Monday, 11 April 2016

Special Voluntary Disclosure Programme: The Last Chance To Regularise Unauthorised Foreign Assets

The Minister of Finance released details of the proposed Special Voluntary Disclosure Programme (“SVDP”)  when he introduced his budget on 24 February 2016. The SVDP will allow those taxpayers who hold assets abroad which are not known to the South African Revenue Service (“SARS”) and/or  the South African Reserve Bank (“SARB”) to regularise those assets on reasonable terms.

The world has become a smaller place since 9/11 and also as a result of the automatic exchange of information for tax purposes internationally. South Africa is regarded as an early adopter of the Common Reporting Standard (‘CRS’) which comprises the standard for the automatic exchange of financial account information developed by the OECD. 

South Africa will start
  •  to report financial information during the first half of 2017 in respect of accounts held as at 31 December 2016. The remaining countries which include, for example, Monaco, Switzerland and others will implement the CRS with effect from 1 January 2017 and require their first reports to be made in the first half of 2018 in respect of the period from 1 January 2017. 
  • to receive information from Switzerland and other countries, other than the early adopters, in 2018 regarding financial information relating to accounts held in that country. 
Thus, the SVDP announced by the Minister represents the last opportunity for taxpayers to regularise unauthorised assets held abroad before SARS receives information from foreign revenue authorities regarding funds held offshore.

The SVDP is contained in the 2016 Rates and Monetary Amounts and Amendment of Revenue Laws Bill, and deals with both the income tax and exchange control aspects of the regularisation process.

Currently, the Tax Administration Act contains as a permanent feature of law a Voluntary Disclose  Programme (‘VDP”), but that does not deal with exchange control issues, nor does it have any cut off insofar as interest payable by taxpayers is concerned, nor does it restrict the period for which taxpayers are required to go back to.

The SVDP is attractive in that those amounts that were removed from South Africa without income tax being paid thereon will not be fully taxed, such that only 50 per cent of the capital amount removed from the country is liable to tax in the first year of assessment ending after 1 March 2010 – that is the 2011 tax year. 

Where, for example, a taxpayer removed pre-tax amounts totalling R1 million over an extended period of time before 1 March 2010, 50 per cent thereof, that is R 500 000 will be liable to tax in the 2011 tax year at the rate of tax applicable then. 

The remaining R 500 000 will effectively not be taxed. Furthermore, interest payable on the amounts previously taxed will run form 1 March 2010 which is better than the current VDP where there is no limiting of the interest that may become payable by a taxpayer.

Those persons applying for relief under the SVDP must note that all amounts of dividends, foreign dividends, interest or other similar investment income received accrued on or after 1 March 2010 must be disclosed and will be liable to tax. However, any investment income derived before 1 March 2010 is effectively exempt and not liable to tax.

Any natural person (including the deceased estate of a natural person), a close corporation or company is entitled to apply for the SVDP where that taxpayer held a foreign asset on 29 February 2016, the value of which related to any unauthorised asset which comprises an amount not previously known to SARS or to the SARB .

 Persons who hold hidden funds abroad urged to utilise the SVDP
to regularise their affairs in South Africa

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Maxiphoto
Foreign trusts are not able to apply for SVDP directly but the person who made funds available by way of a donation to a foreign trust will be entitled to apply for relief where that applicant accepts that the assets owned  by the foreign trust are deemed to be held by that applicant for tax income purposes only. This is very similar to the provisions which applied at the time of the amnesty which was available in 2003.

Where a person has removed funds from South African in contravention of the Exchange Control Regulations they may regularise their position with the SARB by paying a levy of 5 per cent on the market value of the foreign assets as at 29 February 2016 where those assets are returned to South Africa. If the applicant chooses to retain their assets abroad, the levy payable is increased to 10 per cent of the value of the foreign assets held abroad. 

