Page 786 - SAIT Compendium 2016 Volume1

CASE DIGEST 2013–2014
The Appellant led an objection which was partially allowed by SARS resulting in revised assessments that disallowed the objection to the overstated input tax, additional tax, interest and the late payment penalties. The matter subsequently went on appeal after which, on 11 March 2014, the Appellant abandoned its appeal against the capital amounts payable which limited the appeal to the above additional tax, interest, and penalties.
The Respondent had the burden of proving that the additional tax of 200 per cent was correctly imposed and called one of its auditors as a witness. It was testi ed that the auditor would typically make a recommendation as to the percentage of additional tax to a committee who would then further escalate the matter to a senior committee who will then decide what percentage of additional tax to impose in terms of s 60 of the VAT Act. Given the fact that no witness was called to explain the decision of the senior committee, the court held that it is unable to assess the correctness of the senior committee’s decision and that little reliance can be placed on the auditor’s testimony. At para [5] of the judgment, Wepener J referred to Rand Ropes (Pty) Ltd v Commissioner for Inland Revenue 1944 AD 142 at 150 and CSARS v Foskor (Pty) Ltd [2010] 3 All SA 594 (SCA) at para 51 to state the following (own emphasis):
‘Where the correctness of a discretionary decision, which is subject to objection and appeal, is contested in a tax court, there is a re- hearing of the whole matter, including the additional tax, by the tax court. Accordingly, the tax court can consider the issue afresh and substitute the respondent’s decision in that regard.’
With regard to the Respondent’s burden of proof, Wepener J stated the following at para [6]:
‘The Commissioner, having failed to place any evidence before the court as to how and why the senior committee arrived at a decision to impose the 200% additional tax, failed to prove that the imposition of the additional tax was justi ed and the imposition thereof cannot be upheld ...’
Held
The court has set aside the additional tax and the assessment was referred back to the Respondent who was directed that the additional tax be remitted to nil. No reference was made to the late payment penalty and interest.
2014–2015
1. Krok and Another v Commissioner, South African Revenue Service [2015] ZASCA 107; 2015 (6)
SA 317 (SCA) (SARS Website)
Issue
Effective date of article 25A of Protocol amending the South African/Australian Income Tax Treaty: Whether the mutual assistance in collection article of the South African/Australian Tax Treaty can be invoked if the taxes imposed arose before the date the article entered into force.
Posture of case
This case involves an appeal by the taxpayer from con rmation by the Gauteng Division of the High Court (Pretoria) of a preservation order. The preservation order was to secure assets for purposes of satisfying Australian tax debt and for the appointment of a curator in terms of sections 163 and 185 of the Tax Administration Act.
Facts
The taxpayer (Mark Krok) was a bene ciary of a 1994 trust that had accumulated over R70 million worth of assets by 2003. The trust stemmed from family donations. The assets of the trust consisted of listed and unlisted South African shares plus cash.
In 2002, Mr Krok emigrated from South Africa to Australia. The capital assets of the trust were distributed to Mr Krok just before emigration base on legal advice in terms of Exchange Control and tax (but the assets remained blocked in Mr Krock’s name due to Exchange Control). After emigration from South Africa but before entry into Australia, Mr Krock transferred all of his bene cial ownership of the assets to a British Virgin Islands Company with the shares transferred to a Liechtenstein Foundation for Mr Krock’s indirect use. The transfer of all the above assets were in exchange for long- term debt to an Australian trust. Upon completion, Mr Krock directly held only bare dominium to assets (which allegedly fell outside Australian taxing jurisdiction).
In 2008, Mr Krok emigrated from Australia to the United Kingdom with a new round of planning involving another indirectly controlled British Virgin Islands Company (i.e. Jucool Enterprises, Inc, which also became party to the dispute). The Australian Tax Of ce launched an audit and contended that all of the series of arrangements were sham given Mr Krock practical control over the funds for ongoing personal and family use. In order to preserve the assets from dissipation, the Australian Tax Of ce invoked the mutual collection provisions of Article 25A of the South African/ Australian Tax Treaty.
Outcome
The taxpayer’s appeal was dismissed. Article 25A of the South African/Australian Tax Treaty could be invoked by the Australian Tax Of ce in respect of the indirectly controlled South African assets despite the fact that the years in issue arose before Article 25A entered into force.
778 SAIT CompendIum oF TAx LegISLATIon VoLume 1