South Africa Tax Agency Clarifies Interest Deductibility on Loans to Redeem Preference Shares, Settle Dividends

The South African Revenue Service Feb. 6 issued Binding Private Ruling No. BPR 424, clarifying the deductibility of interest on loans used to redeem preference shares and settle dividends. The taxpayer, a resident company, obtained a project financing in the form of an initial loan, and the bank’s subscription to redeemable preference shares in the taxpayer. The initial loan and any preference share dividends would be replaced by a new loan agreed to upon the inception of the financing. The taxpayer inquired as to deductibility of interest. Upon review, the Tax Agency clarified that the taxpayer could deduct interest under ...