It must be noted that the foreign investment allowance, currently an amount of R10 million per person per year, is not deducted from the value of the foreign assets liable to the levy. Where the applicant is unable to settle the exchange control levy from foreign based funds, the levy will be increased by 2 per cent to the extent that local assets are utilised to pay the levy due to the South African Reserve Bank.

Those persons who choose to utilise the SVDP will be in a favourable position in that they can regularise their affairs with both SARS and the SARB without any fear of a criminal prosecution and on what I believe is a reasonable basis. 

Applicants may lodge applications from 10 October 2016 and must adhere to the deadline and closing date of the SVDP of 31 March 2017. Those persons who hold funds abroad which are not known to the authorities in South Africa are urged to utilise the SVDP to regularise their affairs in South Africa. Failure to do so will result in the authorities becoming aware of the funds held abroad as a result of the automatic exchange of information and in such a case those taxpayers will be liable to the significant understatement penalties which may be imposed under the Tax Administration Act and could face criminal prosecution. 

In the case of violations of exchange control  those persons who choose not to regularise their affairs could be required to pay levies ranging from 10 - 40 per cent of the current market value of the unauthorised foreign assets they own. Persons wishing to apply for relief under the VDP need to start collating financial information sooner rather than later for submission to SARS and SARB that they can meet the tight deadline.

Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, April 2016. 

Monday, 14 March 2016

Request by SARS for Information from South African Taxpayers Regarding Related Parties Abroad

In terms of chapter 5 of the Tax Administration Act No. 22 of 2011 (the “TAA”), the South African Revenue Service (“SARS”) is empowered to seek information from taxpayers to ensure that the returns that they have submitted to SARS are complete.

Originally, the TAA did not provide a means for SARS to compel taxpayers to supply information relating to foreign related entities. In practice, SARS would request information from taxpayers pertaining to overseas subsidiaries or on other occasions indicate that they wished to conduct an audit in the country in which the foreign subsidiary was located. 

It is clear from a review of South African and international law that SARS’ powers do not extend beyond the borders of South Africa and that it would have been unlawful for SARS officials to arrive in a foreign country to conduct an audit on a company or entity located abroad. That is the reason why States conclude double taxation agreements to eliminate double taxation but also to allow for co-operation between States and to receive information from a taxpayer located in one jurisdiction for transmission to a revenue authority in another country. 

Thus, SARS could only procure information from another country under either a bi-lateral tax treaty or in accordance with the Convention On Mutual Administrative Assistance In Tax Matters which allows for a revenue authority in one country to seek assistance from another revenue authority to audit and investigate the affairs of the taxpayer located in the other country.

Countries such as Canada and Australia have historically had provisions in their fiscal legislation allowing the revenue authority to request information from domestic taxpayers regarding entities related to the domestic taxpayer which are located abroad. 

It was therefore no surprise that section 46 of the TAA was amended by way of section 42 of the Tax Administration Laws Amendment Act No. 23 of 2015 which now confers on SARS the power to call for information from a South African taxpayer in respect of a connected person located abroad.

Thus, section 46 (2) now provides that a senior SARS official may require relevant material from a taxpayer held or maintained by a connected person as defined in paragraph (d)(i) of the definition of connected person contained in section 1 of the Income Tax Act 58 of 1962, as amended in relation to the taxpayer where that person is located outside South Africa.

The definition of connected person is comprehensive and this article does not seek to analyse the scope of that definition but taxpayers must remember that the connected person definition particularly in relation to a company is very wide and clearly would apply where, for example, a South African company owns more than 50 % of the equity shares or voting rights in a company located abroad, or meets certain other requirements specified in paragraph (d)(i) of the definition of connected person.

Section 46 also regulates the time period within which information located abroad must be provided to SARS. Where the information is held by a connected person in relation to a South African taxpayer, the taxpayer must supply the information within 90 days from the dates of SARS’ request for the information and it is important that SARS when calling for the information relating to the connected person located abroad sets out the consequences should the taxpayer fail to provide the information requested. 

