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[2015] ZASCA 107
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Krok v CSARS (20230/2014, 20232/2014) [2015] ZASCA 107; 2015 (6) SA 317 (SCA); [2015] 4 All SA 131 (SCA); 78 SATC 1 (20 August 2015)
Links to summary
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
Nos: 20230/2014
and
20232/2014
In
the matter between:
MARK
KROK
First
Appellant
JUCOOL
ENTERPRISES INC.
Second Appellant
and
THE
COMMISSIONER FOR THE SOUTH AFRICAN
REVENUE
SERVICES
Respondent
Neutral
citation
:
Krok
v CSARS
(20230/2014 and 20232/2014)
[2015] ZASCA 107
(20 August 2015)
Coram:
Maya, Mhlantla, Wallis JJA, Dambuza and Meyer AJJA
Heard:
15 May 2015
Delivered:
20 August 2015
Summary:
Double taxation – preservation
order granted in respect of a taxpayer’s assets under ss 185
and 163 of the Tax Administration
Act 28 of 2011 read with article
25A of the Protocol amending the Agreement between the government of
the Republic of South Africa
and the government of Australia for the
avoidance of double taxation and the prevention of fiscal evasion
with respect to taxes
on income upheld and appeal dismissed.
ORDER
On
appeal from:
Gauteng
Division of the High Court, Pretoria (Fabricius J sitting as a court
of first instance): judgment reported
sub
nom Commissioner for the South African Revenue Services v Krok
2014
(3) SA 453
;
[2014] 2 All SA 66
(GP).
The
appeal is dismissed with costs, including the costs of two counsel.
JUDGMENT
Maya
JA
(
Mhlantla,
Wallis JJA, Dambuza and Meyer AJJA concurring
):
[1]
This appeal concerns the correctness of the confirmation of a
preservation order by the Gauteng Division of the High Court,
Pretoria (Fabricius J). The order was obtained on an ex parte basis
by the respondent, the South African Revenue Service (SARS),
against
the first appellant (Mr Krok) to secure assets for purposes of
satisfying an alleged tax debt and for the appointment of
a curator
bonis
in
terms of ss 163 and 185 of the Tax Administration Act 28 of 2011 (the
Act). The determination of this question depends on the
temporal
scope of the provisions of a double taxation agreement between the
Republic of South Africa and the Government of Australia
– the
Agreement for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with respect to Taxes on Income
of 1 July 1999 (the
DTA) subsequently amended by a protocol signed on 31 March 2008 (the
Protocol) – which made provision
for mutual assistance in the
collection of taxes. The appeal serves before this court with
the leave of the court below.
[1]
[2]
The litigation arose from requests made to SARS, in terms of the DTA,
by the Australian Tax Office (the ATO) which represents
the
Commissioner of Taxation of the Commonwealth of Australia (the
Australian Commissioner), in January 2012 and again in February
2013.
[2]
The
ATO sought assistance with the collection of income taxes allegedly
due by Mr Krok to the Australian Commissioner, in the sum
of
Australian $25 361 875.79 plus interest,
[3]
for
the period 30 June 2004 to 30 June 2009 (the income years). The ATO
thus sought the conservancy of Mr Krok’s assets situated
in
South Africa pending the collection of the tax debt. The request was
accompanied by a formal certificate, as envisaged in ss
185(2) and
(3)
(a)
and
(b)
of
the Act. These provisions deem the allegations contained in the
certificate conclusive proof of the existence of the alleged
liability and prima facie proof of the allegations it contains; here
that Mr Krok’s South African assets were at risk of
dissipation.
[4]
[3]
The facts which led to the request may be gleaned from two documents
which were attached to SARS’ founding affidavit.
One is a
document entitled ‘Submission on Objections to the Assessments’
dated 5 April 2012 (the submissions document).
It was lodged with the
Australian Commissioner on Mr Krok’s behalf in response to
notices of assessment of his taxable income
and liability to pay a
penalty in respect of the income years and the ATO’s reasons
for its decision. (The answering affidavit
filed on Mr Krok’s
behalf which was deposed to by his attorney of record expressly
incorporated the contents of this document.)
The other document is
the ATO’s ‘Reasons for Decision’ dated 7 December
2011, which contains its analysis of
the facts, its interpretation of
the relevant law as applied to those facts, the issues it identified
and its decision on those
issues (the reasons document).
[4]
The assets in issue originated from the Abraham Krok Trust. This
trust was formed out of donations made to its trustees in 1973
by Ms
Sarah Krok for the benefit of her son, Mr Abraham Krok’s six
children, of whom Mr Krok was one. In 1994 Mr Krok’s
father
created new separate trusts to which the assets of the Abraham Krok
Trust were transferred for the benefit of each of these
children. One
of the new trusts was the Mark Krok 1994 Trust (the trust) in which
Mr Krok accumulated considerable capital assets
valued at R71 713 807
as at 28 February 2003. These assets at that stage mainly comprised
shares in various listed and
unlisted South African companies and
cash investments.
[5]
[5]
The saga began with Mr Krok’s emigration to Australia in April
2002. According to the submissions document, prior to this
event he
sought professional advice on the implications of keeping the assets
in the trust having regard to the South African Exchange
Control
Regulations, 1961 (the regulations).
[6]
Consequent
upon that advice, the trust distributed the capital assets to him,
thus vesting him with the ownership thereof just before
he ceased to
be resident in South Africa. Accordingly he held these assets in
addition to his personal assets arising from income
distributions
from the trust while he was still resident in South Africa.
[6]
The alleged reason for the distribution was that Mr Krok had been
advised that the South African Reserve Bank (the SARB) would
be more
lenient in granting permission for the release of income from South
Africa of an emigrant if such assets were owned, not
by the trust,
but by the emigrant personally. Otherwise the assets would be subject
to capital gains tax in South Africa if they
remained in the trust
whereas gains on assets held by the emigrant would be exempt from
capital gains tax except on disposals of
interests in South African
real estate. Moreover, it was said, Mr Krok could not, in any event,
transfer the assets whilst his
father, the founder of the trust from
whom the assets originated, was still alive.
[7]
To prevent the use of trust distribution as a means of externalising
capital from South Africa, exchange control consent is
not given for
the expatriation of capital distributed by trusts less than three
years prior to the date of emigration unless the
founder of the trust
is deceased. Thus, the assets became ‘blocked’, ie they
had to be placed under the control of
an authorised dealer in foreign
exchange,
[7]
Investec
Bank Ltd (Investec), although they could be expatriated from South
Africa with the consent of the SARB under the Exchange
Control
Practice. But they would remain in the name of Mr Krok or his local
nominee upon Mr Krok’s emigration.
