A taxpayer’s unfortunate experience with SARS

Author: Heinrich Louw. On 21 October 2016 judgment was handed down by the High Court (Gauteng Division, Pretoria) in the matter of BMW South Africa (Pty) Ltd v The Commissioner of the South African Revenue Service (as yet unreported). Briefly, the applicant (Applicant) was a vendor for purposes of Value-added Tax (VAT). The respondent, being the South African Revenue Service (SARS), had made a finding that the Applicant did not pay certain amounts of VAT due in respect of the October 2011 to February 2012 VAT periods.

When is an error a bona fide inadvertent error?

Authors:  Louis Botha, Heinrich Louw and Mark Morgan. On 4 November 2016 judgment was handed down by the Tax Court of South Africa (held in Cape Town) in the matter of ABC Holdings (Pty) Ltd v The Commissioner for the South African Revenue Service, Case number ITI13772. In this case the court had to consider whether the taxpayer, ABC Holdings (Pty) Ltd, was entitled to claim a deductible allowance of enhancement income of R9,354,458.00 received in terms of a contract for future expenditure in terms of s24C of the Income Tax Act, No 58 of 1962 (Act) for its 2011 year of assessment. The other issue that arose in this case and which is the focus of this article, was whether the South African Revenue Service (SARS) was correct to levy an understatement penalty in the circumstances.

Section 73 of the VAT Act: The serious consequences of unlawful tax avoidance

When disputing a tax debt, especially one involving the complex issue of unlawful tax avoidance, taxpayers should always exercise great caution. This sentiment is echoed by the recent judgment in Dale v Aeronastic Properties Ltd (Commissioner for the South African Revenue Service and Others Intervening) (9297/2016) [2016] ZAWCHC 160 (25 October 2016). Although the court in this case was concerned with whether an order to place the respondent taxpayer, Aeronastic Properties Ltd (Aeronastic), under business rescue, its precarious financial situation was caused largely by an expensive tax debt. In the course of its judgment, the court made reference to the taxpayer’s dispute with the South African Revenue Service (SARS), which dispute is the subject of this article.

Sold to the highest bidder…unless you didn’t pay VAT

Before buying anything, a purchaser should always be aware of all its obligations. This is one of the lessons to draw from the decision in Sheriff of the High Court, Piketberg and another v Lourens; In re: Standard Bank of South Africa Ltd v Trustees for the time being of the Eila Trust and others [2016] 4 All SA 239 (WCC). In this case the court had to decide, among other things, whether the sale of a property in execution could be set aside, where the purchaser had not met his obligations in terms of the Value-Added Tax Act, No 89 of 1991 (VAT Act), read with the conditions of sale.

When debt and creativity meet – a recent Tax Court decision

In the current tough economic times, it is common for companies to consider alternative funding arrangements to fund their activities, which minimise their cash flow obligations to third parties in the short term, while also ensuring that they comply with the relevant tax legislation and utilise it to their advantage. One option to consider in this regard, is the creation of a loan account by a debtor in favour of a creditor. In CLDC v The Commissioner for the South African Revenue Service (VAT1247) [2016] ZATC 6 (5 September 2016), handed down by the Tax Court on 5 September 2016, the court had to deal with this issue and specifically the consequences of s22(3) of the Value-Added Tax Act. No 89 of 1991 (VAT Act).

Alas, sometimes you can’t appeal

Author: Louis Botha (Cliffe Dekker). A certain question has been the subject of a number of recent court cases: Is an interim order or a decision which does not dispose finally of a case appealable? The Constitutional Court recently had to answer this question in two separate cases – one involving the changing of street names in Tshwane and the other involving the provisions of the National Credit Act, No 34 of 2005. The issue has now also reared its head within a tax context in the Supreme Court of Appeal (SCA). In Wingate-Pearse v CSARS (830/2015) [2016] ZASCA 109 (1 September 2016), a taxpayer wanted to appeal, among other things, the Tax Court’s decision regarding the onus of proof and the duty to commence leading evidence.

Tax and Exchange Control Alert – 7 October 2016

This week’s selected highlight in the Customs and Excise environment: Judgment was handed down by the Supreme Court of Appeal (SCA) in the matter of CSARS v Van der Merwe NO (598/2015) [2016] ZASCA 138 on 29 September 2016. A brief background of the case is as follows: a party (AA) imported certain goods into a bonded warehouse and as such deferred payment of duty and value-added tax (VAT) until clearance for home consumption. Subsequently, AA was to be wound up, and the liquidators demanded that the goods in the bonded warehouse be delivered to them without payment of duty and VAT in order for the liquidation process to continue (ie sale of the goods, share of the proceeds between the creditors, and so on). The South African Revenue Service (SARS) was of the view that the duty and VAT first had to be paid before delivery of the goods … Continue reading

High Court (Gauteng Division, Pretoria) decision on whether SARS is no longer bound by a compromise agreement in the circumstances under consideration

This case dealt with whether the South African Revenue Service (“SARS”) was no longer bound to a compromise agreement entered into between the taxpayer and SARS in terms of the Tax Administration Act (the “Admin Act”) as a result of alleged non-disclosures and misstatements made by the taxpayer, who expressly warranted the truth of the facts furnished by him. The taxpayer had been assessed to pay income tax, with interest, in the aggregate amount of R18 192 295.36 by May 2014 in respect of the 2005 to 2011 tax years. The taxpayer objected to the assessments and alleged that the amounts in question constituted donations or dividends in respect of which he declared he could not be assessed to tax. The taxpayer addressed four requests for a compromise to SARS. The taxpayer and SARS finally concluded a compromise agreement on 21 May 2014. By 1 December 2014, the taxpayer had … Continue reading

Supreme Court of Appeal decision on whether grapes delivered to a co-operative winery, pressed and pooled, constitute produce held and not disposed of for purposes of the First Schedule to the Income Tax Act

https://www.ensafrica.com/news/Tax-in-Brief?Id=2302&STitle=Tax%20in%20BriefThe taxpayer derived a portion of his taxable income from wine farming. In particular, he received payments from a co-operative winery (the “co-op”) in respect of grapes which he delivered to the co-op for the purpose of being made into wine. The South African Revenue Service (“SARS”) assessed the taxpayer on the basis that the grapes that he had already delivered to the co-op constituted “produce held and not disposed of at the end of the year of assessment” in terms of paragraph 3 of the First Schedule (“First Schedule”) to the Income Tax Act. The Tax Court’s decision was in favour of SARS, whereafter the taxpayer took the matter on appeal to the Supreme Court of Appeal (“SCA”). The issues on appeal to the SCA were as follows: whether the income received by the taxpayer, which is generated by the sale of wine, constitutes income “derived from agricultural or … Continue reading

Cape Town Tax Court judgment on whether a fast food delivery service is liable to account for output VAT on driver’s petrol money

  The taxpayer carried on a fast food delivery business, in terms of which customers wishing to order food from a number of fast food restaurants could place their orders with the taxpayer. The taxpayer would then relay the orders to the relevant restaurants and would arrange for the collection of the food and for its delivery to the customers in exchange for a commission. The actual collection and delivery services were purportedly not performed by the taxpayer or its employees, but by drivers who acted as independent contractors to the taxpayer. The drivers were remunerated by way of a delivery fee, which appeared on the tax invoice presented to the customer as “driver’s petrol money”. In terms of the tax invoices, value-added tax (“VAT”) was charged in respect of the food order, but not in respect of the driver’s petrol money.