It must be noted that the time period referred to is 90 days and not business days as defined in section 1 of the TAA and thus in determining the period available within which to respond taxpayers would need to take account of calendar days and not business days.

Where a taxpayer fails to provide the information requested by SARS in accordance with section 46 of the TAA it must be noted that the material in question may not be produced by the taxpayer in any subsequent proceedings with SARS unless a competent court directs otherwise on the basis of circumstances beyond the control of the taxpayer and any connected person referred to in paragraph (d)(i) of the definition of connected person as defined in the Income Tax Act in relation to the taxpayer.
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It is interesting to note that other countries have a similar provision that where a taxpayer declines to provide information relating to a foreign related entity that information cannot be used in subsequent proceedings against the revenue authority of that country. 

Thus, Section 46 (9) of the TAA which provides that information may not be used by the taxpayer should they not make it available to SARS is not uncommon.

It is important to remember also that that where a taxpayer is assessed by SARS , the onus is on the taxpayer in accordance with section 102 of the TAA to prove that an amount, transaction, event or item is exempt or otherwise not taxable, or that an amount or item is deductible or maybe set off. 

Thus, should a taxpayer not provide the information to SARS it may become very difficult for the taxpayer to discharge the burden of proof as prescribed in section 102 of the TAA.

In addition, the failure to provide information to SARS is specifically regarded as a criminal offence under section 234 of the TAA. 

Thus, taxpayers should not lightly refuse or neglect to furnish information to SARS when called upon to do so, including information relating to a connected person located abroad.

In addition, the failure to provide information, particularly information held by a connected person abroad, could be construed as obstructive and result in an increase in the understatement penalty which SARS may seek to impose if SARS adjusts the taxable income of the taxpayer.

Thus, taxpayers who are requested to provide information held or kept by a connected person as envisaged in section 46 read together with the definition of connected person in section 1 of the Income Tax Act need to be aware of the consequences should they fail to provide the information to SARS timeously.

Dr Beric Croome is a Tax Executive  at ENSafrica. This article first appeared in Business Day, Business Law and Tax Review, March 2016. 

Wednesday, 24 February 2016

New Release : "Income Tax in South Africa: The First Hundred Years (1914 - 2014)"

IMPORTANT ANNOUNCEMENTS

Please note due to serious health issues 
blog posts and social media will be irregular for the early part of 2016.
I'd like to thank my clients, my empoyer ENSafrica, 
my colleagues and professional associates, 
and my family and friends for the continued support 
and encouragement during this time. 
I look forward to soon returning at full strength.
***
A new monthly article will be published in March 2016
***

In 2014, twenty years since South Africa became a constitutional democracy, 
the University of Cape Town marked this milestone with 
the "INCOME TAX IN SOUTH AFRICA: THE FIRST 100 YEARS 1914 – 2014" conference.  
I was privileged to be part of this special occasion 
and presented a paper called 
"The shift to a constitutional democracy in 1994 and the impact thereof on tax law in SA." 
This paper (see Part 6: Constitutional, policy and gender issues)
together with all the other conference papers, 
has now been published by Juta Law.
You can buy your copy here - further information below. 

Income Tax in South Africa The First 100 Years (1914 - 2014)
Edition: 1st
Expected publication date: 17 February 2016
Editors: J Hattingh, J Roeleveld, C West
ISBN: 978 1 48510 779 8
Format: Soft cover
Extent: 506 pages
Retail price: R550   (Price incl. VAT, excl. courier delivery and is valid until 30 June 2016)

About this publication:

This book, marking the 2014 centenary of income tax in South Africa, presents historical research covering a range of topics.

The authors begin with the international origins of income tax law and the transformation of old Dutch taxes into colonial income tax, and the role of General Smuts in the introduction of income tax in 1914.

The struggle to find an appropriate means of taxing corporate profits of shareholders is shown to have continued for decades, and mining and farming as main industry players in the South African economy receive special attention. The demise of cooperatives, the history of international tax treaties and the colonial influence also form part of the historical journey of this publication.