[8]
In furtherance of Mr Krok’s scheme to avoid the ‘adverse
South African Exchange Control implications’, as
he put it,
after he ceased to be a resident of South Africa but before entering
Australia, he vested the beneficial interests in
both the assets and
the income in a British Virgin Islands company, Polperro Enterprises
(Polperro) and retained only the legal
ownership. The shares in
Polperro would be held by a Foundation domiciled in Liechtenstein, of
which Mr Krok would be the primary
beneficiary, although he would
have no rights to the assets or control over the Foundation’s
actions.
[8]
To
that end, he concluded two agreements on 23 April 2002. In terms of
the first agreement (The Deed of Sale of Specified Income)
he sold
his right, title and interest to the income from the assets, to be
derived over a 30-year period, to Polperro for a sum
of
R65 441 554.65. In terms of the second agreement (the Asset
Sale Agreement), he sold all his rights in respect of
the assets to
Polperro for a sum of R3 444 292.35. The debt arising from
these agreements was then assigned to the trustees
of an Australian
Trust for a sum of R68 885 847. The long and short of all this
activity, according to Mr Krok, is that he
ceded all his South
African income and assets to Polperro, save for the bare
dominium
thereof,
and had no income or capital gains on which he could be taxed by the
ATO under the agreements.
[9]
Then, on 29 December 2008, Mr Krok emigrated from Australia to the
United Kingdom. The facts germane to this relocation are
set out in
the affidavits filed on behalf of the second appellant, Jucool
Enterprises Inc. (Jucool), deposed to by Ms Cora Barbara
Binchy in
her capacity as a director of Chaumont (Directors) Limited alleged to
be Jucool’s sole corporate director.
[9]
Jucool
was granted leave to intervene in the application proceedings on the
basis of its allegations that its interests would be
prejudiced by
the preservation order because it is the beneficial owner of the
assets in issue. It is a company incorporated in
the British Virgin
Islands on 23 December 2008, just before Mr Krok’s relocation
to the United Kingdom. Its sole shareholder
is Novatrust Limited
(Novatrust), a professional trustee (and trustee of the Jucool Trust)
domiciled in Jersey. The Jucool trust
is a discretionary trust
governed by Jersey law, which was established on 22 December 2008 by
way of a declaration of trust executed
by Novatrust. Its only
material assets are shares in Jucool and a loan receivable from
Jucool described below. Its primary beneficiaries
are Mr Krok and his
children.
[10]
In the submissions document and Jucool’s affidavits it was
alleged that as part of Mr Krok’s planning for the relocation,
Polperro was liquidated. Mr Krok was further advised to establish a
discretionary trust for UK income, inheritance and capital
gains tax
purposes and the necessity for asset protection. On that basis he
concluded certain agreements with Jucool on 29 December
2008.
[10]
Incidentally,
these agreements were not dissimilar to those Mr Krok had earlier
concluded with Polperro, which were terminated at
his instance
leaving him in control of the assets. One was an ‘Income Sale
Agreement’ in terms of which Jucool purchased
from Mr Krok
certain specified rights and interests in the assets listed in that
agreement
[11]
for
a purchase price of R72 500 000. This debt was left
outstanding as an interest-free loan owed by Jucool to Mr Krok.
Effectively the purpose of this transaction was to transfer to Jucool
the income derived from the assets owned by Mr Krok. The
plain
objective of this was to separate the right to enjoy the assets from
the bare
dominium.
As
explained in the affidavit filed on the appellants’ behalf by
Mr Moverley Smith, an expert on the law of the British Virgin
Islands, the notion was that the ‘beneficial ownership’
of the assets would pass from Mr Krok to Jucool and he would
retain
only the legal ownership of the assets, which legal ownership he
would hold on trust for Jucool.
[11]
The other agreement was an ‘Asset Sale Agreement’ in
terms of which Jucool purchased from Mr Krok those rights
and
interests in the assets which had not been sold by Mr Krok to Jucool
in terms of the Income Sale Agreement. The purchase price
in this
instance was a sum of R217 500 000 which was also left
outstanding as an interest-free loan owed by Jucool to
Mr Krok.
Immediately after the conclusion of these agreements Mr Krok entered
into a ‘Deed of Assignment’ with Novatrust.
In terms of
this agreement he assigned to Novatrust all of his rights, title and
interest in the R290 000 000 debt arising
from Jucool’s
purchase, free of consideration.
[12]
In 2009, the ATO launched an audit of Mr Krok’s taxation
affairs which started with his income tax submission for the
income
year ended 28 February 2003 and carried through to his application to
the SARB in February 2010 for the release of funds
to cover his
holiday and visiting expenses in the country during 2010. The audit
was part of a government initiative investigating
participation by
Australians in internationally promoted tax arrangements to identify
taxpayers involved in significant offshore
transactions or large
transfers of funds to or from Australia.
[13]
Arising from this investigation, the reasons document recorded
numerous instances of Mr Krok’s dealings involving the
blocked
assets. It commenced with his income tax return (ITR) to SARS for the
year ended 28 February 2003. In this document Mr
Krok declared, inter
alia, considerable South African interest income and capital gains
running into millions of rand in respect
of a distribution from the
trust and income from South African dividends which were all exempt
from tax in South Africa because
he was a non-resident.
[12]
He
also declared South African assets (which included various listed and
unlisted securities and cash reserves of substantial value)
and
liabilities as at 28 February 2003 totalling R71 713 807
and R777 206, respectively. In the following year,
he lodged
another ITR to SARS for the year ending on 29 February 2004. Yet
again, he declared substantial South African exempt
interest income
and income from dividends and South African assets totalling
R67 644 891.74, with a market value of R98 328 827
according to his personal balance sheet. These returns indicated that
whatever the nature of the transactions with Polperro, Mr
Krok
continued to regard these assets as his personal property and the
income derived from them as likewise his income.
[14]
It was also recorded that for a period in excess of two years, during
2002 to 2004, Mr Krok used his South African credit cards
funded from
the blocked assets for his personal expenditure which, when
identified by the SARB as unauthorised foreign expenditure,
was then
recouped from his transferable income account. It appears that
between January 2004 and April 2010 he repeatedly applied
through
Investec to the SARB, which had directed Investec to control his
assets for his benefit, to use the blocked funds for his
and his
family’s expenditure in South Africa. These included such
diverse matters as the acquisition and decoration of a
home in an
exclusive suburb of Cape Town; the building, furnishing and equipping
of a holiday home in Hermanus; the acquisition
of a motor vehicle;
the payment of amounts to support his aged mother and to provide
pensions for former employees; and the cost
of acquisition of tickets
for the 2010 football World Cup.
