Page 785 - SAIT Compendium 2016 Volume1

CASE DIGEST 2013–2014
The primary issue in dispute was thus whether the two taxpayers exercised a right to acquire the shares, within the meaning of that expression in s 8A (1) (a), when they exercised the options, or whether they only did so when the time for payment and delivery arrived.
Held
The court rst pointed out that s 8A does not refer to the acquisition of a marketable security, but rather the right to acquire such. The exercise of the option to acquire the security is what brings into existence a contract of purchase and sale in respect of the marketable security. Wallis JA went on to state, however, that this does not necessarily mean that the exercise of the right brings about the immediate acquisition of the marketable security in the sense of title to it as an asset.
Further clarity was provided at para [13] regarding how s 8A (1) (a) ought to be interpreted:
‘There is nothing to indicate that s 8A (1) (a) was directed at performance of the contract resulting from a prior exercise of rights, as opposed to the exercise of a right leading in due course, in accordance with the applicable contractual provisions, to the acquisition of ownership of a marketable security.’
Statutory interpretation by those responsible for its administration
The Commissioner’s contentions were also viewed unfavourably by the court because of the fact that SARS had previously held the position that the acceptance of the option in a DDS scheme was the time at which the right to acquire a marketable security was exercised for the purpose of determining any taxable gain received by a taxpayer in terms of s 8A (2) (a) of the Act.
At para [17] the following was stated (own emphasis):
‘There is authority that, in any marginal question of statutory interpretation, evidence that it has been interpreted in a consistent way for a substantial period of time by those responsible for the administration of the legislation is admissible and may be relevant to tip the balance in favour of that interpretation. This is entirely consistent with the approach to statutory interpretation that examines the words in context and seeks to determine the meaning that should reasonably be placed upon those words. The conduct of those who administer the legislation provides clear evidence of how reasonable persons in their position would understand and construe the provision in question. As such it may be a valuable pointer to the correct interpretation. In the present case the clear evidence that for at least eight years the revenue authorities accepted that in a DDS scheme the exercise of the option and not the delivery of the shares was the taxable event, forti es the taxpayers’ contentions.’
Suspensive condition
A detailed analysis of the share scheme revealed no clause that could be considered to be a suspensive condition. Additionally, the scheme provided for the shares to still be deliverable to the employee even if employment were to be terminated. As such, the court held that one could not consider being employed at the time of delivery to be a suspensive condition of the contract of purchase of the shares.
Simulation
The essence of the Commissioner’s argument in this regard was based on Lewis JA’s dictum in Commissioner for the South African Revenue Service v NWK Ltd, where it was stated at para [55]:
‘If the purpose of the transaction is only to achieve an object that allows the evasion of tax ... then it will be regarded as simulated.’
As the scheme had clearly been formulated to enable the participants to avoid any signi cant tax under s 8A (1) (a), the Commissioner was of the opinion that it should be treated as giving rise to a conditional entitlement to shares that would only trigger the application of s 8A (1) (a) on payment for and delivery of the shares.
The court rejected that assertion, with Wallis JA highlighting his dictum in Roshcon (Pty) Ltd v Anchor Auto Body Builders CC and Others 2014 (4) SA 319 (SCA), in which he stressed that simulation is a question of the genuineness, and that if a transaction is genuine then it is not simulated. The share scheme was found to be genuine, with the court nding that there is nothing impermissible about arranging one’s affairs so as to minimise one’s tax liability. For the Commissioner’s simulation argument to succeed, ‘it required the participants in the scheme to have intended, when exercising their options to enter into agreements of purchase and sale of shares, to do so on terms other than those set out in the scheme’ [41]. This was found by the court to be highly improbable.
The appeal was dismissed with costs.
29. AB (Pty) Ltd v CSARS ITC 1132 GTC (18 November 2014)
Introduction
This case considers an appeal against additional tax, penalties and interest charged on the understatement of output tax and overstatement of input tax by the Appellant.
Facts
The Appellant is a private company supplying security services and is registered as a vendor. During July 2012, the Respondent (SARS) issued assessments against the Appellant relating to the 02/07 to 02/11 VAT periods. The assessments were issued as a result of an understatement of output tax, the Appellant’s failure to provide supporting documents to substantiate its input tax deductions and the Appellant’s failure to explain certain discrepancies between its VAT declarations and its VAT control accounts in its books. This led to the imposition by the Respondent of additional tax of 200 per cent in terms of s 60 of the Value-Added Tax Act 89 of 1991 (hereinafter ‘VAT Act’) based on the grounds that the failure to submit the requested documents constitutes an intent to obtain an improper VAT refund with the view of defrauding the scus. The Respondent further imposed a 10 per cent late payment penalty in terms of s 39 of the VAT Act and interest on the capital amounts owing to it.
SAIT CompendIum oF TAx LegISLATIon VoLume 1 777
CASE DIGEST 2013-2014