An examination of the special qualities of leading judges of the time and their jurisprudence provides much food for thought. Policy debates such as whether South Africa should follow the source or the residence system of taxation, or introduce a land tax, rage today as they did in 1914.

The impact of transformation since 1994, the need to entrench taxpayers’ rights and to remove gender inequality, and the remarkable modernisation of SARS, all played an important part in the development of the South African tax system.

A book about one hundred years of income tax would not be complete without some biographical notes on key personalities such as CJ Ingram KC, Aubrey Silke and David Meyerowitz SC. In recognising the conference held at the University of Cape Town to mark one hundred years of income tax in South Africa, the rise of the teaching of tax at UCT is presented in the form of an extract from the memoirs of Prof Leon Kritzinger.

“I congratulate the authors and editors for their work in this book. Not only will it be the standard reference on the development of income tax in South Africa, but also, for those interested in tax as a vital social and economic issue, it provides entertaining, informative and enlightening reading.’’ – Richard Vann, Challis Professor of Law, University of Sydney
                                                                    
Contents include:

Part 1: The international origins of income tax in South Africa and its introduction               
·       Importing and exporting income tax law: The international origins of the South African Income Tax Act – Peter Harris          
·       The history of income taxation in the Cape Colony: A story of dangerous beasts and murderous fathers – Enelia Jansen van Rensburg
·       On the introduction of income tax in South Africa by JC Smuts: Three eventful months (24 April 1914 to 20 July 1914) – Johann Hattingh
·       The birth of the first Income Tax Act: The journey begins – Peter Surtees
Part 2: The taxation of companies, shareholders and partnerships                           
·       Corporate-shareholder taxation in South Africa: 1914 to 1961 – Johann Hattingh
·       The road to dividend withholding tax in South African income tax law (1962 to 2014) – Jennifer Roeleveld
·       A review of the taxation of partnerships in South Africa over the last 100 years - Afton Titus
Part 3: The taxation of mining, farming and co-operative enterprises
·       South Africa’s gold mining tax regime – Roshelle Ramfol
·       The history of the taxation of farming in South Africa – Charl du Toit
·       The development of the taxation of co-operatives – Tracy Johnson, Jennifer Roeleveld
Part 4: Income tax jurisprudence
·       A century of income tax jurisprudence in South Africa – Eddie Broomberg
·       Some missteps on South Africa’s road to a coherent income tax jurisprudence – RC Williams
Part 5: International tax
·       From colonialism to apartheid: International influence on tax treaties in South Africa (1932 to 1990) – Craig West
·       Ensuring a right balance in applying the residence and source bases of taxation in order to protect South Africa’s tax base – Annet Wanyana Oguttu
Part 6: Constitutional, policy and gender issues
·       The shift to a constitutional democracy in 1994 and the impact thereof on tax law in South Africa – Beric J Croome
·       Land tax versus income tax: A historical assessment of success and failure in South Africa – Nicolaus Tideman and Peter Meakin
·       The personal income taxation of women in South Africa: An overview since the 1970s – Elizabeth Gavin and Wynnona Steyn
Part 7: Major figures in the development of income tax in South Africa
·       CJ Ingram K.C.: Academic pioneer and second President of the Cape Tax Court – Albertus Marais
·       Aubrey Silke Adapted courtesy of the South African Institute of Tax Practitioners
·       David Meyerowitz SC Adapted courtesy of the South African Institute of Tax Practitioners
·       Memoirs of Prof. Leon Kritzinger: Aubrey Silke and the importance of postgraduate tax studies at the University of Cape Town – Leon Kritzinger
Part 8: The evolution of the South African Revenue Service: 1994 to 2014 - SARS                           
Table of cases
Table of statutes


Of interest and benefit to:
·       Tax academics and post-graduate students
·       Tax practitioners
·       Tax historians and researchers



Monday, 9 November 2015

Lodging a Complaint against the South African Revenue Service

The Tax Administration Act No. 28 of 2011 (“TAA”) which took effect on 1 October 2012 created the Office of the Tax Ombud to deal with complaints against the South African Revenue Service (“SARS”) empowering that office to deal with complaints made by a taxpayer regarding a service matter or procedural or administrative matter arising from the application of the provisions of a tax Act by SARS.

