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[2014] ZAGPPHC 8
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Commissioner for the South African Revenue Service v Krok and Another (1319/13) [2014] ZAGPPHC 8; [2014] 2 All SA 66 (GNP); 2014 (3) SA 453 (GP); 76 SATC 119 (31 January 2014)
IN THE HIGH COURT OF SOUTH AFRICA
(NORTH
GAUTENG HIGH COURT)
Case
Number: 1319/13
Date:
31 January 2014
Reportable
Of
Interest to Other Judges
In
the matter between:
THE
COMMISSIONER FOR THE
SOUTH AFRICAN
REVENUE SERVICE
………………………………….
APPLICANT
And
MARK
KROK
………………………………………………………
FIRST
RESPONDENT
JUCOOL
ENTERPRISES INC
……………………………….
SECOND
RESPONDENT
JUDGMENT
Fabricius J,
1.
On 18 February 2013, this Court
granted a provisional Preservation Order in terms of the provisions
of
s. 163 of The Tax
Administration Act, no. 28 of 2011 (“The
Tax Administration
Act"
;)
,
with all the provisions of the
order having immediate effect. A return day was stipulated, which was
extended on a number of occasions,
and the application before me is
to confirm this provisional order. In terms of the order a curator
bonis
was appointed in
whom the rights, title and interest in all the assets of the
Respondent would vest. This included certain specified
assets whether
or not they were registered or held in the name of the Respondent.
These assets included a large portfolio of shares
on the Johannesburg
Stock Exchange, certain funds in a nonresident account at a
bank, a current account, two erwen in the
Cape and a motor vehicle.
According to the Court Order no one, except with the prior written
consent of the Applicant, which would
not unreasonably refused, could
deal with the assets except the curator bonis.
It
was also ordered that the Respondent disclose to the curator bonis
all his assets held in South
Africa and all of his sources of income in South Africa, and to
identify where such assets could be
found and to co-operate in order
to ensure that all his assets were placed at the disposal of the
curator bonis.
The
curator bonis
would
continue to function for as long as the Applicant was collecting
taxes for the Australian Tax Office from the Respondent,
or until the
Applicant was satisfied that a proper arrangement had been made in
order to secure such assets belonging to the Respondent,
and all the
assets mentioned in the Court Order for purposes of such tax
collection.
2
.
On 15 March 2013, an opposing
affidavit was filed on behalf of Respondent. This affidavit was
deposed to by his Attorney, and deals
in the main with legal argument
setting out the Respondent’s defences to the application. Only
a few paragraphs contained
in the founding affidavit, where answered
directly. The affidavit contained a number of annexures as well.
3.
On 22 April 2013, Applicant
filed a replying affidavit which also contains a number of annexures.
Second Respondent herein was granted
leave to intervene in these
proceedings on 30 July 2013, and accordingly filed an answering
affidavit; this affidavit in turn relies
largely on what was stated
in the affidavit in support of an application for leave to intervene.
The Applicant then filed a replying
affidavit to the second
Respondent’s answering affidavit.
4.
BACKGROUND
:
The
Applicant in this case is acting as a result of a request received
from the Australian Tax Office (“ATO”) in terms
of art.
25 A of the agreement between the Government of Australia and the
Government of the Republic of South Africa. The purpose
of this
agreement was for the avoidance of double taxation, and the
prevention of fiscal evasion in respect of taxes. The agreement
was
entered into on 1 July 1999, and amended by a Protocol signed on 31
March 2008 (“The Protocol”). The agreement
and the
Protocol were entered into by the South African Government in terms
of
s. 108 (2) of
the Income Tax Act, no. 58 of 1962 (“The Income Tax Act”),
read with s. 231
(4) of the Constitution 108 of 1996
.
The agreement and the Protocol
became part of the South African Law in terms of the Constitution of
the Republic, as they were approved
by Parliament in terms of
s. 231 (2) of the Constitution
and
the arrangements were duly published in the Government Gazette of 23
December 2008.
5.
The founding affidavit then
states that during January 2012, SARS received a request from the
Australian Commissioner for assistance
with tax collection and
conservancy of the assets of the Respondent in South Africa, pending
collection of the amount alleged to
be due by the Respondent under
the tax laws of Australia. This request was renewed during February
2013. The request was accompanied
by a formal certificate issued by
the Australian Commissioner stating that:
5.1
Respondent was liable to the
Commissioner for taxes in a total amount of Australian
$25,361,875,799 plus interest (which, during
April 2013, (according
to Applicant’s heads of argument) was R235, 705,169.19.