[15]
In a 2005 loan application made to St George Bank for the purchase of
residential property in Australia, he furnished details
to the bank
of his capacity to repay and service the loan from amounts remitted
from South Africa. These details demonstrated his
control over the
funds remitted from South Africa, those held by Polperro and the
ultimate application of those funds towards the
acquisition of his
private property. In addition, a personal balance sheet
accompanying the application bore information
contrary to his
statements to the ATO. In an application to the SARB in 2008, Mr Krok
apparently submitted management accounts
which reflected that he held
the rights and interests in the assets claimed to have been disposed
of under the Deed Assignment.
According to the reasons document,
which detailed many other examples said to prove that Mr Krok held
beneficial ownership of the
assets including that he remitted funds
from the Investec accounts directly to his personal offshore bank
accounts, none of these
transactions paid any heed to the assignment
arrangement, the existence of which was never disclosed to SARS and
the ATO.
[16]
Consequent upon the investigation, the ATO concluded that Mr Krok had
intended to conceal foreign income and avoid income tax
in Australia
as shown, for example, by the use of entities established in banking
secrecy jurisdictions such as the British Virgin
Island and
Liechtenstein. In the ATO’s view, Mr Krok had omitted
assessable income from his income tax returns that was derived
from
assets, including those administered on his behalf by Investec, which
he held in South Africa whilst an Australian resident
and also
concealed capital gains on disposals of those assets when he ceased
to be an Australian resident. The ATO further determined
that Mr Krok
retained legal and beneficial interests in the assets and that ‘the
purported assignment arrangement’
of his rights and interests
to the capital and income of these assets to Polperro breached the
South African exchange control regulations
and was a sham. For these
reasons, the ATO accordingly amended his income tax returns for the
income years and issued notices of
assessment of tax and penalties.
Mr Krok’s objection to the assessments under the procedures
provided by Australian law was
disallowed in full.
[17]
As indicated, upon the ATO’s request for SARS’ assistance
of 6 February 2013, SARS launched an application in terms
of s 163
read with s 185 of the Act for a provisional preservation order which
was granted and subsequently confirmed by the court
below. The assets
specified under the order comprised immovable property, cash
investments, a motor vehicle and various listed
and unlisted
securities of considerable value held in Mr Krok’s name or on
his behalf by nominees. The rights, title and
interest in these
assets would vest in the curator
bonis
,
to whom Mr Krok was obliged to disclose all his assets and sources of
income held in South Africa and their location, until the
tax debt
was satisfied or proper arrangements for purposes of the tax
collection were made.
[18]
The issues in the court below were characterised as follows: whether
– (a) SARS proved its case in the context of s 185
of the Act
and the Protocol; (b) the facts justified a reasonable apprehension
of dissipation of the assets; and (c) the introduction
of article 25A
into the DTA applied to the taxes claimed by the ATO for the income
years all which arose before 1 July 2009. Among
the defences raised
on Mr Krok’s behalf was that the tax claimed by the ATO fell
outside the scope of the DTA. This was so,
it was argued, because the
Protocol came into effect on 12 November 2008,
[13]
and
in terms of article 13(2)(a)(ii) thereof, with regard to Australian
tax applies to income, profit or gains accrued on or after
1 July on
the calendar year following the date on which it came into force. The
Protocol, so it was contended, therefore applies
only in respect of
income, profits or gains of any year of income beginning on or after
1 July 2009.
[19]
Jucool aligned itself with Mr Krok’s submissions. It further
argued that the preservation order should not be confirmed
even if
these defences failed as it is the beneficial owner of the assets
subject to the preservation order. On the basis of Mr
Moverley
Smith’s
opinion, it
was contended on its behalf that (a) the agreements it concluded with
Mr Krok and the Deed of Assignment were valid
and binding under the
laws of the British Virgin Islands; (b) the agreements created trusts
of the assets and rights pursuant to
which, upon the agreements
coming into effect, legal title to the assets and rights was retained
by Mr Krok pending transfer and
the beneficial ownership of the
rights and assets passed to Jucool; and (c) such trusts were
enforceable at the instance of Jucool.
[20]
As evidence of the validity of the agreements, it was contended that
they required Mr Krok to hold the assets, rights and interest
Jucool
acquired thereunder in trust on its behalf and for its benefit.
[14]
They
further required Mr Krok to transfer the registered title to the
assets into Jucool’s name as and when the assets became
transferable, at such time as Jucool deemed appropriate.
[15]
Clause
8 of these agreements further obliged Mr Krok, if any of the assets
were sold or the rights and interests they envisaged
were realised,
to cause the net proceeds attributable to Jucool to be paid to it
promptly. Pending such payment, Mr Krok was required
to hold, invest
and otherwise deal with such net proceeds as Jucool required or
directed so as to give effect to the rights acquired
by Jucool
pursuant to the agreements. According to Jucool’s
affidavits, its directors were aware that the assets situated
in
South Africa were blocked under the exchange control regulations and
the agreements were concluded in a manner that ensured
that these
regulations were adhered to. To that end, so it was argued, the
agreements, which recognised that the capital of the
assets could not
be remitted from South Africa, expressly required proper applications
for permissions and consents from the Exchange
Control Department of
the SARB to remit the assets, which were always held by an authorised
dealer in foreign exchange in an account
subject to regulation
4(2).
[16]
[21]
The court below was not persuaded by any of these contentions. With
regard to Mr Krok’s arguments, it accepted SARS’
interpretation of the relevant provisions of the DTA and concluded
that ‘[h]aving regard to the objective facts …
the
purpose of the relevant legislation and the purpose of the Protocol,
and the proper context, I am of the view that ss 163 and
185 of [the
Act], in the context of the relevant Protocol, justify the
confirmation of the Preservation Order that was provisionally
made’.
The court below was similarly unimpressed by Jucool’s case. It
held that examples of the manner in which Mr
Krok dealt with the
assets as the beneficial owner abounded in the ATO’s
documentation and Mr Krok’s submissions to
it and that no
effective transfer of rights, or even an intention to do so, was
shown to have taken place.
[22]
On appeal before us, the only argument persisted in on Mr Krok’s
behalf was that on a proper interpretation of article
25A of the DTA
and article 13(2)(a)(ii) of the Protocol, article 25A can be invoked
only if the taxes claimed by the ATO arose
on or after 1 July 2009.
This was so, it was contended, because in terms of the common law
revenue rule, any assistance that can
be provided by one State to
another under article 25A is limited to the collection of ‘revenue
claims’ ie amounts owed
in respect of taxes referred to in
article 2 of the DTA. And, in the case of Australia, in terms of
article 13(2)(a)(ii) read with
article 3(1)(c), which defines
‘Australian tax’ to which the reach of article 25A is
confined, the Australian taxes
referred to in article 2 only apply to
income, profits or gains in relation to years of income commencing on
or after 1 July 2009.
As the taxes claimed here arose before the
latter date, they fell beyond the scope of the DTA and there was thus
no basis for the
invocation of the conservancy provisions of the Act.
So went the argument.