Before a taxpayer can lodge a complaint with the Office of the Tax Ombud, it is important that they have exhausted the internal complaints resolution mechanisms within SARS, unless there are compelling circumstances to do so. The TAA prescribes what constitutes compelling circumstances and those are not dealt with further in this article.

During September 2015 SARS refined the process a taxpayer must follow when lodging a complaint regarding the manner in which they have been dealt with by SARS. According to the SARS website  a complaint is a grievance or some other type of dissatisfaction experienced by a taxpayer, trader or representative relating to a process, including queries, returns or any other service request or a service experience that is not adequately resolved.

The SARS guidelines dealing with complaints makes it clear that SARS’ processes should be fully exhausted to resolve a taxpayer’s query before a formal complaint is lodged. Where the taxpayer remains dissatisfied with the service after their normal interaction with SARS, they are entitled to complain against SARS. It must be noted that where a taxpayer disagrees with an assessment or any decision taken by SARS, it is necessary to follow the formal dispute resolution process and to lodge an objection against the assessment raised. The complaints process cannot deal with the merits or otherwise of an assessment issued by SARS.

Where a taxpayer is dissatisfied with SARS’ service or processes, it is necessary to have a case number first, particularly where a taxpayer wishes to complain about missing documentation, quality or speed of service or unresolved issues.
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Taxpayers are required to submit a complaint via e-filing which means that the complaint will be tracked electronically or alternatively by calling the SARS Complaints Management Office (“CMO”) on 0860121216. In order to complain via e-filing, the taxpayer must be a registered e-filer to complete and submit the complaint form. Previously taxpayers were unable to lodge complaints electronically which meant that complaints were not capable of comprehensive tracking and follow up.

Where a taxpayer is unable to file a complaint via e-filing, they may seek assistance from a SARS agent to complete the complaints form on their behalf when contacting the CMO. When lodging a complaint, a taxpayer is required to indicate the nature of the complaint and to categorise the complaint into one of the specified categories. According to the SARS website, the categories of complaints and examples relating thereto are as set out below:
            “No.        Category                                               Example
                1              Legal/Policy                                          For example, debit cards not accepted for payments.