5.2
The liabilities arose as a
result of the Australian Commissioner issuing a Notice of Assessment
of Tax and Penalties under Australian
Law;
5.3
The Respondent has lodged an
objection to the Notices of Assessment of Tax and Penalties under the
procedures provided for by the
Australian Tax Law;
5.4
The objection has been
disallowed in full and a notice was sent to the taxpayer on 6
February 2012;
5.5
There is a risk of dissipation
or concealment of the assets by the First Respondent.
6
.
SARS agreed to lend assistance
to the Australian Commissioner in terms of the Protocol in the
collection of the said revenue claim
in accordance with art. 25 A of
the Agreement. In the founding affidavit it is stated that at the
time when the initial request
was received, there was no special
provision in the South African Tax Acts which entitled SARS to apply
for orders to preserve
assets and SARS therefore was, at that stage,
dependant on the provisions of the common law in that regard. At
common law, an Applicant
for a presentation order (interdict)
had to prove on a balance of probabilities that assets would be
diminished and that
this would be done with the specific intent of
frustrating a claim.
See:
Knox D’Arcy Ltd vs Jamieson and Others
[1996] ZASCA 58
;
1996 (4)
SA 348
A at 372 F - G and Janse van Rensburg N. O. and Another vs
Minister of Trade and Industry and Another
2001 (1) SA 29
CC at par.
33
7.
There after however, the
Tax
Administration Act no. 28 of 2011
,
assented to on 2 July 2012 by
the President, came into force on 1 October 2012. In terms of
s. 185
of this
Act, the deponent to the Applicant’s founding affidavit stated
that he was authorised to apply on behalf of SARS for
an order for
the preservation of the Respondent’s assets in terms of s. 163.
Such an order to preserve assets
may be applied for if such order is required to secure the payment of
taxes. It was also stated
that in terms of
s.
185 (3)
the
certificate received from ATO, was conclusive proof of the existence
of the tax debt, and prima facie
proof
of the other statements contained therein. Accordingly, the
allegation was made that the certificate amounted to
inter
alia, prima facie
proof
of a danger that the South African assets of the Respondent would be
dissipated. Accordingly it was contended that as a result
of the
status of the certificate, a
prima
facie
case for the
preservation order in terms of the Notice of Motion had been
established, especially in the absence of an answering
affidavit by
the First Respondent himself. In essence it is Applicant’s case
that in terms of
s.
163
of the
Tax Administration Act,
an
intention to dissipate assets is not necessary anymore. Preservation
must merely be “required” in order to “secure”
tax collection. I may add at this stage that "Prima facie
evidence” in its customary sense is not merely “some
evidence”. It must be of such a character that if unanswered it
would justify men of ordinary reasons and fairness in affirming
the
question which the party upon whom the onus lies is bound to
maintain.
See:
Alli
vs
de Lira
1973 (4) SA 635
T at 638 per Nestadt, J (as he then was)
8
.
Despite these allegations, SARS
dealt with various defences of the Respondent raised in his mentioned
objection to the ATO and submitted
that the absence of an affidavit
from the Respondent, viewed together with the glaring absence of any
undertakings not to dissipate
assets, was significant.
9.
The memorandum of understanding
between the two competent authorities of the Republic of South Africa
and Australia, concerning
assistance in the collection of taxes under
art. 25 A of the Protocol amending the agreement between South Africa
and Australia,
for the avoidance of double taxation and the
prevention of fiscal evasion, with respect to taxes on income, states
that its purpose
is to outline the shared understanding between the
competent authorities of the procedural issues involved, in providing
mutual
assistance to each other in their collection of revenue
claims. It refers to the appropriate form that must be used for a
request
for assistance in collection. The form, after making
provision for the identity of the debtor and the amount owing, states
that
the request be accepted for collection by the Government of
South Africa and the “conserving of assets for the purposes of
such collection." Under the heading “Revenue Claim”,
details are given as to what documentation or evidence would
be
required for that purpose, and it is stated that a request for
assistance in tax collection or conservancy, requires sufficient
information to be provided to the requested authority to enable
collection or conservancy action to be taken. Amongst others, this
would include the providing of “evidence reflecting on the
likelihood that the debtor’s assets without conservancy
action
will be dissipated.”
10
.
The relevant request for
assistance in collection and/or conservancy, gives the necessary
information and detail pertaining to the
amount due, and the
background to some extent relating to the taxes owed by Respondent to
the Australian Government. It states
that what amount is due to it,
and that such a revenue claim is enforceable under the Tax Laws of
Australia. It states that Respondent
lodged an objection against the
tax assessments and administrative penalties, but that this objection
has been disallowed in full.
As a result of the determination of the
objection, the debt is not currently in dispute, so it was said. It
was also stated that
it was not believed that the objection was
entered into solely to delay or frustrate collection of the amount
alleged. In par.
