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FIFI PETERS: Tax is a complicated business, particularly business attacks in that regard. So complicated it could land you in a dispute with the revenue service of your particular country, as a result of seeing things differently from what the revenue service says or believes is law.
Such a company today [is] Coronation [Fund Managers], whose shares lost more than 11% after the Supreme Court of Appeal sided with the South African Revenue Service in terms of the tax treatment of Coronation’s business over in Ireland.
For more on this and what it means for other companies potentially, Pieter Janse van Rensburg, who’s a director at AJM Tax, joins the Market Update. Peter, thanks so much for your time. I know the story is fairly fresh in terms of the outcome from the Supreme Court of Appeal that Coronation reported on today. [Give us] your take on this and whether you understand Coronation’s side of the story in terms of how it treated its tax matters in Ireland, and whether you understand why the South African Revenue Service wasn’t happy about Coronation’s treatment.
PIETER JANSE VAN RENSBURG: Good evening. Yes, you mentioned in the introduction that business tax matters do become quite complex, and the matter that Coronation disputed with Sars is arguably one of the most complex pieces of legislation in our act. It’s Section 9D of the Income Tax Act which deals with controlled foreign companies.
Now, what this piece of legislation does is that it tries to impute into South Africa the income of group companies located in foreign jurisdictions. So it’s an effectively an anti-avoidance provision that prevents South African tax residents from shifting income to lower tax jurisdictions, by simply investing through a company and then carrying on operations in that company.
Now, it’s quite right that this model, and what constituted Coronation’s primary operations in Ireland, was the point of contention. It’s quite interesting that you also mentioned disputes in your introduction, and I think this is one of the examples of really responsible tax litigation in our country.
So, having read the judgment that came out yesterday morning, I haven’t noticed any accusations or anything untoward, and it’s simply a matter of interpretation of extremely complex tax laws. This is really supported by the fact that the Supreme Court of Appeal waived the understatement penalties that were imposed by Sars. So it’s really to Coronation’s benefit.
This is just a matter of interpretation of factual circumstances, rather than there being anything untoward in their operations.
FIFI PETERS: They have said that if they do go ahead and pay what Sars believes is owed to them, the amount would be significant – so significant that they would not be able to pay their shareholders an interim dividend this time around.
But they also say that they’re considering the latest ruling on this matter, and they could take it the Constitutional Court route. Just your take on whether Coronation should do so at a stage?
PIETER JANSE VAN RENSBURG: Fifi, I mentioned ‘responsible tax litigation’ in my previous comment, and my view on the fact is that if Coronation is firmly of the view that their factual circumstances support their interpretation, they would be responsible to either request permission from the Supreme Court of Appeal to appeal the matter to the Constitutional Court, or of course then [choose] direct access to the Constitutional Court.
Having read the judgment, it becomes a very, very technical matter based on factual questions regarding licences issued for various financial products, whether Coronation conducted the operations of an investment manager, a fund manager, and the outsourcing of their operations to various other international companies.
So the tax questions around this I think are really common cause, and Sars and Coronation are actually ad idem (in agreement) on what the appropriate tax treatments might be. It’s just how the factual circumstances should be read into that tax framework.
Now these matters, scanning through the judgment, are extremely complex and I think that persons that do not have an intimate knowledge of financial products, how licences are issued by regulating authorities both in South Africa and foreign jurisdictions, are not best placed to really comment on what the success for Coronation would be in the Constitutional Court.
But yes, quite rightly, the amounts are staggering. Remember it’s a 2012 assessment, so it’s 13 years hence on the matter. And of course interest keeps on accruing on that amount. So the figures must be absolutely staggering, and I really do believe that the matter might warrant a further appeal to the Constitutional Court.
FIFI PETERS: We will certainly have to wait and see the next move that Coronation makes on this.
But Pieter, thanks so much for simplifying what is a complex tax matter to us. Pieter Janse can Rensburg is a director at AJM Tax.
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