Employers & Experience: Bowman Gilfillan Inc.
Johan joined Bowman Gilfillan to focus on tax disputes, but also advises on VAT, income tax and assists in tax due diligences.
Reported Tax Cases
Tax cases worth mentioning, in which Johan was involved since August 2009, were:
- ABC (Pty) Ltd v C:SARS (Case 13238)
- This case was essentially an interlocutory application to strike out aspects of SARS' grounds of assessment, which amounted to a new assessment.
- The actual dispute was whether ABC transgressed section 103(2) of the Income Tax Act, i.e. to traffic in tax losses, but at the time of assessment SARS only assessed a specific change in shareholding for purposes of their section 103(2) assessment, but in their grounds of assessment they also wanted to assess a further change in shareholding under section 103(2).
- Judge Rogers agreed with ABC and ordered SARS to amend its grounds of assessment (together with a cost order).
- South African Custodial Services (Louis Trichardt) (Pty) Ltd (SACS) v C:SARS (ITC 1870 - 76 SATC 97)
- SACS and SARS disputed the extend of the SCA's order as to whether the full financial costs of R140 million were to be deducted in terms of section 11(bA).
- This issue then became the subject of a further judgment of the Tax Court in ITC 1870, in which Judge Victor was required to interpret the SACS case, and specifically its conclusion on the deductibility of interest and other costs.
- The Tax Court agreed with SACS, finding that the SCA had adopted a 'broad approach' in interpreting the deductibility principle in this instance.
- South African Custodial Services (Louis Trichardt) (Pty) Ltd (SACS) v C:SARS (Tax Court: ITC 1845 - 73 SATC 80) (Supreme Court of Appeal: Case 131/2011)
- SACS entered into a public private partnership with the SA government for the design, construction, finance, operation and maintenance of a maximum security prison in Louis Trichardt.
- The main issues in this tax dispute were whether the 2002 year of assessment prescribed and whether the cost of the prison was capital or revenue in nature. SACS argued in the alternative that certain finance charges are 'related finance charges' and should be deductible as pre-production related finance charges in terms of section 11(bA).
- The Pretoria Tax Court's Judge Claassen agreed that 2002 did not prescribe and that SACS was able to claim cost from this year onwards. In terms of the capital vs. revenue issue the court held that the prison constituted 'trading stock' and therefore the costs were revenue in nature.
- SARS was unhappy with the outcome in the Tax Court and appeal directly to the Supreme Court of Appeal in Bloemfontein. Judge Plasket agreed that 2002 has not prescribed, however he did not agree that the prison is deemed 'trading stock' in terms of section 22(2A).
- On an alternative grounds, i.e. on the question of what constitute 'related finance charges' Judge Plasket held that not only should the costs in raising the loans be regarded as 'related finance charges', but also those costs in order to have bid for the tender. For Plasket the costs allowable under section 11(bA) are those to have obtained the loans and also those in the furtherance of the project.
- Witkop Fluorspar Mine (Pty) Ltd v C:SARS (ITC 1847 - 73 SATC 126)
- This case dealt with whether certain management and marketing fees between Witkop and its holding company, Sallies LTD, were excessive, whether certain export debtors should accrue in the year of export or the year in which the payment was received, and whether cost of sales should be matched with the export debtors if so deferred to the year of receipt.
- The Tax Court agreed that the fees weren't excessive, that the export debtors should be deferred, but was not entirely in agreement that the cost of sales should not be deferred. The judgment nonetheless gave the taxpayer a significant victory and a material refund.
- Grain SA v C:SARS (unreported)
- Grain SA requested a VAT ruling from SARS, but did not agree with the ruling which SARS issued and could not convince SARS of their folly. Grain SA had no choice but to take the matter to court for a declaratory order. These orders are not common in tax and the first hurdle to overcome was to convince the court that it is proper for the court to consider the declaratory order. The Bloemfontein's High Court agreed that the matter should indeed be considered and, more importantly, agreed that SARS has erred in their ruling.