(g), the following is stated “it is believed
that there is a risk of asset dissipation or concealment of assets by
Mr. Mark
Krok...”
11
.
The provisions of
s.
163
of the
Tax Administration Act of 2011
,
deal with a preservation order.
Such an order may be made if required to secure the collection of tax
in respect of assets mentioned
in
s. 163
(3)
.
It also provides for the
appointment of a curator bonis,
provides
for certain reasonable living expenses and the duration of such an
order,
s. 185
of the Act, in turn, deals with
tax recovery on behalf of foreign governments.
s. 185,
for
present purposes reads as follows:
185 (1):
If
SARS has, in accordance with an international tax agreement received
-
a.
A request for
conservancy of an amount alleged to be due by a person under the tax
laws of the 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 Section 163
as if the amount were a
tax payable by the person under a Tax Act; or
b.
A request for the
collection from a person of an amount alleged to be due by the person
under the tax laws of the other country,
a senior SARS Official may,
by notice, call upon the person to state, within the period specified
in the notice, whether or not
the person admits liability for the
amount or for a lesser amount.
185 (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 a 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.
185
(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.”
In this context, the answering
affidavit on behalf of the first Respondent stated that there were no
suggestions in Applicant’s
founding affidavit, of any objective
events which might have transpired since January 2012 (when the first
certification was made)
and the date of the Notice of Motion, which
would justify the position now contended for, that there was a risk
of asset dissipation
or concealment of assets by Respondent. In
addition, no objective evidence had been tendered on behalf of the
ATO that to support
such a conclusion. There was therefore no need
for these proceedings, and there was no objectively sustainable
argument to be advanced
on behalf of the ATO justifying the “belief”
that there is a risk of asset dissipation or concealment.
12
.
The
issues before me:
Obviously, the first issue
before me is whether or not SARS has proven its case on a prima facie
basis for the purposes of
s.
185
of the
Tax Administration Act
in
the context of the mentioned Protocol between the South African and
Australian Authorities.
13.
First
Respondent’s Argument:
Mr. Ginsberg SC on behalf of the
first Respondent submitted that three issues arose in this case for
decision, namely whether or
not Applicant had discharged the onus
that rested on it in the context of the relevant legislation and the
Protocol, whether or
not the facts would justify a reasonable
apprehension of dissipation, and whether the introduction of art. 25
A into the DTA (by
the Protocol) applied to taxes claimed by the ATO
from the Respondent for the income years ending 30 June 2004 to 30
June 2009.
He said that upon a proper interpretation of all the
relevant legislation and the Protocol, art. 25 A can only be invoked
by the
tax authorities if the taxes owing to the ATO arose during the
income years commencing from 1 July 2009.
The second Respondent’s
Counsel, Mr. A. Franklin SC associated himself with the defence of
the First Respondent, except in
stating that if those grounds of
opposition were not successful, then Second Respondent’s case
would be that it was the beneficial
owner of the assets that formed
the subject matter of the application, and that those assets
therefore should not form part of
any provisional or final
preservation order.
14.
SECTION 183
(3) OF THE
TAX ADMINISTRATION ACT AND
THE
CERTIFICATE IN TERMS OF
SECTION 183
(2) (d):
The question in this context is
whether or not the Applicant has shown that there is prima facie
proof of risk of dissipation or
concealment of assets by first Respondent? Before I deal with the
presence or otherwise of objective
facts in this context, it is
necessary that I briefly refer to other contextual considerations
relating both to the first and second
Respondents. These appear in an
affidavit in support of an application by second Respondent for leave
to intervene in these proceedings;
Jucool is a company incorporated
in the British Virgin Islands on 23 December 2008. The sole
shareholder of Jucool is Nova Trust
Ltd, in its capacity as a Trustee
of the Jucool Trust. Jucool Trust was established on 22 December 2008
by way of a Declaration
of Trust executed by Nova Trust Ldt. It is a
discressionary Trust governed by Jersey Law, and its sole material
assets are shares
in Jucool and a loan receivable from Jucool. The
beneficiaries of the Jucool Trust are the first Respondent, his
children, and
the Jersey Blind Society. The first Respondent is not,
nor has ever been, a Director of Jucool or a Trustee of the Jucool
Trust.
Nova Trust Ltd is a company incorporated under Jersey Law and
carrying on business in Jersey. It is licensed and regulated for the
conduct of fiduciary business by the Jersey Financial Services
Commission. It is a professional Trustee which acts as a Trustee
of
several hundred trusts which, between them, hold substantial assets.
