Page 803 - SAIT Compendium 2016 Volume1

CASE DIGEST 2014-2015
Posture of the case
This case is an appeal to the Western Cape High Court with the taxpayer appealing the decision of the Western Cape Tax Court.
Facts
The appellant staged international jazz festivals on an annual basis for which it concluded sponsorship contracts with various organisations. In terms of these sponsorship contracts the sponsors paid money and provided goods and services for the festival. The taxpayer then, as quid pro quo, provided branding and marketing services to the sponsors. It was common cause between the parties that the contracts represented barter transactions. All parties were registered vendors.
The appellant sought to offset the output tax liability with the input tax attributable to the goods and services supplied to it by the suppliers.
Outcome
The appeal succeeded with costs, with the assessments being set aside.
Reasoning
The Court held that the contracts between the suppliers and the appellant serve as proof for the latter’s entitlement to the input tax deductions. Binns-Ward J speci cally noted the following in this regard at paragraph [15]:
“...If the documents were good enough for the Commissioner to assess the appellant’s output tax liability, it is impossible to conceive, having regard to the character of the particular transactions, why they should not also have been suf cient for the purpose of computing the input tax which should have been deemed to have been levied by the sponsors...”
23. TC-IT 13512 JHB (30 March 2015)
Issue
Secondary Tax on Companies (‘STC’) - 64C(2)(g) of the Income Tax Act. At issue is whether STC should be levied on interest-free loans lent to a taxpayer, who subsequently lent those amounts (interest-free) to other companies within the same group.
Posture of the case
The Johannesburg Tax Court sat as the court of rst instance with the taxpayer appealing SARS’s decision to levy STC on interest-free loans lent to connected persons.
Facts
The appellant, ABC Pty Ltd (“ABC”), is a company that is part of the ‘X Group’. The core business of the group is the development of, and investment in, industrial and commercial property. The group comprises a trust (“X Family Trust”), which holds interests in various companies, one of which is ABC. This entity is also used as a treasury company of the X Group; effectively borrowing from lenders at an interest rate of zero per cent and then lending to the other group companies without charging interest. It thus mainly acted as a conduit in respect of these particular loan transactions.
The Commissioner applied section 64C(2)(g) to levy STC on the deemed dividend recognised on the “amount of a loan or advance granted or made available to a shareholder or a connected person in relation to that shareholder”. In terms of section 64C(4)(bA), the aforementioned does not apply to the extent that the recipient of the asset provides some form of consideration in exchange for the asset transferred. The dispute between the parties was concerning whether or not there was a consideration given in exchange of the loans.
Outcome
The appeal was upheld and the disputed STC assessments issued by SARS were set aside.
Core reasoning
Van Oosten J held the following at paragraph [20]:
“The consideration, or quid pro quo, as correctly pointed out by counsel for the appellant, lies in the nature of the loan agreements: in essence the appellant was granted equivalent bene ts in the form of the interest-free incoming loans as consideration in exchange for the amounts it loaned by way of interest-free outgoing loans. The outgoing loans matched the bene ts the appellant received by way of incoming loans. It accordingly clearly constituted a quid pro quo which the appellant received in return for making the outgoing loans....The incoming and outgoing loans, by their nature, as I have alluded to, clearly qualify for the exemption.”
SAIT CompendIum oF TAx LegISLATIon VoLume 1 795
CASE DIGEST 2014-2015