SCA orders Coronation to pay large tax bill
Coronation lost almost R1bn in market value within an hour yesterday after the SCA ordered it to pay a large tax bill. Fin24 reports that given the ruling, the company said it may not pay an interim dividend.
Coronation and SARS have been at loggerheads about whether the profits of Coronation's business in Ireland – Coronation Global Fund Managers (CGFM) – should be included in the taxable income of its South African holding company.
If the primary operations of CGFM are conducted in Ireland, a tax exemption applies.
But SARS found that this was not the case, and that the exemption does not apply. Accordingly, it included the entire profit of CGFM in Coronation's local tax bill. Coronation objected to SARS' assessment. The Tax Court in Cape Town agreed with Coronation, and set aside the SARS assessment.
Last year, SARS took the judgment on appeal to the SCA, which had to decide whether the Irish business qualifies for the tax exemption.
‘Of particular significance is that CGFM has adopted an outsource business model and the attendant ramifications that may have for its tax status,’ the SCA said in its ruling.
CGFM outsourced its investment management to Coronation Asset Managers and Coronation International, neither of whom was a tax resident in Ireland.
To SARS, this model didn't qualify CGFM as a business with ‘primary operations’ in Ireland. It said the company's Dublin office was not suitably staffed with employees, nor suitably equipped to prove that it conducted ‘the primary operations’ of the business, reports Fin24.
But Coronation argued that it didn't merely exist on paper. Outsourcing was a commercial reality there, with approximately 70% to 80% of the businesses operating on an outsourcing basis. It said that while it did not have sufficient staff to conduct investment trading in Ireland, it had enough staff to maintain its licence in that European country.
On Tuesday, the SCA ruled in SARS's favour and ordered that Coronation must pay tax on the profits earned by its international operations, together with interest and costs.
The SCA, however, dismissed SARS’ claim for penalties. In a statement yesterday, Coronation said it is still ‘quantifying the exact financial impact of the ruling’.
The company is considering taking the matter on appeal in the Constitutional Court.
Article disclaimer: While we have made every effort to ensure the accuracy of this article, it is not intended to provide final legal advice as facts and situations will differ from case to case, and therefore specific legal advice should be sought with a lawyer.