It appears therefore that during 2002, the Respondent had
“relocated” from South Africa to Australia where he
had become a resident and had ceased to be a resident of South
Africa
for tax, exchange control or any other purpose. At that time, and as
required by Law (including The Exchange Control Regulations
as
promulgated by Government Notice R.1111 of 1 December 1961 and
amended up to the Government Notice no. R.445 in Government Gazette
no. 35430 of 8 2012) certain assets were placed under the control of
an authorised dealer in foreign exchange, in this instance
Investec
Bank. In 2008, first Respondent decided to re-locate from Australia
to the United Kingdom. As part of his planning to
take up residence
in the United Kingdom, on 29 December 2008, the first Respondent and
Jucool entered into the following agreements:
14.1
An Income Sale Agreement, in
terms of which Jucool purchased from the Respondent certain specified
rights and interests in the assets
listed in that agreement, for a
purchase price of R 72 500 000.00. The purchase price payable in
terms of the Income Sale Agreement
was left outstanding as an
interest-free loan owed by Jucool to the Respondent;
14.2
An Asset Sale Agreement, in
terms of which Jucool purchased from the Respondent those rights and
interests in the assets, which
had not been sold by the Respondent to
Jucool in terms of the Income Sale Agreement. The purchase price was
R 217 500 000.00. The
purchase price in terms of the Asset Sale
Agreement was also left outstanding as an interest-free loan owed by
Jucool to the Respondent.
15.
In
consequence of those agreements, Jucool had a debt owing to the
Respondent in the amount of R 290 000 000. Also, on 29 December
2008,
and immediately after the conclusion of the Income Sale Agreement and
the Asset Sale Agreement, the Respondent entered into
a Deed of
Assignment pursuant to which he assigned absolutely all his right,
title and interest in and to the debt to Nova Trust
Ltd as Trustee of
the Jucool Trust, free of consideration. The deponent to this
affidavit continues to state that the directors
of Jucool were aware
that the assets of persons emigrating from South Africa could not be
freely transported from that country,
but were subject to certain
rules and procedures and were accordingly aware that the assets were
“blocked” in South
Africa under South African Exchange
Control Regulations as is generally the case with all emigrants from
South Africa (at that
time). Transactions of this sort entered into
by the Respondent were therefore common under similar circumstances.
In terms of
the agreements (specifically Clause 7.2 of the Income
Sale Agreement and Clause 6.3 of the
Asset
Sale Agreement), as and when the assets become transferrable, the
Respondent is required to transfer registered title to the
assets
into Jucool’s name at such time as Jucool deems appropriate.
There is also a requirement (Clause 6.2 of the Asset
Sale Agreement)
that the Exchange Control Regulations be adhered to by proper
applications for consent to remit the assets from
South Africa as and
when that becomes legally possible. The agreements referred to were
subject to the law of the British Virgin
Islands and, according to an
opinion furnished by a QC, an expert on the law of the British Virgin
Islands, the agreements were
valid and binding agreements under the
laws of the British Virgin Islands. The conclusion therefore was that
Jucool was the “beneficial”
owner of the relevant assets
which are held by the first Respondent upon Trust for Jucool.
Furthermore, in terms of the relevant
Exchange Control Regulations at
the time, the income derived from the assets is, and always has been,
remittable from South Africa.
There is no prohibition whatsoever on a
non-resident to whom income may be remitted, on assigning his right
to that income to another
non-resident. Both the spirit and the
letter of the Exchange Control Regulations were respected, since such
a transaction would
in no way result in more flowing out of South
Africa than would have been the case had the emigrant retained the
right to income,
in his own name. Both agreements recognise that the
capital of the assets themselves cannot be remitted from South
Africa, and
that the transfer of the assets is subject to the consent
of the Exchange Control Department of the South African Reserve Bank
(now the Financial Surveillance Department). In particular, it is
expressly a term of both agreements that the assets are sold subject
to the restrictions arising from the Exchange Control Regulations (in
particular Clauses 1.2, 1.3, 1.5 and 2.1.2 of the Asset Sale
Agreement) and that delivery of the assets would require permissions
and consents, for example, with reference to Clause 6.2 of
the Asset
Sale Agreement. As required by the regulations therefore, the assets
have throughout been held under the control of an
authorised dealer
in foreign exchange in an account which is recognised by all
concerned as being subject to the provisions of
Regulation 4 (2) of
the relevant Exchange Control Regulations.
16.
It appears from first
Respondent’s own submissions to the ATO and the reasoning of
the ATO in reply thereto, that the ATO
based its assessments on the
fact that contrary to first Respondent’s contentions, he
retained legal and beneficial interests
in the assets held in South
Africa. In this context, the following appears from the “Executive
Summary” provided by
the ATO: “You became an Australian
resident in April 2002, after your emigration from South Africa, and
continued your residence
here until December 2008 when you immigrated
to the United Kingdom. As an Australian resident you were required to
declare all
income derived from all sources, in or out of Australia.
