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Finance Minister Pravin Gordhan

The Draft Taxation Laws Amendment Bills released on 2 June contained the 18-month suspension of section 45, which led to an outcry from tax professionals, private equity companies, BEE advisers and others as it was expected to scupper many planned company asset transfers, acquisitions and restructurings.

Amid the calls that this suspension could sound the death knell for BEE deals and stymie acquisitions, with one deal already scuppered in the wake of the suspension, Gordhan and his team undertook 30 consultations relating to more than 50 transactions with interested parties since June.

But Gordhan said on Wednesday: “The period of consultation re-affirmed our decision to put controls on excessive debt.”

The purpose of the suspension, according to Treasury, was to temporarily close section 45 as a tax-free mechanism that allows interest deductions linked to excessive debt.

"It is regrettable that at a time when there are such uncertainties in the global economy, that we still have people in South Africa who want to rape the fiscus improperly and immorally as well," Gordhan said.

Various countries introduced measures to control interest deductions from excessive debt, the Treasury said.

Minister Gordhan said it was not Treasury's intention to "interfere" with tax provisions but to ensure that the fiscus did not lose money unnecessarily.

The new set of amendments would be deliberated upon in parliament soon, Gordhan said.

Given the additional facts provided, a solution is now being proposed for the short term.

Treasury and the SA Revenue Services (SARS) said in a joint press release this revised short-term solution should better accommodate the pressing needs of the business community while simultaneously providing effective interim protection for fiscus.

“Commercially orientated transactions must be allowed to proceed as long as such transactions do not contain unacceptable tax leakage. It should be noted that our goal was never to impede commercially-drive transactions of this nature, but merely to prevent certain taxpayers and their advisors from exploiting weaknesses in the tax system.”

It is proposed that a section be introduced to control the interest deductions associated with debt used to fund the acquisition of assets in section 44, 45 or 47 transactions. Transactions will follow different channels. Interest deductions arising from transactions in the green channel will be automatically permissible. Interest deductions on associated debt for amber transactions will only be permitted upon pre-approval. Transactions that are not approved will not be permitted an interest deduction. This approach is guided by the need to reduce administrative burdens for most legitimate transactions. In the light of this approach the suspension of section 45 will no longer be necessary.

A longer-term set of solutions to deal with excessive debt and the characterisation of debt are still planned for 2012 and beyond.

SARS said it would continue to investigate a number of pre-existing aggressive transactions that deliberately avoided paying their fair share of the tax burden.