Tax changes could derail Palabora's BEE deal

The proposed tax amendment bill will derail Palabora Mining Company's black economic empowerment transaction if promulgated, the copper miner said on Monday.

Palabora Mining (Palamin) signed the black economic empowerment BEE transaction on June 15 last year, which would see the company dispose of the bulk of its business operations and assets to subsidiary Palabora Copper, in which the BEE partners would hold 26% and Palamin 74% of the issued share capital of Palabora Copper.

Palamin said this sale was structured to be tax neutral for both Palamin and Palabora Copper in terms of section 45 of the Income Tax Act. This section provides tax rollover relief for an intra-group transaction of this nature.

Palamin said the BEE transaction had not yet been implemented as Palamin had still not received the required regulatory approval from the Department of Mineral Resources for the conversion of old order mining rights to new order mining rights, and transfer of the relevant mineral rights to Palabora Copper.

The Draft Taxation Laws Amendment Bill, 2011 proposes to suspend the operation of section 45 of the Income Tax Act for 18 months from July 3 this year to January 1 2013. Palamin said the draft amendment would apply to the BEE transaction, as the transaction would likely be implemented during the period of the suspension.

Palamin added if the draft amendment were to become law, and the BEE transaction was to be implemented as presently formulated, Palamin would incur an immediate material tax charge. Palamin said this would not be commercially tenable.

Palamin said it would actively make representations to government to withdraw the draft amendment, or amend it so as not to apply to the BEE transaction.

The company added it would be making submissions to the parliamentary standing committee on finance on June 21, and would also be making written submissions to the National Treasury before July 5 in accordance with the public objection process established for the draft legislation.

"If the outcome of the legislative objection process and engagement with government is not favourable, it is presently Palamin's intention not to proceed with the BEE transaction in its current form," the company said.