In its first and much anticipated judgement in relation to the interpretation of section 8A of the Income Tax Act, and to Deferred Delivery Share Schemes, a full bench of the Supreme Court of Appeal unanimously upheld the taxpayers’ contentions as to the tax effects of a so-called Deferred Delivery Share Scheme. In this test case, the Court rejected the main contentions by the South African Revenue Service (“SARS”), that the share scheme was subject to various conditions, or alternatively that it was a simulation. The taxpayers’ argument that the exercise of an option agreement constituted the sole point at which tax could be levied in terms of the then applicable tax law, was upheld. This confirms the interpretation which had been accorded to section 8A of the Income Tax Act by many tax practitioners over the years as well as (until recently) SARS itself.
Category: Court Cases
Keeping the lid on Pandora's box
Author: Lisa Brunton (Cliffe Dekker Hofmeyr) Analysis of the recent Kluh Investments (Pty) Ltd v Commissioner for the South African Revenue Service case. If only all judgments were formulated with the elegant reasoning and perspicacity of the judgment delivered by Rogers J in the Western Cape Division of the High Court in Kluh Investments (Pty) Ltd v Commissioner for the South African Revenue Service (case number A48/2014, as yet unreported) on 9 September 2014.
The assumption of rehabilitation liabilities as consideration given on the acquisition of mining property and capital assets
Author: Andre Vermeulen – Tax Associate – ENSafrica During December 2013, SARS released a draft discussion paper in which it set out its application of the relevant tax law, in relation to the tax treatment of the purchaser and seller, with regard to the assumption of contingent liabilities as part settlement of the purchase price of assets acquired as part of a going concern. SARS states that the document was prepared in light of recent judgments delivered by local and foreign courts as well as numerous requests for clarity regarding the income tax treatment, of both the seller and the purchaser, in respect of the assumption of contingent liabilities as part settlement of the purchase price of assets disposed of and acquired.
SARS must choose its remedies
The decision of Rogers J, in Commissioner for the South African Revenue Service v Tradex (Pty) Ltd and others (9 September 2014, case no 12949/2013, as yet unreported) has raised a number of issues pertaining to the circumstances under which the South African Revenue Service (SARS) is entitled to obtain a preservation order against a taxpayer in terms of s163 of the Tax Administration Act, No 28 of 2011 (TAA). Ultimately it was found that SARS was not entitled to a preservation order as it was not ‘required’ to secure the collection of the taxes that could have become due in that instance.
Tax Administration – SARS's power to recover tax
The Tax Administration Act No. 28 of 2011 (TAA) came into effect on 1 October 2012 (save for certain provisions that are still to come into force). This important piece of legislation seeks to incorporate into one Act all those administrative provisions (except for customs and excise) that are generic to all tax Acts and that were previously duplicated across all the different tax Acts. Significantly, the TAA provides the South African Revenue Service (SARS) with substantial powers in relation to important administrative aspects of tax, such as the collection of information and the imposition and recovery of tax.
Tax Administration – Reasonable care required for SARS to waive tax penalties
Judgment was handed down in the case of Harding v Revenue and Customs Commissioners [2013] UKUT 575 (TCC) in the Upper Tribunal (Tax and Chancery Chamber) on 15 November 2013. The case revolved around the question of whether an omission by a taxpayer of a severance payment in his tax return amounted to a ‘careless mistake’ in terms of the United Kingdom Finance Act, 2007 (UK Finance Act). Background The Appellant held a senior position in a company forming part of a leading accounting practice. He entered into a compromise agreement with his employer whereby his contract of employment was terminated and he received approximately £110,000.00 in severance payments (payment).
Tax deductions of Audit Fees
On 7th March 2014 the Supreme Court of Appeal delivered judgment in the case of Commissioner for the South African Revenue Service v Mobile Telephone Networks Holdings (Pty) Ltd, [2014] 76 SATC 205 which dealt with the deductibility of audit fees incurred for a dual or mixed purpose and the apportionment thereof for tax purposes in the light of section 11(a) of the Income Tax Act No. 58 of 1962 (the Act ), as amended read with sections 23(f) and 23(g) of the Act.
Shuttleworth could have 'shuttled' his monies out of South Africa without the payment of a levy
Author: Gigi Nyanin (Cliffe Dekker Hofmeyr) In a far reaching judgment the Supreme Court of Appeal (SCA) held on 01 October 2014 that Mark Shuttleworth could have repatriated his funds out of South Africa without the imposition of a 10% exit levy that was imposed by the South African Reserve Bank (SARB) at that stage. In particular, it was indicated that the SARB had to repay such levy together with interest at the prescribed rate from 13 April 2012 to the date of payment.
Coltrade International CC v CSARS WCHC 45213/2013 (9 Sep 14)
Author: Pieter Faber (SAIT Technical Executive: Tax Law & Policy) Introduction This case is an appeal to the Gauteng division of the High Court in Pretoria by the taxpayer, Coltrade International CC (‘Coltrade’), against a tariff determination made by SARS, in terms of section 47(9)(a) of the Customs and Excise Act (No. 91 of 1964) (‘Customs Act’), that the coconut milk, coconut cream and coconut powder imported by Coltrade was incorrectly classified. The parties have agreed that the dispute would apply to all three the products and if the taxpayer was not successful on appeal, SARS’ tariff determination would apply to all the goods in dispute. The court therefore had to determine which tariff heading would apply to the goods.
Salary Sacrifices – tax case IT 12984
In the recent case of ABC Limited v The Commissioner for the South African Revenue Service (case number 12984, as yet unreported), the Tax Court had to determine whether the Appellant had entered into an effective salary sacrifice scheme with its employees in respect of motor vehicle benefits. If there truly was a salary sacrifice, only the taxable value of such benefit in accordance with the provisions of the Seventh Schedule to the Income Tax Act, No 58 of 1962 (Act) will have accrued to the employee, otherwise the amount expended by the Appellant to provide the benefit will have accrued.