The ATO’s position is that you have omitted assessable income
from
your Income Tax Returns, that was derived on assets you held in
South Africa, whilst you were an Australian resident. This income
includes ordinary foreign source income you derived on your South
African accounts and assets administered on your behalf by Investec
for South African exchange control purposes. In addition, you have
also omitted capital gains on disposals of those assets and
when you
ceased to be an Australian resident.
You have provided a submission
to the Commissioner in which you contend that upon your immigration
to Australia, you assigned your
rights and interests to the income
and capital of the assets held in South Africa to a BVI company. The
ATO’s position is
that you retained legal and beneficial
interests in the assets held in South Africa. Additionally, we
consider that the purported
assignment “arrangement” is
prohibited by the South African Exchange Control Regulations and is
not legally effective
and/or is a sham.”
17.
From the documentation supplied
by the ATO to the South African authorities for purposes of the
present application (‘SARS
6’), it appears clearly that
the first Respondent repeatedly applied through Investec to the
relevant South African Reserve
Bank Department for the release of
“blocked” funds in substantial amounts, amounting to many
millions of rands. It
also appears from the same document that first
Respondent’s legal representatives held a meeting with the ATO
offices on
19 July 2010. It appears from par. 147 and 148 of this
document that the ATO was told that he had formalised his emigration
facilities
with the South African Reserve Bank EXCON Department on
the basis that he was legally and beneficially the holder of the
rights
and interests to the South African assets, and that he
remitted income and capital thereon in accordance with the formalised
emigration
facilities. The South African Reserve Bank did not grant
exemption or approval to remit any income or capital to the BVI
Company
under their purported assignment agreement that was
described, and the rights and interests of the South African assets
were at
all times regarded by the SARB as belonging to him, the first
Respondent. It was also stated that in his dealings with the South
African Reserve Bank Department, first Respondent had maintained that
those South African assets were legally and beneficially
held by him
solely, and that income accruing thereon was his. The following was
said in par. 170: “You have made numerous
applications to the
SARB EXCON Department commencing in 2004, to release and use your
South African blocked funds in South Africa,
including to support
your mother and father, pay monthly steepens to former servants, pay
holiday travel, accommodation and living
expenses, purchase sporting
tickets and to purchase land so that you may build and furnish a
house. These applications further
demonstrate that you regard it as
South African assets and funds as belonging to you, that you maintain
your beneficial and legal
ownership of those assets for the period in
which you were a resident in Australia. In addition, the SARB
applications reveal your
control over the assets, which conflicts
with the purported assignment arrangement”.
It was then stated that during
the period from January 2004 through to April 2010 he had made,
through Investec, no less than 24
applications to the SARB EXCON
Department to use his South African blocked assets to fund his
expenditure in South Africa. With
reference to a loan application to
a St. George’s Bank, details were then given of amounts
remitted from South Africa which
demonstrated his control thereof. In
the loan application to St. George’s Bank, statements were
made, which conflicted with
submissions made to the ATO. The
Commissioner then stated that he considered that his use of entities
established in banking secrecy
jurisdictions, such as the BVI and
Lichtenstein, was an attempt to preclude the operation of the
attribution regime under Australian
Tax Law, and supported the
Commissioner’s view that he intended to avoid his tax
obligations in Australia, particularly given
the timing of his
permanent departure from South Africa, and settlement in Australia.
It was also stated that in the period subsequent
to 15 December 2008,
when he departed Australia to reside in the UK, through to 30 June
2010, he continued to remit funds abroad
from the Investec Bank
accounts in South Africa. It was noted however that none of these
funds were remitted to the ostensible
assignee which would have been
expected if the assignment arrangement was intended to take effect
according to its tenor. Instead,
he remitted amounts from his South
African accounts directly to his own personal accounts abroad
(including his St. George Bank
account in Australia) or to another
offshore account held in the name of Jucool Enterprises Incorporated.
18.
As I have said,
ss.
163
and
185
of the
Tax Administration Act,
need
to be interpreted in the light of the formal certificate requiring
assistance. Such interpretation must be done in the light of
its
context, the apparent purpose to which it is directed, and the
material known to those responsible for its production (the
production of the certificate referred to in
s.
183
(2)).
See:
KPMG Chartered Accountants (SA) vs Securefin Ltd
and Another
2009 (4) SA 399
(SCA) par. 39 and 40; Natal Joint
Municipal Pension
Fund
vs Endumeni Municipality
2012 (4) SA 593
(SCA) par. 18 and 19 and Ex
Group (Pty) Ltd vs Trustco Group International (Pty) Ltd and Others
[2013] ZASCA 120
a
,
judgment delivered on 20
September 2013, at par. 16.
