Delta Beverages Ltd, a subsidiary of Delta Corporation, had been issued a tax assessment for FY 2009, 2010, 2011, 2012, 2013 and 2014 where various fees for service, technology license of trademarks, technology and know-how paid to a group company in the Netherlands (SAB Miller Management BV) had been disallowed by the tax authorities (Zimra) of Zimbabwe resulting in additional taxes of US$42 million which was later reduced to US$30 million. An appeal was filed with the Special Court (for Income Tax Appeals) where, in a judgment dated 11 October 2019, parts of the assessment was set aside. Not satisfied with the result, an appeal (Delta Beverages) and cross-appeal (tax authorities) was filed with the Supreme Court. Judgement of the Supreme Court. The Supreme Court set aside the judgement of the Special Court (for Income Tax Appeals) and remanded the case for reconsiderations in relation to the issue of tax avoidance. Excerpts from the Supreme Court judgement regarding deductions for royalties paid for trademarks: “I respectfully agree with the reasoning of the court a quo. A product’s standing and marketability is enhanced by its trademark which has acquired a reputation and become desirable on the market. The trademarks in issue are of international repute. They in my view add value to the main appellant’s beverages and make it possible for the appellant to make an income from the trademarked products. It is apparent from the various agreements entered into between the franchisors and the holding company that what was being sought was to benefit from the reputation of the international brands and trademarks.” “In respect of the royalties the issue is whether or not the main appellant was a party to the agreements on the royalties, which were to be paid for or had ratified the agreements entitling it to claim its payments for them as deductions in its tax returns. A reading of the record establishes that the agreements in terms of which royalties were payable were entered into by Delta Corporation or its predecessors in title and there is no specific mention of the appellant. There is however mention of Delta Corporation’s subsidiaries. It is common cause that the main appellant is a subsidiary of Delta Corporation (Private) Limited.” “In any event, evidence on record establishes that the cross appellant’s main challenge cannot prevail because the Exchange Control Authority granted authority for the payment of those royalties. The record proves that on 19 August 2011, the exchange control authority granted authority to the holding company to pay royalties of up to 5 percent to the Dutch Company less withholding tax.” “Once it is established that the main appellant is the one which operated the beverages business and benefited from the contract between the Dutch company and the holding company, it follows that it lawfully deducted the royalties it paid to the Dutch company.” Excerpts from the Supreme Court judgement regarding deductions for technical services (calculated based on turnover) – tax avoidance: In determining this issue the court [Special Court (for Income Tax Appeals)] a quo commented on its perception that there might have been tax avoidance in the manner in which the technical services agreement was concluded between the parties. It commented that if the Commissioner had attacked the deduction of these services from the main appellant’s taxable income it would have been fatal to the main appellant’s claim. “The witness failed to explain why the Dutch company paid the South African entity that supplied the technical services to the appellant on its behalf on a cost plus mark-up basis but charged the local holding company on a percentage of turnover basis. Such a failure may have been fatal to the appellant’s case had the Commissioner disallowed the technical fees in terms of s 98 the Income Tax Act.” “It is apparent from the court a quo’s comments that it perceived that there might have been a case of tax avoidance by the main appellant’s holding company and the Dutch company. It is also apparent that it took no further steps to inquire into that possibility but proceeded to determine the appeal on other factors not connected to tax avoidance as if the appeal before it was an appeal in the strict sense. It thus left the issue of tax avoidance hanging as no further inquiry into it was made, nor did it make a decision on the issue.” “It is clear from the underlined part of the quotation that the issue of avoidance should be determined to enable the Commissioner or as in this case the Special Court to determine how the tax payer should be taxed. The determination of tax issues require clarity and incisiveness in decision making. This is because the law requires that those who should pay tax should do so and those who fall outside that requirement should not be taxed. There should be no room for those within the group which should be taxed escaping through failure by the Commissioner to net them in and if he fails the Special Court in the exercise of its full jurisdiction should net them in. … It is therefore my view that once the court a quo realised that there might be tax avoidance it should have exhaustively inquired into and made a determination on it. It should have sought to determine the correct position of the law instead of identifying a possible error by the Commissioner and allowing it to pass. Taxation is by the law and not official errors or laxity. …where a tax matter has been placed before the Special Court for adjudication a taxpayer should not escape liability simply because the Commissioner failed to invoke the appropriate taxing provision. In casu the omission by the court a quo to determine the issue of tax avoidance will have the effect of allowing the main appellant to get away with tax avoidance, if that can be proved on inquiry. That view is strengthened by the court a quo’s view that the failure by ...

