Sars wins court case
JUDGE: RULES AGAINST TAXPAYER WHO FAILED TO DISCLOSE CAPITAL GAIN
Businessman did not notify revenue service that he had sold 1 000 shares.
Atax court judgment concerning a wealthy businessman who had repatriated to South Africa and failed to disclose he had made a capital gain in his 2009 tax return was handed down electronically on 23 April.
By 2003 the businessman’s net worth exceeded R119 million. It is to be noted he earned income and accumulated this wealth while he was not resident in SA.
In 2003 he applied for amnesty under the Exchange Control Amnesty and Amendment of Taxation Laws Act, and began the process of repatriating his wealth and assets to SA.
The taxpayer disclosed to the SA Revenue Service (Sars) that he held an 82% shareholding in BCD Corporation, an offshore company registered and incorporated in the British Virgin Islands.
Sars accepted a valuation of $11.9 million (about R95 million) for BCD Corporation.
Additional assessment by Sars
The taxpayer had also owned 53.1% in a local company BCD SA, and sold all 1 000 BCD SA shares to the Sail Group on 29 January, 2009. He did not disclose this in his 2009 tax return.
In terms of the sale agreement,
the aggregate purchase price “due and payable to” the taxpayer for the sale of his shares was R66 364 587. Sars found that during the 2009 tax year the taxpayer had disposed of his shares in BCD SA, and raised an additional tax assessment for the capital gain, including penalties and interest.
He argued that the so-called “warranty claims” had reduced the share price.
However, the court concluded that all the suspensive conditions had been fulfilled when the taxpayer had been paid the first amount, and that there was no evidence to show the sales price had been reduced.
The court found that the amount of R66 364 587 had “accrued” to the taxpayer, that is, the “amount to which he was entitled”. This is based on the Lategan principle.
The court found “beyond doubt” that the taxpayer had failed to disclose to the commissioner the full circumstances regarding the sale, which he was “under a legal obligation to do so”.
The taxpayer had disclosed the loss on the sale of the BCD Corporation shares, and argued that this could be set off against the capital gain on the BCD SA shares.
The court agreed that “all of the shares held by the taxpayer in the group of companies should, for purposes of the assessment of CGT [capital gains tax], be treated as one asset” as defined in the
Eighth Schedule and reasoned that the “only question which remains is what is the base cost of those shares disposed of”.
The court reasoned that the taxpayer had disposed of his 28.9% shareholding between 2003 and 2009, reducing his shareholding to 53.1%.
Order of the court
► Dismissed the taxpayer’s appeal against the revised assessment for the 2009 year.
► Sars is to include the capital gain of R3.6 million in the taxpayer’s income.
► The 200% additional tax is to be reduced to 25%.
► The interest is only to be adjusted to the reduced penalty.
► The penalty charged in regard to the failure to submit provisional tax returns is remitted.
► There was no order as to costs.