It
is clear that the documentation drawn by the ATO, parts of which I
have referred to, was in their mind when the relevant certificate
was
drafted. This was then considered by the South African authorities
who in the founding affidavit then say that the certificate,
as per
the wording of
s.
185 (3) of the Act
amounts
to prima facie
proof of a
danger that the South African assets of the Respondent will be
dissipated. What
“
prima
facie
proof means, is
discussed in some detail in the
South
African Law of Evidence, Zeffert, Paizes and St Q Skeen, 5
th
Edition, Lexis Nexis Butterworth, at 124.
In
this context, it was stated on behalf of Applicant, in the founding
affidavit and during argument that I should have regard to
the
following considerations:
18.1
The
wording of s.
183
(2) of the
Tax Administration
Act,
18.2
The
contents of the certificate referred to in
s.
183
(2) (d),
150%
">
18.3
The wording of
s. 183
(3) (b)
which
meant that the statement in the certificate that there was a risk of
dissipation or concealment amounted to prima facie proof
of that
allegation;
18.4
The fact that second Respondent
made no affidavit at all dealing with the allegations in the founding
affidavit, such as one would
normally expect and/or require;
18.5
The information that was
available to the ATO at the time that they made the relevant
certificate;
18.6
That information available to
him by and large emanated from representations made to the ATO and/or
objective facts relating to
the two dozen requests by first
Respondent for the release of funds;
18.7
The fact that conflicting and/or
untrue representations were made to St George Bank;
18.8
The fact that proper
consideration should be given to the purpose of the Protocol between
the two countries and the ostensible reasons
for establishing the tax
structure that I have referred to when first Respondent left
Australia;
18.9
The fact that the relevant
assets are merely preserved, pending further procedures and rights
which the first Respondent may exercise
in Australia, the conclusion
being that the confirmation of the Preservation Order will not
prejudice the legitimate interests
of the first Respondent or anyone
else who may have a valid interest in the particular South African
assets.
19.
Having regard to the objective
facts that were placed before me, 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
Tax Administration Act,
in
the context of the relevant Protocol, justify the confirmation of
the Preservation Order that was provisionally made.
20
.
THE PROTOCOL:
As
said, the purpose of the 1999 Agreement between the two governments
was for the avoidance of double taxation and the prevention
of fiscal
evasion with respect to taxes on income. It contained no provision
for mutual assistance with regard to the latter stated
purpose. All
relevant provisions were aimed at the avoidance of double taxation.
It provided in art. 27 when these provisions would
come into force
both in the case of Australia and in the case of South Africa. The
2008 Protocol amended this Agreement. Art. 1
introduced a new art. 2.
Art. 2.3 is a new provision and provides for the purposes of art. 23
A, the taxes to which the Agreement
shall apply are taxes of every
kind and description. Art. 2.4 is also new and provides that for
purposes of art. 25 and 25 A taxes
to which the Agreement shall apply
are taxes of every kind and description imposed under laws
administered by the Commissioner
of either Australia or South Africa.
Mr. N. Maritz SC on behalf of Applicant submitted that in
interpreting the new art. 2, Art.
2.1, 2.3 and 2.4 must be reconciled
to avoid conflict. This would be achieved simply by reading art. 2.1
as providing that “the
existing taxes to which this Agreement,
save for art. 23 (a), 25 and 25 A shall apply, are:...”. Art.
2.4 therefore states
that taxes for purposes of art 25 and 25 A (in
respect of Australia) are taxes of every kind and description imposed
under Federal
Tax Laws. Art. 2.1 is therefore not applicable to art.
25 and 25 A, and does not serve to identify the tax for purposes of
those
two articles. Therefore, when one turns to art. 13, the time
periods referred to there in have no application. Art. 11 of the
Protocol
inserts a new art. 25 A after art. 25 of the Agreement. This
art. provides for the assistance in the collection of taxes. Art. 25
A must be read together with art. 2.4 and it was submitted that art.
13 was not a clause in the Agreement, but deals only with
the dates
when the Protocol would come into force. It does not deal with the
taxes to which the Agreement relates nor does it define
such taxes.
Art. 13 does not replace art. 27 of the Agreement, nor is art. 27 of
the Agreement deleted in terms of the 2008 Protocol.
Art. 13.2
stipulates that the Protocol, which amends the Agreement, shall come
into force on the date of the last notification
referred to in art.
13.1. This means that the effective date on which the Agreement of
1999 is amended by the
Protocol
in respect of the matters identified in art. 13.2, and for which the
provisions of art. 13.2 are relevant, is the “date
of last
notification”. Art. 13.2 (a) (i) clearly relates to income tax.
Art. 13.2 (a) (ii) refers to “other Australian
tax". This
clearly means Australian tax other than “withholding tax on
income” referred to in art. 13.2 (a) (i).