[23]
The court below was further criticised for overlooking the general
rule of interpretation that in the absence of express provisions
to
the contrary, statutes should be construed as affecting future
matters only. In this regard it was argued that the court erroneously
accepted SARS’ contention that article 25A applies
retrospectively to all taxes since the inception of the DTA
notwithstanding
the express provisions of article 13(2)(a)(ii).
Jucool supported these contentions, as it had done in the court
below, and again
argued against the confirmation of the preservation
order even if the defences failed on the further basis that it is the
beneficial
owner of the assets subject to the order.
[24]
The DTA and the Protocol, which came into effect on 12 November 2008,
were concluded in terms of s 108(2) of the Income Tax
Act 58 of 1962
read with s 231(4) of the Constitution of the Republic of South
Africa, 1996 (the Constitution).
[17]
Thus,
they became part of South African law as they were approved by the
legislature under these provisions and duly gazetted.
[18]
In
its original form, the DTA made no provision for reciprocal
assistance in the collection and enforcement of foreign taxes in
the
courts of the two States. It merely catered for mitigation of double
taxation of taxpayers who would otherwise be liable for
tax in two
jurisdictions in respect of the same taxable gain or income by
allocating taxation rights between convention or treaty
parties.
Furthermore, it provided for the exchange of any information
necessary for the carrying out of its terms or the domestic
law of
the contracting States concerning the relevant taxes.
The
Protocol amended the DTA by, inter alia, making provision (in article
11 which inserted article 25A into the DTA) for the two
States to
assist each other in the collection of taxes and securing
preservation orders for purposes of recovering taxes.
[25]
The provisions of the Act, which was promulgated after the Protocol
came into effect ‘to ensure the effective and efficient
collection of tax’ not only in respect of taxes imposed by
South Africa on its subjects, but also on behalf of
foreign
governments, are consonant with the Protocol’s objectives.
Section 185 provides in relevant part:
‘
(1)
If SARS has, in accordance with an international tax agreement,
received–
(
a
)
a request for conservancy of any amount alleged to be due by a person
under the tax laws of the other country where there is a
risk of
dissipation or concealment of assets by the person, a senior SARS
official may apply for a preservation order under section163
as if
the amount were a tax payable by the person under a tax Act’.
Section
163 in turn provides:
‘
(1)
A senior SARS official may authorise an
ex
parte
application to the High Court for
an order for the preservation of any assets of a taxpayer or other
person prohibiting any person,
subject to the conditions and
exceptions as may be specified in the preservation order, from
dealing in any manner with the assets
to which the order relates.’
[26]
Before the enactment of these provisions and the introduction of
article 25A into the DTA, the revenue rule prevailed. In terms
of
this international law rule, which forms part of South African law,
the courts of one State are precluded, in the absence of
a permissive
rule to the contrary from entertaining legal proceedings involving
the enforcement of the revenue laws of another
State – an
attribute of sovereignty. This is so, because international comity
does not extend to the recognition of tax liabilities
imposed by a
State on its subjects for its own domestic management and regulation.
Thus, a foreign State may not have a claim for
taxes payable to its
fiscus enforced in another State as this would be tantamount to
derogation of the other State’s territorial
supremacy.
[19]
For
that reason, South African courts had no power to order the
attachment of assets for the purposes of enabling a foreign State
to
recover taxes owed to it until the rule was abrogated by the
introduction of article 25A in the DTA and other double taxation
agreements containing similar provisions.
[27]
Regarding the approach to be adopted in construing the relevant
provisions, consideration must be had to the rules applicable
to the
interpretation of treaties which are binding on South Africa and all
States as rules of customary international law.
[20]
These
rules, which are essentially no different from those generally
applied by our courts in construing statutes and agreements,
[21]
are
set out in articles 31 and 32 of the Vienna Convention on the Law of
Treaties, 1969 which read:
‘
Article
31 General rule of interpretation
1.
A treaty shall be interpreted in good faith in accordance with the
ordinary meaning to be given to the terms of the treaty in
their
context and in the light of its object and purpose.
2.
The context for the purpose of the interpretation of a treaty shall
comprise, in addition to the text, including its preamble
and
annexes:
(a)
Any agreement relating to the treaty which was
made between all the parties in connection with the conclusion of the
treaty;
(b)
Any instrument which was made by one or more
parties in connection with the conclusion of the treaty and accepted
by the other parties
as an instrument related to the treaty.
3.
There shall be taken into account, together with the context:
(a)
Any subsequent agreement between the parties
regarding the interpretation of the treaty or the application of its
provisions;
(b)
Any subsequent practice in the application of the
treaty which establishes the agreement of the parties regarding its
interpretation;
(c)
Any relevant rules of international law applicable
in the relations between the parties.
4.
A special meaning shall be given to a term if it is established that
the parties so intended.
Article
32 Supplementary means of interpretation
Recourse
may be had to supplementary means of interpretation, including the
preparatory work of the treaty and the circumstances
of its
conclusion, in order to confirm the meaning resulting from
application of article 31, or to determine the meaning when the
interpretation according to article 31:
(a)
leaves the meaning ambiguous or obscure; or
(b)
leads to a result which is manifestly absurd or
unreasonable.’
[28]
It was contended for Mr Krok that the revenue rule, which entitled
South African taxpayers to arrange their affairs on its
assurance
that their assets were protected against foreign tax authorities, has
an important role in considering the proper interpretation
to be
given to the applicable provisions of the DTA. This was so, it was
argued, because article 25A abrogated the rule only in
respect of
Australian taxes in respect of income, profits or gains of any year
of income beginning on or after 1 July 2009 and
had no retrospective
effect as found by the court below. I do not agree. It is
established, as the parties acknowledged, that the
rule, which is
concerned with the enforcement of taxes, does not constitute an
absolute proscription of the recognition of foreign
revenue laws and
may be abrogated by convention or treaty.
[22]
Evidently,
the reason for the rule between South Africa and Australia ceased to
exist once the two countries agreed to assist each
other in the
collection of taxes. In that case the rule itself has no relevance
whatsoever in the determination of the meaning
and scope of the
Protocol.
[23]
[29]
Similarly wrong is Mr Krok’s argument relating to the South
African taxpayers’ purported expectations based on
the revenue
rule, were it relevant for present purposes. The argument obviously
misconceives the nature of the rule which does
not exist for the
benefit or protection of taxpayers.
[24]
As
was pointed out in
Government
of
India
v Taylor
,
[25]
the
rule has two likely sources. One is a State’s autonomy as the
‘enforcement of a claim for taxes is but an extension
of the
sovereign power which imposed the taxes and … an assertion of
sovereign authority by one State within the territory
of another, as
distinct from a patrimonial claim by a foreign sovereign, is (treaty
or convention apart) contrary to all concepts
of independent
sovereignties’. The other has to do with the court’s
powers. Scrutiny of the public order of another
State, to which
revenue laws are analogous, involves enquiring into whether they
accord with its own public policy. This affects
the relations between
the foreign States which obviously fall beyond a court’s
purview as this is an area entrusted to the
executive. A court’s
application of the rule or its abrogation is therefore not concerned
with any rights of a taxpayer.
