Donations tax implications of BEE transactions: More than meets the eye?

Apartheid in South Africa left a legacy of inequality in every sphere – political, social and economic. The first democratically elected government in 1994 introduced a Black Economic Empowerment (hereafter BEE) strategy to rectify these inequalities. This strategy was accompanied by a BEE Act and the BEE Codes of Good Practice. South African companies subscribed to the BEE strategy for various reasons. A salient fact in all BEE transactions is a discount element presented to the previously disadvantaged investor. This discount element raises the question of whether donations tax arises on these transactions. At first glance, the answer appears straightforward in that no donations tax should arise as this would hinder government’s policy objective of redressing the inequalities of the past. However, there is more to this issue. The purpose of the study on which this article is based was to analyse the overwhelmingly complex BEE structures that have been implemented and to determine the donations tax implications at the various transactional levels. The contribution of this study is that it revealed that tax commentators have taken a simplistic approach to answering the question and that the donations tax implications on the discount element are contentious and unclear. The authors seek to rectify this uncertainty through legislative amendment.