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.

High Court (Eastern Cape Division, Port Elizabeth) decision on SARS’ information gathering powers in terms of section 46 of the Tax Administration Act

  In this case, the taxpayer refused to submit a so-called lifestyle questionnaire (“questionnaire”) to the South African Revenue Service (“SARS”), which was served to him in terms of section 46(1) of the Tax Administration Act (the “Admin Act”). The information sought in terms of the questionnaire related to the taxpayer and his spouse’s personal particulars and circumstances, personal and private investments and assets, properties owned by them, income received during the period under review and expenses. After receiving the questionnaire, the taxpayer sought to make his compliance with the information request conditional upon SARS furnishing him with certain information, including the following: in terms of which sections of which law the taxpayer was obliged to submit the relevant material; if this is for the administration of any tax law, the relevant subsection of that definition in section 3(2) of the Admin Act must be quoted, and supported by the … Continue reading

In vino veritas: an important case for the wine farming industry

The South African wine industry is internationally renowned for the quality of wine it produces. From a tax perspective, a specific tax dispensation applies to income derived by a person from “pastoral, agricultural or other farming operations” as contemplated in s26(1) of the Income Tax Act, No 58 of 1962 (Act). To the extent that a person’s taxable income is derived from such operations, the First Schedule to the Act will apply. We previously discussed s26(1) and the First Schedule in our Alert of 8 April 2016: The Kluh-ed up taxpayer wins – a decision on s26 of the Income Tax Act.

Value Added Tax on private equity transactions

Author: Seelan Moonsamy (Tax Manager at ENSafrica). The judgment of the Supreme Court of Appeal (“SCA”), which established certain guidelines and principles regarding the claiming of input tax for value added tax (“VAT”) purposes in the Commissioner for South African Revenue Services v De Beers Consolidated Mines Ltd (503/11) (1 June 2012) case may have far-reaching consequences for the private equity and venture capital industry.

Criticism on SARS’s approach to the interpretation of legislation

Author: Mareli Treurnicht (Senior Associate at Cliffe Dekker Hofmeyr). On 29 April 2016 the High Court of South Africa (Gauteng Division, Pretoria) handed down judgment in an application brought by Julius Malema (Applicant) against the Commissioner for the South African Revenue Service (SARS). The matter concerned a compromise agreement concluded between them in terms of s205 of the Tax Administration Act, No 28 of 2011 (TAA).