The issue before the Supreme Court of Appeal was whether a tax assessment issued by the Commissioner for the South African Revenue Service (SARS), in terms of the Income Tax Act 58 of 1962, for the year 2006 were to be set aside. MTN International Ltd had claimed interest deductions on loans it had incurred as expenditure against its gross income for the year of assessment. On 31 March 2011, which was the last day before the original assessment by SARS was due to prescribe, SARS issued a revised assessment, disallowing deduction of the interest expenditure. The tax assessment resulted in an income tax liability of R 73.476.101 of MTN International Ltd. When issuing the tax assessment the officer at SARS manually fixed the ‘due date’ as 30 March 2011, being one day prior to the day on which the assessment was actually issued. MTN International Ltd applied the High Court to have the tax assessment set aside, on the basis that the ‘manipulation of dates’ was irregular and unlawful. SARS, however, contended that the ‘backdating’ was of no consequence and thus did not affect the validity of the assessment. The High Court held that the tax assessment should not be set aside, but granted leave to MTN International Ltd to appeal the decision to the Supreme Court. The Supreme Court of Appeal noted that it is not a requirement that an assessment must be dated. Consequently, the failure to specify a ‘due date’ did not have the effect of invalidating the assessment. Likewise, inadvertently fixing an incorrect date – for example, by way of a clerical error – does not affect the validity of the assessment. Accordingly, the fact that a ‘due date’ may have been incorrectly fixed was not a ground for the setting aside the tax assessment. The appeal was dismissed with costs ...

According to the tax authorities, the prices agreed between the P.S. and her husband, as lessors, and Long Wave, s.r.o. (‘Long Wave’), as lessee, differed from the prices which would have been agreed between independent persons in normal commercial relations under the same or similar conditions. According to the tax authorities, P.S., together with her husband and Long Wave, are persons who have created a legal relationship mainly for the purpose of reducing the tax base. According to the appellant, P.S, the conditions laid down in the judgment of the Supreme Administrative Court of 31 March 2009, No 8 Afs 80/2007-105, were not met and the tax administrator’s procedure for determining the normal price was seriously flawed. Judgement of the Court The Supreme Administrative Court concluded that the appeal as a whole was unfounded and therefore dismissed it Excerpt “In the present case, the complainant was informed of the difference in the agreed prices and at the same time asked to explain or provide reliable evidence of the difference (notice of 27 February 2009, No 21645/09/228933601143). It responded to the tax authority’s doubts about the low rental price by submitting the above-mentioned medical report or by offering the testimony of the above-mentioned persons. However, these means of evidence do not prove the difference in prices (see above for their assessment) and the complainant did not offer any other relevant evidence in the evidentiary proceedings. The Supreme Administrative Court therefore concludes at this point that the complainant has failed to demonstrate to its satisfaction the reasonableness of the price difference established by the tax authorities. Lastly, the complaint that the complainant was deprived of its procedural rights in the hearing of the results of the tax audit pursuant to Section 16(8) of the Tax Administration Act must also be regarded as unfounded. As stated in the judgment of the Regional Court, it does not appear from the minutes of the oral hearing of 7 September 2010 that the tax administrator did not respond to the complainant’s objections and questions, or that he did not explain to her the reasons why he proceeded to apply Section 23(7) of the Income Tax Act. The Supreme Administrative Court agrees with that view and adds that the tax administrator dealt with the complainant’s objections in detail and recorded the individual statements and objections. It also communicated its views on them, as well as on the newly raised views, to the complainant. The mere fact that the complainant did not agree with the conclusions communicated to her cannot constitute a prejudice to her rights; nor can the infringement of the relevant provisions of the Tax Administration Act or the illegality of the tax administrator’s decision, alleged by the complainant, be inferred from that procedure for the termination of the tax audit. The Supreme Administrative Court did not find any fundamental errors in the procedure of the tax administrator or the Tax Directorate. The administrative authorities correctly applied Section 23(7)(b)(5) of the Income Tax Act to the sufficiently established facts, since it was established in the tax proceedings that the complainant was otherwise a person connected with the person to whom she provided the supply in the form of a lease, i.e. in an attempt, mainly for the purpose of reducing the tax base, she undervalued the supplies received in agreement with her business partner by negotiating rental prices outside the range of normal prices. Similar conclusions apply to that part of the 2006 tax year in which the complainant was to be regarded as a person linked by capital to Long Wave within the meaning of Article 23(7)(a)(2) of the Income Tax Act.” Click here for English Translation Click here for other translation ...