[30]
Turning to the relevant provisions of the Protocol, article 13.1
thereof makes provision for Australia and South Africa to
‘notify
each other in writing through the diplomatic channel of the
completion of their domestic requirements for the entry
into force of
this Protocol’. Article 13.2 provides:
‘
The
Protocol, which shall form an integral part of the [DTA], shall enter
into force on the date of the last notification, and thereupon
the
Protocol shall have effect:
(a)
in the case of Australia:
(i)
with regard to withholding tax on income that is
derived by a non-resident, in respect of income derived on or after
the first day
of the second month following the date on which the
Protocol enters into force;
(ii)
with regard to other Australian tax, in respect of
income, profits or gains of any year of income beginning on or after
1 July in
the calendar year following the date on which the Protocol
enters into force’.
[31]
Article 25A reads:
‘
1.
The Contracting States shall lend assistance to each other in the
collection of revenue claims. This assistance is not restricted
by
Article 1. The competent authorities of the Contracting States may by
mutual agreement settle the mode of application of this
Article.
2.
The term “revenue claim” as used in this Article means an
amount owed in respect of taxes referred to in Article
2, insofar as
the taxation thereunder is not contrary to this Agreement or any
other instrument to which the Contracting States
are parties, as well
as interest, administrative penalties and costs of collection or
conservancy related to such amount.
3.
When a revenue claim of a Contracting State is enforceable under the
laws of that State and is owed by a person who, at
that time, cannot,
under the laws of that State, prevent its collection, that revenue
claim shall, at the request of the competent
authority of that State,
be accepted for purposes of collection by the competent authority of
the other Contracting State. That
revenue claim shall be collected by
that other State in accordance with the provisions of its laws
applicable to the enforcement
and collection of its own taxes as if
the revenue claim were a revenue claim of that other State.
4.
When a revenue claim of a Contracting State is a claim in respect of
which that State may, under its law, take measures
of conservancy
with a view to ensure its collection, that revenue claim shall, at
the request of the competent authority of that
State, be accepted for
purposes of taking measures of conservancy by the competent authority
of the other Contracting State. That
other State shall take measures
of conservancy in respect of that revenue claim in accordance with
the provisions of its laws as
if the revenue claim were a revenue
claim of that other State even if, at the time when such measures are
applied, the revenue
claim is not enforceable in the firstmentioned
State or is owed by a person who has a right to prevent its
collection.
…’
.
[32]
In turn, article 2 of the Protocol, which substituted the original
article 2 of the DTA and to which reference is made in article
25A.2,
provides:
‘
1.The
existing taxes to which this Agreement shall apply are:
(a)
in the case of Australia:
the
income tax, including the resource rent tax in respect of offshore
projects relating to exploration for or exploitation of petroleum
resources, imposed under the federal law of Australia;
(b)
in the case of South Africa:
(i)
the normal tax;
(ii)
the secondary tax on companies; and
(iii)
the withholding tax on royalties.
1.
The Agreement shall apply also to any identical or substantially
similar taxes, including taxes on dividends that are imposed
under
the federal law of Australia or by the Government of the Republic of
South Africa under its domestic law after the date of
signature of
the Agreement in addition to, or in place of, existing taxes. …
2.
For the purpose of Article 23A, the taxes to which the Agreement
shall apply are taxes of every kind and description imposed
on behalf
of the Contracting States, or their political subdivisions or local
authorities.
3.
For the purposes of Articles 25 and 25A, the taxes to which the
Agreement shall apply are:
(a)
In the case of Australia, taxes of every kind and
description imposed under the federal laws administered by the
Commissioner of
Taxation; and
(b)
In the case of South Africa, taxes of every kind
and description imposed under the tax laws administered by the
Commissioner for
the South African Revenue Service.’
[33]
The new article 2 amended its predecessor in a number of ways but
only slightly with regard to taxes applicable to Mr Krok
in
Australia.
[26]
Of
real significance was the amending article 2.3 which provided that
for purposes of the new article 23A the taxes to which the
DTA shall
apply are taxes of any kind and description. And more pertinent is
the new article 2.4 dealing with the exchange of information
and
reciprocal assistance in tax recovery provisions: it provided that
for the purposes of articles 25 and the new 25A, the taxes
to which
the DTA applies are taxes of every kind and description imposed under
the taxes administered by the Australian Commissioner
of Taxation and
the Commissioner for SARS.
[34]
The express reference in articles 2.3 and 2.4 to ‘taxes of
every kind and description’ is obviously deliberate
and
unambiguous. A plain reading of the wording of article 2, which says
nothing whatsoever about any time limitations, makes it
clear that
for purposes of articles 25 and 25A the taxes to which the DTA
applies are not limited by articles 2.1 and 2.2. The
reference in
article 25A.2 to a revenue claim (in respect of which the contracting
States shall assist each other for its collection)
as ‘an
amount owed in respect of taxes referred to in article 2’
cannot be directed at article 2.1 alone. Neither does
it mean that
only article 2.1 identifies the taxes to which the DTA applies as
contended by the appellants. Such reference must
also include article
2.4 which refers back to article 25A and gives the DTA’s scope
the widest latitude in this regard. As
was correctly argued on SARS’
behalf, it is precisely the wide application provided in article 2.4
that gave rise to the
need to add the words ‘in so far as the
taxation thereunder is not contrary to [the DTA] or any other
instrument to which
the Contracting States are parties’.
[35]
Article 13 on the other hand, quite contrary to the appellants’
contentions, does not purport to form part of the DTA.
Its plain
wording merely pronounces that the Protocol shall form an integral
part of the DTA and provides the dates from which
the amendments to
the DTA provided by the Protocol in respect of the matters specified
in article 13 would come into effect, ie
on the date of last
notification. Article 13(2)(a)(ii), the mainstay of the appellants’
argument on how article 25A should
be construed, makes reference to
‘other Australian tax’. This can only mean Australian tax
other than the withholding
tax on income mentioned in article
13(2)(a)(i). The DTA defines ‘Australian tax’ in article
3(c) as tax to which the
DTA applies by virtue of its article 2. And
as indicated above, such tax would be that specified in articles
2.1(a) of the DTA.
It must follow that the ‘the other
Australian tax’ referred to in article 13(2)(a)(ii) is ‘income
tax, including
the resource rent tax’ envisaged in article 2.1
but excluding the withholding tax on income referred to in article
13.2(a)(i).
