Spur could challenge SCA’s findings on its tax disclosures

THE Spur Group has been found by the Supreme Court of Appeal (SCA) to have made a “deliberate misrepresentation” to the SA Revenue Service (Sars) over a

R48 million payment it made into an employee trust and claimed as a tax deduction against its income.

The franchise restaurant chain confirmed they could take the matter to the Constitutional Court, after after last week's SCA judgment.

The SCA upheld an appeal by Sars that showed a “sufficiently close causal link that existed between the Spur Group's expenditure of a contribution of R48m so as to qualify for a deduction” under the Income Tax Act (ITA) in respect of the eatery group's 2005 to 2012 years of assessment.

In November 2019, the Western Cape High Court, hearing an appeal against a decision of the Tax Court, held that the R48m contribution to the trust was an expense "in the production of income", and was thus deductible.

However, the SCA found that the group had not made truthful disclosures in its returns for the 2005 to 2009 years of assessment, and as a result Sars was not alerted to the existence of the R48m contribution.

This persisted until the true position was picked up during an audit, which was only in respect of the 2011 tax year, which then resulted in the additional assessments. The SCA held that the misrepresentations and nondisclosures by the group caused Sars not to assess the restaurant group correctly within the three-year period after the original assessments.

Spur Group spokesperson Moshe Apleni said: “Spur Corporation has been involved in a legal matter with Sars since 2014. This has been disclosed to stakeholders several times over the last six years. As previously disclosed, the assessed tax liability was already settled and paid by the group, in the 2015 and 2016 financial years, to Sars while the group pursued the matter legally.

“The group values its reputation highly and sees compliance with laws and regulations as nonnegotiables. Since discovery of the administrative errors there have been changes in our tax administration team as we improved our control environment, with two senior financial staff members with significant experience and training in taxation matters, now directly responsible for the timely completion and submission of all returns.

"As this judgment was only issued on the afternoon of October 15, 2021, the group will consider its rights in consultation with our legal counsel and determine the appropriate next steps, which could include a Constitutional Court approach,” said Apleni.

Giving the verdict, Judge Boissie Mbha said: “Spur's assertion that the wrong entries in the tax returns were negligent and inadvertent is patently false. Central to this entire dispute is the contribution of R48m that Spur made to the trust in 2005. The answer ‘no' to the question whether any contribution was made to a trust or whether the company was party to the formation of a trust, is, in my view, plainly false and a misrepresentation. It … boggles the mind that Spur answered ‘no' to the relevant question for each and every subsequent year from 2005 to 2009.

“Moreover, Spur's failure to include the said amounts in a separate line item which specifically required a disclosure of deductions limited by (section) 23H, and their inclusion in a general line item, amounts in my view, to a deliberate misrepresentation and a non-disclosure of material facts. It simply could not, by any stretch of imagination, be ascribed to any inadvertent error,” said Judge Mbha.

Spur was also ordered to pay costs of the appeal. Enquiries to Sars were not answered by deadline.