 59 of Act 25 of 2015 effective on 8 January 2016]
40CA. Acquisitions of assets in exchange for shares
Where a company acquires any asset, as defined in paragraph 1 of the Eighth Schedule–
(a) from any person in exchange for shares issued by that company, that company must be deemed to have actually incurred an amount of expenditure in respect of the acquisition of that asset which is equal to the sum of—
(i) the market value of the shares immediately after the acquisition; and
(ii) any deemed capital gain determined in terms of section 24BA (3)(a) in respect of the acquisition of that asset; or
(b) in terms of an asset-for-share transaction as contemplated in section 42, a substitutive share-for-share transaction as contemplated in section 43 or an amalgamation transaction as contemplated in section 44 in respect of which a deemed capital gain is determined in terms of section 24BA (3)(a) in respect of the acquisition of that asset-
(i) by that company; or
(ii) by any person that acquired that asset from that company in terms of any transaction contemplated in Part III of Chapter II,
that company or that other person must be deemed, in addition to the amount of expenditure for which the asset is deemed to have been acquired by that company or that other person as a result of the application of sections 42(2)(b), 43(2)(b) or 44(2)(a)(ii)(aa), to have incurred an amount of expenditure equal to that deemed capital gain immediately before a disposal of that asset in a transaction other than a transaction contemplated in Part III of Chapter II.
[Section 40CA inserted by section 71(1) of Act 22 of 2012, amended by section 89(1) of Act 31 of 2013, substituted by section 88 of Act 31 of 2013, amended by section 38(1) of Act 34 of 2019, substituted by section 32(1) of Act 23 of 2020 and by section 23(1) of Act 20 of 2021 and amended by section 35(1) of Act 17 of 2023 with effect from 1 January, 2024 and applicable in respect of any acquisition of an asset on or after that date]
40D. Communications licence conversions
(1) Where existing licences referred to in Chapter 15 of the Electronic Communications Act, 2005 (Act No. 36 of 2005), are converted to new licences in terms of section 93 of that Act, a licensee of an existing licence or licences must not recover, recoup or include in the licensee’s income for the year of assessment in which that conversion takes place any allowance allowed to the licensee in respect of the existing licence or licences.
(2) The licensee of a new licence contemplated in subsection (1) is deemed to have acquired the new licence-
(a) in the case where an existing licence is converted to a new licence, at a cost equal to the amount taken into account by the licensee in respect of the existing licence;
(b) in the case where two or more existing licences are converted to a new licence, at a cost equal to the aggregate of the amounts taken into account by the licensee in respect of each of the existing licences; and
(c) in the case where an existing licence is converted to two or more new licences, at a cost equal to an amount that bears to the amount taken into account by the licensee in respect of the existing licence the same ratio as the value of that new licence bears to the aggregate value of the new licences, which cost must be treated as expenditure actually incurred by the licensee in respect of the new licence or licences for the purposes of sections 11 and 22(1) and (2).
(3) For the purposes of subsection (2) the new licence or licences must be deemed to have been acquired by the licensee on the day immediately after the conversion.