Tax commentators have called the Constitutional Court judgment in the Coronation case “clear, smart and well-reasoned”. It brings an end to the protracted battle between Coronation and the South African Revenue Service .
The court says it was “fallacious” of the SCA and Sars to hold that CGFM was not conducting its core business in Ireland because it “outsourced” certain of its functions. To qualify, the FBE must have a fixed place of business located outside South Africa that is used for conducting the “primary operations” of the controlled foreign company’s business for a period of at least one year.In 2012, Sars included the entire net income of the Dublin-based CGFM into the taxable income of its holding company, Cimsa, arguing that CGFM did not qualify for the exemption. This created a tax liability of close to R800 million.
The Constitutional Court criticised the SCA, saying it has misapplied itself. The SCA got the law and even the facts wrong. This is quite a damning indictment of the SCA judgment, says Dachs.Joon Chong, a tax partner at law firm Webber Wentzel, says South African multinationals will be “most relieved” by the Constitutional Court’s unanimous judgment.
According to Dachs, the Constitutional Court judgment, in essence, says the SCA’s interpretation of the FBE exemption is unworkable. It worked off “notional concepts” of what the business could have been and not what it actually was. Dachs says companies with business models similar to Coronation’s or those with subcontracts for some of their services were nervous that they could somehow be swept up in the SCA judgment.