                2              Employee behaviour/Competence For example, agent X was rude, or agent did not know how to assist
                                                                                                me.
                3              Channel experience/environment/  For example, contact centre is very slow to answer, or there is no
                                technical issues                                   parking at branch X.
                4              Quality and speed of service            For example, incorrect resolution of request, or it took 6 months to
                                                                                                process my banking detail change.
                5              Unresolved service/operational       For example, turn-around-time exceeded and my return has not yet
                                matter                                                    been processed.
                6              Missing or lost documentation          For example, I have submitted my return, but SARS cannot find it.”
Where a taxpayer wishes to lodge a complaint relating to the quality and speed of service, or an unresolved service operational matter or missing or lost documentation, the taxpayer must submit a case number first. Thus, the taxpayer’s complaint will only be accepted if there is already a case logged on SARS’ systems and the case number is inserted on the complaints form.
SARS has indicated that once a taxpayer has complained, they will receive either a text message or email notification at various stages of the process confirming that the complaint has been received. It is intended that the resolution date will be a maximum date of 21 days after the complaint has been logged with SARS. Where the taxpayer remains dissatisfied with the outcome utilising the SARS internal complaints process, the taxpayer may lodge a formal complaint with the Office of the Tax Ombud.
SARS published a document entitled “Guide to the Complaints Functionality on E-filing” setting out how taxpayers and tax practitioners can lodge complaints via e-filing in respect of the taxpayer’s own affairs or in respect of the affairs of taxpayers managed by a tax practitioner.
Where the taxpayer remains dissatisfied after having followed the internal complaints process at SARS, they are entitled to file a complaint with the Office of the Tax Ombud, which office will determine whether the complaint falls within the mandate of that office and advise the taxpayer accordingly. The Tax Ombud intends to finalise complaints made by taxpayers within 15 business days of receipt of the taxpayer’s complaint. Where the Tax Ombud anticipates that the complaint will not be resolved within the specified time period, the Office will advise the taxpayer thereof.
The Tax Ombud recently tabled its annual report for 2014/2015 in Parliament as required under the TAA. That report indicates that during the twelve months under review, 1277 complaints were received from taxpayers, of which 861 were rejected on the basis that the complaints fell outside of the ambit of the Tax Ombud’s mandate or that the taxpayer had failed to exhaust SARS’ internal complaints process. Of the 409 complaints accepted by the Tax Ombud, 75% were resolved in favour of the taxpayer.
The Tax Ombud’s report identifies the most important categories of complaints lodged by taxpayers against SARS and these related to problems relating to the following areas:
·                Withdrawal of assessments by SARS
·                Delays in refunds
·                Changes in banking details of taxpayers
·                Identity theft
·                Turn-around time on objections and appeals
·                Outcomes of objections/appeals not implemented by SARS
·                Debt procedures not adhered to by SARS
·                Undue delay in issuing of tax clearance certificates
It must be remembered that the Office of the Tax Ombud cannot compel SARS to adhere to the finding made by the Ombud’s office but where SARS chooses not to adhere to the recommendations made by the Tax Ombud, that will be reported to Parliament. Thus, SARS must have  very sound reasons not to accept the recommendations made by the Tax Ombud, particularly when reference is made to the provisions of the Constitution.
In conclusion, where taxpayers are aggrieved with the manner in which they have been dealt with by SARS officials or SARS has failed to resolve the taxpayer’s complaint properly, they are entitled to take that up with the Office of the Tax Ombud and based on experience in practice, the Office of the Tax Ombud is having the desired effect in resolving complaints made by taxpayers against SARS. Taxpayers are therefore urged to lodge complaints with the Office of the Tax Ombud once they have failed to resolve the matter utilising SARS’ internal complaints processes.
Dr Beric Croome is a Tax Executive  at ENSafrica This article first appeared in Business Day, Business Law and Tax Review, November 2015. 

Monday, 12 October 2015

Preservation Order and the South African/Australian Double Taxation Agreement

On 20 August 2015 the Supreme Court of Appeal delivered its judgment in the case of M Krok & Jucool Enterprises Inc. v The Commissioner for the South African Revenue Services which related to an appeal from the Gauteng Division of the High Court regarding the correctness of the confirmation of a preservation order granted by Fabricius J in the context of the South African and Australian Double Taxation Agreement (“DTA”).

The DTA was concluded by the two countries on 1 July 1999 and subsequently altered by way of a Protocol signed on 31 March 2008 which catered for the states to assist each other in the collection of taxes. During January 2012 and February 2013, the Australian Tax Office (“ATO”) requested the assistance of the Commissioner: South African Revenue Service to assist it in the collection of taxes allegedly due by Mr M Krok to the Australian Commissioner of Taxation in the sum of Australian $25 361 875.79 plus interest for the period 30 June 2004 to 30 June 2009. The ATO therefore required SARS’ assistance in the conservancy of Mr Krok’s assets located in South Africa pending the collection of the tax debt and a formal request was made accompanied by the certificate required under section 185 of the Tax Administration Act, No. 28 of 2011 (“TAA”).

Image courtesy of https://www.ato.gov.au 
Mr Krok emigrated to Australia from South Africa during April 2002 and prior to his emigration a trust of which he was a beneficiary vested the capital assets of that trust in Mr Krok. Thus, Mr Krok held the assets received from the trust in addition to his personal assets.

