Going Concern(ed): Potential Challenges in Sale-of-Business Transactions

by | Jun 16, 2025 | BTCLQ, BTCLQ V16 I2

Going Concern(ed): Potential Challenges in Sale-of-Business Transactions

Author: Siyabonga Nyezi

ISSN: 2219-1585
Affiliations: Attorney of the High Court of South Africa
Source: Business Tax & Company Law Quarterly, Volume 16 Issue 2, 2025, p. 1 – 8

Abstract

One of the fundamental tenets of any sale-of-business transaction is that the business to be transferred must be a going concern, and be transferred as such. Not only is the concept of a going concern given life in the provisions of a sale-of-business agreement, it is also found in various pieces of legislation that apply to the transfer of a business. Examples include the Value-Added Tax Act 89 of 1991, the Labour Relations Act 66 of 1995 and, to some extent, the Companies Act 71 of 2008. Each of these statutes contains provisions where the status of a business as a going concern is a key consideration. As such, one might expect that the term ‘going concern’ ought to be defined in each of these Acts. That assumption would be incorrect, as none of these statutes provide a direct and objective definition of the term ‘going concern’.
This article examines the absence of a definition for ‘going concern’ in South African legislation applicable to the transfer of a business, and the risks arising from the lack of legislative clarity. The article considers the relevant provisions of the aforenamed statues. Absent a legislative definition, the article examines the attempts made by the courts to defi ne the term ‘going concern’ in two cases, namely, Kopeledi (Pty) Ltd v Madontsela and Others (2009) 30 ILJ 158 (LC) and NEHAWU v University of Cape Town (2003) 24 ILJ 95 (CC), and the challenges resulting from those definitions.
Thirdly, the article also explores the approach taken in the International Accounting Standards (IAS), and discusses the challenges also present therein. The article submits that, despite being an internationally accepted set of standards, IAS is not particularly instructive to the present cause.
The article then delves into the potential impact of all these lacunae on sale-of-business transactions, and concludes with an attempt at legislative drafting, proffering a proposal for what a definition of ‘going concern’ might look like.

Rethinking Incentives in Africa Due to Pillar 2

by | Jun 16, 2025 | BTCLQ, BTCLQ V16 I2

Rethinking Incentives in Africa Due to Pillar 2

Author: Esther Geldenhuys

ISSN: 2219-1585
Affiliations: Partner, Bowmans Attorneys
Source: Business Tax & Company Law Quarterly, Volume 16 Issue 2, 2025, p. 9 – 15

Abstract

It is well known that base erosion and profit shifting (BEPS) has adversely affected Africa over the years. If African countries do not participate in Pillar 2 it could again reduce African tax collection. Yet very few African countries have to date implemented or taken some form of measure to implement Pillar 2. This is despite the fact that a significant number of African countries signed either the first or the second joint statement of the OECD/G20 Inclusive Framework on BEPS to implement the two-pillar solution.
Pillar 2 aims to ensure that multinational enterprises within scope pay a minimum of 15% corporate tax in each jurisdiction in which it operates. The ground rules for Pillar 2 are set out in the Organisation for Economic Cooperation and Development Global Anti-Base Erosion Model Rules. These rules provide for three types of top-up taxes, being the income inclusion rule, the undertaxed payment rule (also known as the undertaxed profits rules) and the qualified domestic minimum top-up tax rule (also known as a domestic minimum top-up tax).
The African Tax Administration Forum strongly recommends that African countries immediately enact the qualified domestic minimum top-up tax rule as provided for under Pillar 2, to protect themselves from giving away taxing rights to other jurisdictions applying the top-up tax under Pillar 2 arising from tax incentives. However, not all tax incentives are affected by the GloBE Rules to the same extent. South Africa has various tax incentives and incentive regimes that may lower the effective tax rate to below 15%. This article considers some of these incentives in the context of the GloBE Rules.

VAT Apportionment: BGR 16 and Distributions from Trusts

by | Jun 16, 2025 | BTCLQ, BTCLQ V16 I2

VAT Apportionment: BGR 16 and Distributions from Trusts

Author: Des Kruger

ISSN: 2219-1585
Affiliations: N/A
Source: Business Tax & Company Law Quarterly, Volume 16 Issue 2, 2025, p. 16 – 24

Abstract

A vendor engaged in making both taxable and non-taxable supplies may only claim input tax relief in respect of all the goods and services acquired by the vendor to the extent that such goods or services are utilised by the vendor to make taxable supplies. To the extent that the relevant goods and services are utilised by the vendor for the dual purpose of making taxable and non-taxable supplies, the vendor is required to apportion the input tax in accordance with the apportionment ratio prescribed by SARS. The apportionment ratio is prescribed by SARS in Binding General Ruling 16 (BGR 16).
Simply put, the ratio is the value taxable supplies divided by the value of all other supplies or non-supplies made by the vendor. The denominator specifically includes interest (exempt), dividends (out of scope) and capital gains derived on the supply of capital assets. BGR 16 provides for certain exclusions (capital gains derived on the supply of capital goods) and so-called adjustments in other cases, including in relation to interest and dividends. While capital gains are excluded entirely, interest must be included as follows, interest received/accrued × (prime rate – JIBAR), and dividends on the following basis, namely 3-year moving average of dividends received/accrued × (prime rate – JIBAR).
The crisp question is: how are distributions derived by a vendor qua beneficiary that comprise interest, dividends and capital gains to be dealt with for the purposes of applying BGR 16?
The premise of this article is that the conduit principal should be applied where income derived is distributed in the same year in which the income is derived by the trust and the receipts should be dealt with for the purposes of BGR 16 as if derived by the vendor qua beneficiary, that is, the receipts retain their characterisation as interest, dividends and capital gains. This is how such distributions are dealt with from an income tax and capital gains tax perspective.
SARS has seemingly adopted a different view and argue that the conduit principal does not apply to VAT and the distributions should fall to be dealt with for the purpose of BGR 16 on the same basis as profit shares derived by members/partners from joint venture or partnership arrangements. A profit share derived form a joint venture/partnership is required to be accounted for in the denominator of the prescribed apportionment ratio on the following basis: 3-year moving average of a profit share received/accrued during the year × (prime – JIBAR).