This starkly illustrates the fallacy in the appellants’
interpretation of article 2 and in particular the term ‘revenue
claim’.
[36]
Interestingly, in terms of article 10 of the Protocol, article 25 of
the DTA was replaced with the new article 25 mentioned
in article
2.4. The amending article included new subparagraphs providing for
additional powers in relation to the exchange of
information. These
provisions expressly expanded the scope of such exchange in light of
article 2.4 beyond the taxes previously
envisaged in articles 2.1 and
2.2 to taxes of every kind and description. Article 25 provides no
temporal limitations relating
to exchange of information. In terms of
article 13(2)(c) the Protocol would have effect for purposes of
article 25 from the date
on which the Protocol entered into force.
Thus, article 25 would take effect simultaneously with the Protocol,
on 12 November 2008,
in respect of taxes of every kind and
description and without any limitation regarding the time periods in
relation to which information
would be exchanged. This inevitable
result certainly does not accord with what would be produced by the
appellants’ interpretation
of article 2, ie that only
information concerning ‘other Australian tax’ in respect
of income profits or gains arising
after 1 July 2009 may be
exchanged.
[37]
Mr Krok further relied on the official commentary on the OECD Model
Convention on Double Taxation, on which article 25A is
based, to
bolster his argument.
[27]
He
contended that the commentary’s explanation that States are
entitled to restrict the application of article 25A to taxes
arising
or levied from a certain time, ie that article 25A can be subject to
limitation, supports his interpretation of its provisions.
But a
similar argument was raised and properly dismissed in
Ben
Nevis
(Holdings)
Ltd and Metlika Trading Ltd v Commissioners for HM Revenue &
Customs.
[28]
There,
the court considered the provisions of a tax treaty between South
Africa and the United Kingdom in an appeal in which issues
similar to
those raised here were considered in the context of a similar article
25A in a 2002 convention between the two countries
as amended by a
2010 protocol. This was in relation to the collection of income tax
by SARS, assisted by the UK Revenue authority,
which accrued during
the 1998, 1999 and 2000 years of assessment. The taxpayer’s
ultimate argument in its resistance to the
tax recovery was that on a
proper interpretation of the 2010 protocol and the 2002 convention,
article 27 of their DTA (similar
to article 27 of the DTA) applied to
article 25A and precluded mutual assistance in the collection of tax
debts which arose before
1 January 2003.
[38]
Mr Krok sought to capitalise on the distinguishing features between
Ben
Nevis
and
the instant appeal. It was argued, inter alia, that this appeal is
not concerned with the scope and effect of article 27 but
the
temporal limitation imposed by article 13(2)(a)(ii) on article 25A as
opposed to Article VI of the South African and United
Kingdom treaty
which does not have any temporal limitation. I am nonetheless
persuaded that there is sufficient similarity between
the issues
raised in both cases and that the findings of the English court on
the nature and effect of article 25A are instructive
for present
purposes.
[29]
Regarding
the submissions relating to the OECD commentary, the court held that
the commentary makes clear that it is open to the
parties to apply
the provision on assistance in the collection of taxes to revenue
claims arising before the Convention enters
into force and that the
question is whether the parties intended that the Protocol should
have that effect. All indications are
that this is what was intended
here.
[39]
As to whether assistance could be rendered in terms of Article 25A in
respect of taxes that arose prior to the 2002 Convention,
the court
held:
[30]
‘
[T]he
Protocol in Article IV (introducing the new Article 25A) …
makes entirely sensible and workable provision for assistance
in the
collection of taxes and it is not necessary to resort to Article 27
to supplement it. Its provisions apply only to requests
for
assistance made after the entry into force of the Protocol. The
Convention in its original form was principally concerned …
with substantive issues of double taxation. These provisions, when
brought into effect and implemented, modified liability to taxation
in both the United Kingdom and South Africa. There was therefore a
compelling reason why it was necessary to define with precision
the
scope of their effect by reference to both the categories of taxes
and the time of accrual of liability to which they applied.
This need
was intensified by the fact that the 2002 Convention was merely the
latest in a line of treaties between the United Kingdom
and South
Africa on double taxation and it was necessary to define the precise
temporal limitations of the successive regimes which
they introduced.
Article 27 has a vital role to perform in this context. However,
while parties may choose to limit the temporal
application of
provisions relating to mutual assistance in this way, I can see no
corresponding necessity for defining the years
of accrual liability
to which such provisions for mutual assistance may apply. “
Taxes’
in Article 25A(2) does not need to be limited by reference to the
date of their accrual. Article 25A has no bearing
on liability to tax
and is merely concerned with proceedings for enforcement. Whereas
provisions which modify tax changes need
to be linked to the relevant
tax period so as to ensure a smooth transition from the existing
rules to the new rules, there is
no need to make similar provision
for administrative provisions such as Article 25A which may, without
difficulty, be brought into
effect as soon as the Protocol comes into
effect ... This reading of the provisions is also consistent with the
objective of the
Protocol which …is to assist international
tax enforcement … This purpose would be obstructed by limiting
Article
25A in the manner proposed by the Appellants.’
(My emphasis.)
These
views aptly contextualise the DTA and the meaning and purpose of
article 25A. For the same reasons adopted by the English
court, there
is clearly no basis to construe article 25A as being subject to
article 13(2)(a)(ii).
[40]
There is equally no merit in the retrospectivity point which the
appellants properly conceded during argument. The rule
against
retrospectivity bears no relevance in this case. The effect of
article 25A is plainly prospective as it could only be invoked
when
the relevant countries so agreed and its provisions came into force.
Tax claims which arose in the past in respect of which
assistance was
sought would also be covered. It is a firmly established principle of
our law that a statute is not retrospective
merely ‘because a
part of the requisites for its action is drawn from time antecedent
to its passing’.
[31]
The
appellants’ own argument supports this position because they
paradoxically accepted that article 25A, which it was common
cause
came into force on 1 July 2010,
[32]
may
be applied to Australian tax in respect of income profits or gains in
any year of income beginning on or after 1 July 2009.
[41]
Therefore, when article 25A entered into force on 1 July 2010 in
terms of article 13(2)(d), it applied to a revenue claim,
ie an
amount owed in respect of taxes of every kind and description to
which article 13(2)(a)(ii) has no application. Mr Krok’s
jurisdictional challenge to the preservation order accordingly fails.
[42]
I now turn to Jucool’s claim that the preservation order should
nevertheless be discharged because SARS pursued these
proceedings in
total disregard of its ownership of the beneficial interest in the
assets in question, despite having notice thereof.
It seems that this
issue can safely be decided simply by determining whether or not
ownership in the assets passed from Mr Krok
to Jucool. I will assume
without deciding, in the appellants’ favour, that the
agreements were binding and valid under the
law of the British Virgin
Islands. But there is an insuperable difficulty with which Jucool
must contend. The assets are situated
in South Africa and not in the
British Virgin Islands. Their fate must accordingly be decided in
terms of the relevant South Africa
law.