The distribution was made by the South African trust in order to reduce capital gains tax in the future and also to allow for the remittance of income under the exchange control regulations. Pursuant to Mr Krok’s emigration from South Africa, he contended that he ceded all South African income and assets to a foreign company, Polperro, held by a foundation located in Lichtenstein. Subsequently during December 2008 Mr Krok emigrated from Australia to the United Kingdom. Mr Krok contended that as part of his emigration planning to United Kingdom, Polperro was liquidated and the assets owned by him were transferred to Jucool Enterprises Inc., a company incorporated in the British Virgin Islands and held by a Jersey Trust.

During 2009 the ATO conducted an audit of Mr Krok’s tax affairs covering the period February 2003 to February 2010.

As a result of the ATO’s investigation into Mr Krok’s affairs, the ATO concluded that Mr Krok had failed to declare income derived by him for Australian tax purposes in respect of assets held by him in South Africa while an Australian resident. The various transactions whereby assets were transferred from Mr Krok to the foreign companies were never disclosed to SARS or the ATO. 

The ATO reached the conclusion that Mr Krok retained legal and beneficial interest in the assets and that the alleged assignment of his rights and interest of the capital and income of the assets to the foreign company violated South African exchange control regulations and was a sham. Consequently, the ATO adjusted Mr Krok’s tax returns and issued notices of assessment reflecting tax and penalties. The objections lodged by Mr Krok to those assessments were disallowed by the ATO.

As a result of the ATO’s request for assistance under the DTA, SARS launched an application for a preservation order under section 163 of the TAA. Mr Krok contended that the tax claimed by the ATO fell outside of the scope of the DTA on the basis that the Protocol came into effect on 12 November 2008 and therefore should only apply in respect of income or profits and gains of any year of income beginning after 1 July 2009.

Jucool contended that it had legal title to the assets and that the assets were therefore not owned by Mr Krok. Thus, Mr Krok’s primary argument was that the DTA did not apply on the basis that the tax in issue did not arise on or after 1 July 2009. The court considered the Vienna Convention on the Law of Treaties of 1969 and reached the conclusion that the Protocol concluded by South Africa and Australia applied to all tax debts, whether they arose before or after the date on which the Protocol was agreed to.

The court referred to the fact that the arguments raised by Mr Krok were dismissed in the case of Ben Nevis (Holdings) Ltd and Metlika Trading Ltd v Commissioners for HM Revenue and Customs. That case considered the provisions of the tax treaty between South Africa and the United Kingdom regarding an appeal in which similar issues to those raised in the Krok case were considered in the context of a similar article to a 2002 DTA between those two countries as amended by a 2010 Protocol. 

In the Metlika case the taxpayer argued that the 2010 Protocol precluded mutual assistance in the collection of tax debts which arose before 1 January 2003. The United Kingdom court disagreed with Metlika and accordingly allowed the United Kingdom Revenue to assist SARS in the collection of amounts allegedly due to it. The Supreme Court of Appeal therefore held that there was no merit in the taxpayer’s point on retrospectivity and that the provision of Article 25A allowing for reciprocal assistance in the collection of tax applied regardless as to when the income tax debt arose.

Furthermore, the court rejected Jucool’s contention that it was the beneficial owner of the assets in question and not Mr Krok.

Thus, the Supreme Court of Appeal confirmed the decision of the High Court authorising SARS to assist the ATO in recovering the tax allegedly due by Mr Krok to the ATO, despite the fact that the tax arose prior to the date on which the Protocol took effect.


Taxpayers therefore need to be aware that where they incur a tax debt in one country, that country may seek assistance in the recovery of those amounts from the assets held by a taxpayer in another country with which a DTA has been concluded.

Dr Beric Croome is a Tax Executive  at ENSafrica This article first appeared in Business Day, Business Law and Tax Review, October 2015.