Page 764 - SAIT Compendium 2016 Volume1

CASE DIGEST 2013–2014
Section 11 (a) must be read with s 23. Section 23 (g) prohibits a deduction of moneys, to the extent that such moneys weren’t laid out or expended for purposes of a trade, whilst s 23 (f) effectively prevents a deduction of expenditure in respect of amounts received or accrued which do not constitute income as de ned.
Held
In determining whether the computer system’s fee was deductible, the general manager: group tax within the MTN group was unable to give evidence that the computer system was owned by Holdings and he was also not aware of how much was paid for the system. Due to the inadequate evidence produced by Holdings, it was impossible to determine whether the computer system’s fee was deductible (whether it was incurred by Holdings, used in the production of income or capital or revenue in nature). The SCA therefore held that the order given by the Tax Court that the deduction of the KPMG fee must be allowed in full, must be set aside.
The appeal was upheld with costs, such costs to include those consequent upon the employment of two counsel. The cross appeal is upheld with costs, including those of two counsel. The order of the Tax Court that ‘50% of the audit fees incurred for the 2001, 2002, 2003 and 2004 tax years is deductible from “income” (as de ned) for those tax years’ is amended by the deletion of “50” and the substitution therefor of “10”.’
12. CSARS v Tradex (Pty) Ltd & Two Others – HC 12949/2013 WC (9 September 2014)
Introduction
In this case the Commissioner for the South African Revenue Service (‘SARS’) sought con rmation of a provisional preservation order granted in terms of s 163(4) of the Tax Administration Act 28 of 2011 (‘the TAA’). The rst respondent (‘Tradex’) and third respondent (‘BWA’) are entities owned and controlled by the second respondent (‘Wiggett’). The provisional order was granted ex parte on 14 August 2013 and a curator bonis was appointed to deal with the assets in terms of the order.
Facts
Wigget owns and controls two entities, Tradex (Pty) Ltd (‘Tradex’) and Business Wize Accounting and Management Services CC (‘BWA’). The former is a supplier of technology solutions and a consulting rm while the latter began operating in 2006 and subsequently acquired two properties with the intention of providing of ce accommodation to Tradex at market-related charges. A mortgage bond was used to partially nance the purchase of one of the properties. Additionally, BWA appointed Tradex as its agent in terms of s 54 of the Value-Added Tax Act 89 of 1991 (‘the VAT Act’), with the result that VAT on input and output supplies made by or to Tradex as agent for BWA would be treated as supplies made by or to BWA.
Wigget had submitted no income tax returns to SARS since the year 2000, BWA had outstanding income tax returns since its operations began and Tradex still needed to submit certain income tax and VAT returns from 2010 till 2013. The reason for the non-compliance in the case of Tradex was because the previous two nancial managers had not adequately ful lled their duties and were consequently dismissed. From September 2012 to mid-2013 Wigget met with senior SARS executives on a number of occasions to address the respondents’ tax issues and presented a payment plan for the tax liability demanded in respect of the periods for which the returns had been submitted. In the meantime she engaged a rm of auditors in early 2013 to reconstruct the BWA and Tradex accounting records, which were in complete disarray from the 2007 to 2013 periods. SARS was kept informed of all developments, but nevertheless applied for and obtained an ex parte preservation order from the High Court in August 2013. This order prevented the respondents from dissipating or dealing with their assets in a way that would cause a decrease in the value of their assets. It also called for the appointment of a curator bonis, in whom the assets of the respondents would vest.
The auditors previously appointed by Wigget were then replaced with a new rm of accountants and an experienced tax practitioner in March/April 2014 to hasten the reconstruction of the accounting records and remedy the tax non- compliance. By the end of April 2014, R4.7 million of the known tax liability of Tradex, BWA and Wigget had been paid.
In mid-2014, BWA and Tradex completed their outstanding annual nancial statements (BWA’s showed losses) and submitted the relevant tax returns. All of Wiggett’s personal tax returns from the 2000 tax period were also submitted to SARS and assessed. Overall, Tradex’s estimated liability for income tax and VAT was approximately R7 million and Wigget’s income tax liability was roughly R460 000.
The respondents repeated an offer of security previously made in negotiations with SARS by way of the continued operation of caveats in respect of:
• one of Wiggett’s property;
• the two immovable properties owned by BWA; and
• the cession in securitatem debiti by Tradex of book debts to the value of R10,5 million.
Wiggett alleged that the security, worth more than R18 million, was substantially in excess of any tax that might be found owing and therefore a preservation order was unnecessary.
The Commissioner’s response was that the R7 million tax debt as claimed by the respondents had not yet been veri ed and that the respondents had ignored Tradex’s potential liability for interest and penalties. The correctness of Tradex and BWA’s recently submitted nancial statements was also questioned. In respect of Wiggett’s personal tax affairs, SARS said that it still needed to verify her returns. Regarding the security offered by the respondents, SARS cast doubt in particular on the value of the book debts, referring to bad debts previously raised by Tradex.
In summary, SARS contended that for the years 2007 to 2013 the respondents faced potential tax liabilities of R10,4 million. SARS therefore sought con rmation of the initial ex parte preservation order.
Held
The meaning of ‘required’ in s 163(3) of the TAA
According to s 163(3) of the TAA, a preservation order may be made if required to secure the collection of tax. The court thus began with an analysis of what is meant by ‘required to secure the collection of tax’. Rogers J concurred with the
756 SAIT CompendIum oF TAx LegISLATIon VoLume 1