[33]
In
particular, as we are concerned with the question whether the
ownership of assets situated in South Africa passed from Mr Krok
to
Jucool, the law of South Africa (the
forum
rei sitae
)
governs. This is also in accordance with English common law, which is
the law applicable in the British Virgin Islands.
[34]
[43]
The
Deeds Registries Act 47 of 1937
governs the transfer of real
rights in immovable property.
Section 16
thereof provides that
‘ownership of land may be conveyed from one person to another
only by means of a deed of transfer executed
or attested by the
registrar, and other real rights in land may be conveyed from one
person to another only by means of a deed
of cession attested by a
notary public and registered by the registrar’. And
s 63
of the
same Act imposes a strict restriction on such registration. It
provides that ‘[n]o deed, or condition in a deed, purporting
to
create or embodying any personal right, and no condition which does
not restrict the exercise of any right of ownership in respect
of
immovable property, shall be capable of registration: Provided that a
deed containing such a condition … may be registered
if, in
the opinion of the registrar, such condition is complementary or
otherwise ancillary to a registrable condition or right
contained or
conferred in such deed.’
[44]
As to movable property, whether corporeal or incorporeal, it is trite
that ownership thereof cannot pass by virtue of a contract
of sale
alone: there must in addition, be at least proper delivery of the
contract goods to the purchaser.
[35]
In
sum, the transfer of rights in movable property, which is governed by
the
lex
situs
,
requires delivery.
[45]
None of these legal requirements appear to have been met in respect
of the assets in issue. And this also applies to the lesser
rights in
the incorporeal movables such as the right to income derived from the
shares which would have required transfer by way
of cession. Jucool
merely contented itself with its reliance on the provisions of the
British Virgin Islands law and the opinion
of its English expert
thereon (who did hint at some recognition of the importance of South
African law in this regard). It has
not shown that the court below
erred in finding that it failed to prove its beneficial ownership in
the assets and confirming the
preservation order. The appeal must
therefore fail.
[46]
In the result, the following order is made:
The
appeal is dismissed with costs, including the costs of two counsel.
____________________
M
M L MAYA
Judge
of Appeal
APPEARANCES
FIRST
APPELLANT: P Ginsburg
SC (with G Goldman)
Instructed
by:
Cliffe
Dekker Hofmeyr Inc., Sandton
Webbers,
Bloemfontein
SECOND
APPELLANT: A E Franklin SC (with S W Burger)
Instructed
by:
Bowman
Gilfillan Inc., Sandton
McIntyre
& Van der Post, Bloemfontein
RESPONDENT:
N
G D Maritz SC (with H G A Snyman
SC)
Instructed
by:
Mahlangu
Attorney, Pretoria
Lovius-Block,
Bloemfontein
[1]
In
terms of s 163(10)(
a
)
of the Act, the preservation order remains in force pending the
outcome of the appeal.
[2]
SARS
explained the reason for the two requests in respect of the same
subject-matter and its failure to act on the ATO’s
initial
request for assistance in January 2012 in its founding affidavit as
based on the absence of statutory provisions that
entitled it to
preserve assets at the time. Its remedy lay only in the common law
at the time and it would have had to give the
respondent notice
under s 93 of the Income Tax Act 58 of 1962 before seeking a
preservation interdict upon proof, on a balance
of probabilities,
that the assets would be diminished with the intent to frustrate a
claim. SARS stated that it was out of fear
that such notice would
likely trigger steps to dissipate the assets that the first request
was not implemented. The ATO’s
second request was thus pursued
on the basis of the dispensation created by the Act, which expressly
empowers SARS to render
assistance to foreign governments to recover
taxes by seeking an order in the high court for the preservation of
any assets of
a taxpayer.
[3]
Equivalent
to approximately R235 705 169,19.
[4]
Section
185 of the Act provides for ‘tax recovery on behalf of foreign
governments’ and reads in relevant part:
‘
(2)
A request described in subsection (1) must be in the prescribed form
and must include a formal certificate issued by the competent
authority of the other country stating–
(a)
the amount of the tax due;
(b)
whether the liability for the amount is disputed
in terms of the laws of the other country;
(c)
if the liability for the amount is so disputed,
whether such dispute has been entered into solely to delay or
frustrate collection
of the amount alleged to be due; and
(d)
whether there is a risk of dissipation or
concealment of assets by the person.
(3)
In any proceedings, a certificate referred to in subsection (2) is–
(a)
conclusive proof of the existence of the
liability alleged; and
(b)
prima facie
proof
of the other statements contained therein.’
[5]
Mr
Krok subsequently acquired two immovable properties in Cape Town in
2008, having applied to the South African Reserve Bank
on 16 January
2008 for the release of R15,6 million to him for that purpose (para
14 below).
[6]
Regulations
made under the
Currency and Exchanges Act 9 of 1933
published in GN
R1111 of 1 December 1961 as amended up to GN R445, GG 35430 of 8
June 2012.
[7]
Regulation
4(1)
of the regulations.
[8]
According
to Mr Krok, the Foundation’s role was merely to hold the
shares in Polperro. The latter’s director would
be GCI
Management Limited which would be provided by Insinger de Beaufort,
an independent third party responsible for Polperro
and remunerated
on an arm’s length basis for its services.
[9]
The
affidavits comprise an answering affidavit which incorporated
Jucool’s affidavit filed in support of its application
for
leave to intervene.
[10]
Curiously,
these agreements reflect that they were executed on Jucool’s
behalf by an entity called Montblanc (Directors)
Ltd and not the
Chaumont (Directors) Ltd referred to in the affidavits deposed to by
Ms Binchy and the resolution which empowered
her to depose to such
affidavits. But nothing turns on this seeming discrepancy.
[11]
Set
out in clause 6 of the agreement as follows:
‘
6.1.
the right to receive all the Income from and other fruits of, the
Assets;
6.2.
the right to cause the Seller to sell any of the Assets and to cause
the Seller to purchase any Asset or Assets which the
Seller may
legally purchase from time to time with the proceeds of the Income
derived from the Assets;
6.3.
the right to exercise or to direct the seller how to exercise the
voting Rights with respect to any of the Assets possessing
Rights;
6.4.
the right to cause the Seller to exercise on behalf of the Buyer any
other right which the Seller may have with respect to
any of the
Assets …’
during
the period of 30 years from the effective date.’
[12]
In
terms of the Income Tax Act 58 of 1962.
[13]
In
terms of Government Notice No. 31721 dated 23 December 2008 which
reads ‘[I]n terms of paragraph 2 of Article 13 of the
Protocol
… the date of entry into force is 12 November 2008.’
