To view the PDF file, sign up for a MySharenet subscription.

MSM - Massmart - Shareholders` Potential Capital gains Tax Considerations

Release Date: 20/06/2011 14:46
Code(s): MSM
Wrap Text

MSM - Massmart - Shareholders` Potential Capital gains Tax Considerations arising from the Walmart Transaction Massmart Holdings Limited (Incorporated in the Republic of South Africa) Registration number 1940/014066/06 Share code: MSM ISIN: ZAE000152617 ("Massmart" or the "Company") SHAREHOLDERS` POTENTIAL CAPITAL GAINS TAX CONSIDERATIONS ARISING FROM THE WALMART TRANSACTION 1. INTRODUCTION Further to the recent announcements pertaining to the finalisation of the acquisition of a controlling interest in Massmart by a wholly-owned subsidiary of Wal-Mart Stores, Inc ("Walmart") by way of a scheme of arrangement in terms of section 311 of the Companies Act (Act 61 of 1973) ("the Scheme"), Massmart would like to bring certain South African capital gains tax considerations to the attention of Massmart shareholders that are required to dispose of a portion of their ordinary shareholding in Massmart pursuant to the Scheme. As previously announced, payment of the cash consideration in respect of the Scheme was made today, 20 June 2011. This notice relates specifically to Massmart ordinary shareholders with direct holdings in Massmart on 10 June 2011, the day after the last day to participate in the Scheme, and should not be construed as applying to any of the excluded shareholders, including the participants in any of the Company`s employee share schemes. This notice should not be taken as constituting definitive South African tax advice, and Massmart shareholders that believe that these issues may affect them are strongly urged to take appropriate professional advice. Massmart shareholders in other tax jurisdictions should also seek their own tax advice. 2. DEEMED CAPITAL NATURE In terms of section 9C of the Income Tax Act, (Act 58 of 1962) (the "Act"), the scope of existing safe-haven provisions (which deem certain gains to be capital rather than revenue in nature) has been favourably widened. In particular, the disposal of so-called qualifying shares that have been held for a continuous period of three years will automatically be deemed to have been held on capital account. The concept of qualifying shares includes the holding of ordinary shares in a listed company. Should the Massmart ordinary shares sold as a consequence of the Scheme have been held for a period of at least three years, the proceeds from the disposal thereof will automatically be deemed to be on capital account. 3. ROLL-OVER RELIEF In terms of paragraph 42A of the Eighth Schedule to the Act, capital gains tax ("CGT") roll-over relief is available to taxpayers which are required to sell their shares in terms of a scheme of arrangement, provided that they replace those shares sold with newly purchased Massmart shares within 90 days of the disposal. In terms of this roll-over relief, the capital gain is not taxed immediately to the extent that the proceeds of the sale are applied to replace the existing Massmart ordinary shares. The cost of the new shares is instead reduced by the immediate gain, thus ensuring that the gain is effectively subject to CGT only once the new shares are disposed of. Since the Scheme by which Walmart acquired 51% of the shares held by each Massmart shareholder is governed by section 311 of the Companies Act, (Act 61 of 1973), shareholders are entitled to replace their shares disposed of in terms of the Scheme with newly-purchased Massmart shares and then to claim this roll-over relief. Where the capital gain that would have arisen but for the roll-over relief exceeds the price at which the replacement shares are acquired, the replacement shares will be deemed to have been acquired at no cost. However, the excess (the difference between the capital gain that would have arisen but for the roll-over relief, and the purchase price) will remain taxable in the current tax year. Note that this roll-over relief does not apply if the South African Massmart shareholder is subject to Income Tax rather than CGT. Johannesburg 20 June 2011 Sponsor to Massmart: Deutsche Securities (SA) (Proprietary) Limited Date: 20/06/2011 14:46:00 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

Share This Story