Debt forgone for the benefit of mining companies
The recoupments provision that is triggered by the application of the debt waiver provisions (section 8(4)(a) of the Act) has an explicit exclusion for amounts “allowed to be deducted or set off under section 15(a)”. Therefore, any recoupment in terms of the debt waiver provisions does not include any unredeemed capex deductible under section 15(a) read with section 36 of the Act.
National Treasury has therefore seen a need to provide a regime for mining companies to achieve parity with other companies subject to the debt waiver provisions. The new subsection 36(7EA) of the Act is now the mining companies’ parallel provision to section 19 of the Act and paragraph 12A of the Eighth Schedule to the Act. The result is that a mining company will have to reduce its unredeemed capex balance where there is a concession or compromise due to any debt forgone or waived (ie, full consideration not received for the debt so reduced). Where the debt benefit exceeds the unredeemed capex balance to be reduced, the balance of the reduction amount will have to be included in that mining company’s gross income in terms of par (j) of the gross income definition.
Any debt waiver by a mining company may trigger these provisions. In addition, and as dealt with in a previous article, in terms of the new definition of “concession or compromise” in section 19 of the Act, changes to any terms or conditions applying to existing loan agreements would give rise to a “debt benefit” where the face value of the debt exceeds the market value thereof as a result of the change. The change to the term or condition need not result in a new debt or novation of the existing debt (as per the “or” in the definition of “concession or compromise” between (a)(i) and (a)(ii)) so it can be any change that will result in a change in the market value of the loan. This may have far-reaching consequences for changes to loan agreements that are normal in the course of business, for example:
The relevant exclusions as contained in paragraph 12A(6) of the Eighth Schedule to the Act, most notably the intra-group exclusion (where debt is waived between group companies and those companies do not de-group within five years from the debt waiver), have however also been made available for mining companies. Subsection 36(7EA) of the Act expressly provides that it is “subject to paragraph 12A(6)(a) to (d) and (f) of the Eighth Schedule”
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