Regard must then be
had to the definition of “Australian tax”. This means tax
imposed by Australia “to which
the Agreement applies by virtue
of art. 2”. Art. 2 states that the “taxes to which this
Agreement shall apply are”
the Australian Income Tax and the
South African Income Tax specified in art. 2.1 (a) and (b). “Other
Australian Tax”
is therefore not reference to Australian Tax of
any kind or description, but a reference to “income tax,
including the resource
rent tax” but excluding the withholding
tax of income referred to in art. 13.2 (a) (i). “The date of
last notification”
is the date on which art. 2.1 and all other
art. relating to income tax, the avoidance of double taxation and the
evasion of tax,
become effective. Art. 13.2 (c) stipulates that the
Protocol shall have effect for purposes of art. 25 from the date on
which the
“Protocol enters into force”. This means that
art. 25 is amended on the date on which the Protocol enters into
force.
Art. 25 contains
no temporal limitation. Having regard to art. 2.4 which stipulates,
that for purposes of art. 25, the taxes to
which the Agreement shall
apply are “taxes of every kind and description”. Once the
new art. 25 comes into operation
all information concerning taxes of
every kind and description shall be exchanged. As I have said, the
Respondents advanced the
argument that on the interpretation of art.
2, only information concerning taxes arising after 1 July 2009 may be
exchanged. Applicant’s
Counsel contended however that this
could not have been the intention, if regard is had to the fact that
under the provisions of
the previous art. 25 there was no limitation
as to the time period in relation to which information could be
exchanged. Art. 13.2
(d) provides that the Protocol shall have effect
for purposes of art. 25 A from a date to be agreed between the
parties by exchange
of Diplomatic notes. This means that art. 25 A is
introduced into the Agreement with effect from a future date to be
agreed. Once
art. 25 A comes into effect, in its terms, has no
temporal limitation. It was also contended by Mr. N. Maritz SC on
behalf of Applicant
that the Government Notice of 23 December 2008,
no. 31721 is in fact a notification as contemplated in s. 108 (2) of
the Income
Tax Act of 1962.
It
states that the Protocol has been published in Government Gazette no.
31721 dated 23 December 2008, and therefore does no more
than to give
the dates which do not appear from art. 13 of the Protocol. It adds
nothing to the meaning or the content of the Protocol
itself. The
relevant date for purposes of par. (d), with reference to the coming
into operation of art. 25 A, it is common cause
that this date was
subsequently agreed to as being 1 July 2010.Accordingly, with effect
from 12 November 2008 the whole Protocol
became effective, with the
exclusion of the introduction of art. 25 A. Therefore, so it was
contended, all the avoidance of double
taxation provisions and art.
23 A and 25 were in operation from 12 November 2008. When art. 25 A
came into effect and operation
on 1 July 2010 it applied to a revenue
claim, being a claim in respect of “taxes of every kind and
description”, according
to the provisions of art. 2.4. Art. 25
A has no retrospective operation.
21
.
The conclusion is that for art.
25 A and the assistance obligation to apply, at the time assistance
is sought or given:
21.1
There
must be an amount owed;
21.2
The
amount owed must be in respect of taxes of any kind or description;
21.3
There was no specification in
regard to the period for which the taxes are owing. It really means
that assistance would be granted
in future for already existent
obligations. I already said that it was contended on behalf of first
Respondent (and second Respondent
adopted the same approach) that on
a proper interpretation of the Agreement and the Protocol, SARS and
the ATO are only entitled
to invoke the provisions of art. 25 A of
the Agreement if the taxes owing to the ATO arose during the income
years commencing from
1 July 2009. The taxes claimed by the ATO from
the first Respondent therefore fell beyond the scope of art. 25 A of
the Agreement.
In these circumstances, the provisional order was
wrongly sought and should not have been granted. I do not agree with
that argument
and I do not agree that art. 13 (2) (d) provides the
dates from which the provisions of art 25 A can be utilised. The
interpretation
of it by Applicant’s Counsel is in my view the
correct and logical one having regard to the mentioned provisions and
their
purpose. It is in my view not a question of
retrospectivity at all, such as Mr. Ginsberg SC on behalf of first
Respondent
contended. Applicant’s Counsel agreed that the
cooperation was prospective, but that it related to all taxes,
and certainly
to all taxes service inception of the agreement, in
other words since 1999. I agree with that interpretation for the
reasons stated.
22
.
Second
Respondent’s Defence:
As I have said, the second
Respondent supported the grounds of opposition relied upon by the
first Respondent.
