SOUTH AFRICA Law and Practice Contributed by: Ulrike Naumann, Alison Mellon, Joshua Janks and Aneria Bouwer, Bowmans
A controlling relationship will exist where a per- son (whether alone or together with any con- nected persons) directly or indirectly holds at least 50% of the equity shares or can exercise at least 50% of the voting rights or participation rights in a company. In summary, the interest deduction allowed under this provision will be calculated as inter- est received by the debtor plus an amount cal- culated with reference to a formula, amounting to approximately 30% of EBITDA, less taxable interest incurred by the debtor in respect of other parties as exceeds any amount not allowed to be deducted in terms of Section 23N below. Sec- tion 23M has in recent years been amended on a regular basis to curb perceived abuse. South Africa also has provisions that limit inter- est deductions on debt used to finance, or refi- nance certain reorganisation and acquisition transactions (Section 23N of the ITA). Section 23N will be amended with effect from years of assessment commencing on or after 1 Janu- ary 2027, to ensure that Section 23N is closer aligned to Section 23M. Companies must first apply the arm’s length test to financial transactions, followed by the inter- est limitation rules under Section 23N (if appli- cable) and finally Section 23M – ie, the interest limitation rules should apply to the net inter- est expense that has already passed the arm’s length test. 9. Takeover Finance 9.1 Regulated Targets In terms of the Companies Act, 2008, a regu- lated target includes:
• a public company; • a state-owned company; or
• a private company to which the Fundamental Transactions and Takeover Regulations (the “Takeover Regulations” ) apply – each incorpo- rated in South Africa. The Takeover Regulations apply to a private company only if such company’s memoran- dum of incorporation (MoI) expressly specifies this, or if more than 10% of the issued shares of the company have been transferred within 24 months prior to the relevant affected transaction. The Companies Act has been amended by the Companies Amendment Acts 16 and 17 of 2024 (although these changes are not yet effective), in terms of which the Takeover Regulations apply if a private company: • has ten or more shareholders with a direct or indirect shareholding in the company; and • meets or exceeds the relevant financial threshold of annual turnover or asset value to be determined by the Minister of Trade, Industry and Competition. If the applicable requirements are met, the Take- over Regulations apply to a private company in the same manner as for public or state-owned companies (as set out below in 9.2 Listed Tar- gets ). The Takeover Regulation Panel (TRP) regularly exempts private regulated companies from needing to comply with the Takeover Regula- tions where the transacting parties consent to this. 9.2 Listed Targets The TRP regulates affected transactions and offers in terms of the Companies Act, 2008 and
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