| Mon 20 Jun 2011, 14:46 | | MSM - Massmart - Shareholders` Potential Capital gains Tax Considerations |
|
MSM
MSM
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 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.