Numerous examples abound in the
documentation emanating from the ATO and submissions made to it,
which indicate that the first Respondent
dealt with relevant assets
as if he was still the beneficial owner thereof. On numerous
occasions he sought release of blocked
funds from the South African
Reserve Bank without any reference to second Respondent. From the
nature of many of these requests
it is apparent that it could only
have been for release to the first Respondent and his family
personally. Also, on 25 July 2013,
the First Respondent sought
permission to invest funds, which were blocked in terms of Regulation
4 (2), to purchase a property
in South Africa. In terms of this
request, the first Respondent, without any reference at all to the
second Respondent, required
some R40 000 000 for the purchase of a
property in Clifton, Cape Town. He then stated what his remaining
assets were as at 30 June
2012 which amounted to some R295 000 000.
He also required a further R5 000 000 to furnish the property and
also purchase a car
for his use in South Africa. Those funds
would emanate from “his” cash balance with Investec Bank
Ltd. It was
submitted by Applicant that in the absence of an
affidavit from the first Respondent and the persons who allegedly
negotiated the
2008 Agreements with him, the 2008 structure was just
as unreal as was the previous 2002 structure. Furthermore, the second
Respondent
failed to show that it was his so-called beneficial owner
of the relevant assets. It is clear from the alleged Agreements, that
the parties had an overriding intention that the first Respondent was
not required to transfer any rights or assets in contravention
of the
Foreign Exchange Dispensation as applicable to him. There was also no
explanation how the second Respondent could in law
become the owner
of immovable property situated in South Africa, contrary to the laws
of South Africa, that require registration
in the Deeds Office for
the transfer of immovable property from one person to another,
including to a Trust. The contention of
the second Respondent that
Jucool was the “beneficial owner” of the relevant assets,
is nowhere to be found in the
particular contracts. Furthermore, no
effective transfer of rights could have been taken place under
circumstances where the authorised
dealer was not even consulted. The
result really is that it would be impossible to transfer the
so-called beneficial ownership
of the assets without the consent of
Investec Bank and still to comply with Foreign Exchange Regulations,
which regulations the
parties clearly had in mind. I agree with
Applicant’s Counsel that the stated reservation would not allow
any definitive
intent to immediately transfer any rights to the
Second Respondent in terms of the Asset Sale Agreement.
23.
What is the basis for the
transfer of ownership in South African Law? An essential element of
the passing of ownership is that there
must be an intention at the
part of the transferor to transfer ownership and the intention of the
transferee to become the owner
of the property.
See:
Legator McKenna vs Shea
2010 (1) SA 35
SCA at 44
par. 22, and the decisions referred to therein
.
In the affidavit of the second
Respondent’s Deponent it is stated why the “Income Sale
Agreement” and the “Asset
Sale Agreement” were
separately entered into. It was stated that “both Agreements
recognise that the capital of the
assets themselves cannot be
remitted from South Africa and that the transfer of the assets is
subject to the consent ...it is expressly
a term of both Agreements
that the assets are sold subject to the restrictions arising from the
Exchange Control Regulations...
And that delivery of the assets would
require permissions and consents ...” I agree with Mr. Van der
Merwe SC on behalf of
Applicant that these admissions destroy any
notion of an immediate transfer of rights. There was simply no intent
to immediately
transfer any rights to the second Respondent in my
view and there is no merit in that defence. At best it could be said
that the
Respondents only intended to create personal rights in
favour of the second Respondent, pending consent being granted and a
transfer
taking place thereafter. There is no concept like
“ownership” of a “right-to-claim”.
See:
Grobler vs Oosthuizen
2009 (5) SA 500
(SCA) at
par. 18.
24.
In
the light of the above it is not necessary to deal with any other
contentions advanced by the parties in great detail. I thank
Counsel
for all parties for their thorough Heads of Argument.
25.
The
following order is made:
1.
The
Provisional Preservation Order made by this Court on 18 February 2013
is confirmed in respect of par. 3 to 7 thereof;
2.
The
Respondents are ordered to pay Applicant’s costs jointly and
severally, including the costs of two Senior Counsel.
JUDGE
H. J. FABRICIUS
JUDGE
OF THE HIGH COURT
Case
no.: 1319/13
Counsel
for the Applicant: Adv J. L. Van der Merwe SC
Adv
N. G. D. Maritz SC
Adv
H. G. A. Snyman SC
Instructed
by: Mahlangu Inc. Pretoria
Counsel
for the First Respondent: Adv P. Ginsberg SC
Adv
G. Goldman SC
Instructed
by: Cliffe Dekker Hofmeyr Inc. Sandton
Counsel
for the Second Respondent: Adv A. Franklin SC
Adv
S. W. Burger
Instructed
by: Bowman Gilfillan Inc. Sandton
Heard
on: 2 to 3 December 2013
Date
of Judgment: 31 January 2014 at 10:00