[14]
Clauses
7.3.1 and 6.4.1
of
the Income Sale Agreement and the Asset Sale Agreement,
respectively.
[15]
Clauses
7.2 and 6.2 of the Income Sale Agreement and the Asset Sale
Agreement, respectively.
[16]
In
terms of regulation 4(2), whenever a person in South Africa is under
a legal obligation to make a payment to a person outside
South
Africa but is precluded from effecting the payment as a result of
any restrictions imposed by or under the regulations,
the Treasury
may order such person to make the payment into a blocked account.
[17]
Section
108 of the Income Tax Act provides for the prevention of or relief
from double taxation and reads in relevant part:
‘
(1)
The National Executive may enter into an agreement with the
government of any other country, whereby arrangements are made
with
such government with a view to the prevention, mitigation or
discontinuance of the levying, under the laws of the Republic
and of
such other country, of tax in respect of the same income, profits or
gains, or tax imposed in respect of the same donation,
or to the
rendering of reciprocal assistance in the administration of and the
collection of taxes under the said laws of the
Republic and of such
other country.
(2)
As soon as may be after the approval by Parliament of any such
agreement, as contemplated in section 231 of the Constitution,
the
arrangements thereby made shall be notified by publication in the
Gazette and the arrangements so notified shall thereupon
have effect
as if enacted in this Act.’
Section
231(4) of the Constitution makes provision for international
agreements and reads: ‘Any international agreement
becomes law
in the Republic when it is enacted into law by national legislation;
but a self-executing provision of an agreement
that has been
approved by Parliament is law in the Republic unless it is
inconsistent with the Constitution or an Act of Parliament’.
[18]
In
Government Notice 1368 published in Government Gazette No 31721 of
23 December 2008.
[19]
Re
Delhi Electric Supply & Traction Co. Ltd
[1953]
2 All ER 1452
(CA);
Government
of India, Minister of Finance (Revenue Division) v Taylor and
another
[1955]
AC 491
;
[1955] 1 All ER 292
(HL)
;
Commissioner of Taxes, Federation of Rhodesia v McFarland
1965
(1) SA 470
at 474A-B;
[1965] 1 All SA 389
(W) at 394.
[20]
Fothergill
v Monarch Airlines Ltd
[1980] UKHL 6
;
[1981]
AC 251
at 282 C-F
[1980] UKHL 6
; ;
[1980] 2 All ER 696
(HL);
Ben
Nevis Holdings Ltd and Metlika Trading Ltd v Commissioners for HM
Revenue & Customs
[2013]
EWCA Civ 578
paras 17 and 18.
[21]
Natal
Joint Municipal Pension Fund v Endumeni Municipality
2012
(4) 593 (SCA) paras 18 and 19.
[22]
Government
of India v Taylor,
fn
19 at 299.
[23]
Labuschagne
v Labuschagne; Labuschagne v Minister van Justisie
1967
(2) SA 575
(A) at 578D-F.
[24]
Ben
Nevis (Holdings) Ltd
,
fn 20.
[25]
Above,
fn 20.
[26]
For
example, the original articles 2.1 and 2.2 were amended (a) by the
replacement in article 2.1(a) of the word ‘and’
between
the words ‘income tax’ and ‘the resource rent tax’
in the case of Australia with the word ‘including’;
(b)
in the case of South Africa, by the addition in a new subparagraph
(iii) of the words ‘withholding tax on royalties’
as a
tax to which the DTA applies and (c) by the inclusion in article 2.2
of the words ‘including taxes on dividends that’
and the
deletion of the word ‘which’ after the word ‘taxes’
in the first sentence, and the respective
replacement of the words
‘substantial’ and ‘which’ with the words
‘significant’ and ‘that’
in the fifth
sentence.
[27]
The
commentary reads: ‘14. Nothing in the [OECD Model]
Convention prevents the application of the provisions of the
Article
to revenue claims that arise before the Convention enters into
force, as long as assistance with respect to these claims
is
provided after the treaty has entered into force and provisions of
the Article have become effective. Contracting States may
find it
useful, however, to clarify the extent to which the provisions of
the Article are applicable to such revenue claims,
in particular
when the provisions concerning the entry into force of their
Convention provide that the provisions of that Convention
will have
effect with respect to taxes arising or levied from a certain time.
States wishing to restrict the application of the
Article to claims
arising after the Convention enters into force are also free to do
so in the course of bilateral negotiations.’
[28]
Ben
Nevis
(Holdings)
Ltd and Metlika Trading Ltd v Commissioners for HM Revenue &
Customs
[2013]
EWCA Civ 578
paras 32 and 33.
[29]
Article
27(1)(a)(ii) under consideration in
Ben
Nevis
bears
striking resemblance to article 13(2)(a)(ii). It provides that
‘[e]ach of the Contracting States shall notify the
other,
through the diplomatic channel, the completion of the procedures
required by its law for the bringing into force of this
Convention
[which] shall enter into force on the date of receipt of the later
of these notifications and shall thereupon have
effect … in
South Africa … with regard to other taxes, in respect of
taxable years beginning on or after the 1st
January next following
the date upon which this Convention enters into force’.
[30]
At
paras 23 and 24.
[31]
R
v St Mary, Whitechapel (Inhabitants)
[1848] EngR 746
;
116
E.R. 811
((1848)
12 QB 127)
at 814. See also
R
v Grainger
1958
(2) SA 443
(A) at 446;
Adampol
(Pty) Ltd v Administrator, Transvaal
1989
(3) SA 800
(A) at 812A-F, 817I-818A;
Swanepoel
v Johannesburg City Council
[1994] ZASCA 80
;
1994
(3) SA 789
(A) at 793.
[32]
In
terms of Diplomatic Note No 10/184 from the Australian Department of
Foreign Affairs and Trade dated 23 July 2010 and Diplomatic
Note
Aus/16/2010 from the Department of International Relations and
Cooperation of the
Republic
of South Africa dated 28 July 2010.
[33]
Estate
Kemp v McDonald’s Trustee
1915
AD 491
at 498-499;
Gallo
Africa Ltd v Sting Music
(Pty)
Ltd
2010
(6) SA 329
(SCA) para 11.
[34]
Marcard
Stein & Co v Port Marine Contractors (Pty) Ltd
[1995] ZASCA 76
;
1995
(3) SA 663
(A) at 667;
Hardwick
Game Farm v Suffolk Agricultural and Poultry Producers Association
Ltd (William Lillico & Son Ltd and another, Third
Party; Henry
Kendall & Sons and another, Fourth Parties)
[1966]
1 All ER 309
(CA) at 338I.
[35]
Marcard
Stein & Co
,
fn 34, at 667B
;
Lendalease Finance (Pty) Ltd v Corporacion De Mercadeo Agricola
1976
(4) SA 464
(A) at 489H-490A.