Pepkor CEO Pieter Erasmus is engaged in a titanic battle with SARS, which is demanding more than R300m from him but has stopped short of accusing him of understating his tax liabilities.

According to a Business Day report, SARS claimes Erasmus was party to an alleged ‘impermissible tax avoidance arrangement’ in terms of the Income Tax Act.

Erasmus blamed this on an oversight by his accountants and told SARS he had not intended to avoid paying what was due.

SARS rejected his explanation, prompting him to take his case to the Western Cape High Court. But the court on Friday supported SARS’ view that Erasmus must exhaust internal remedies at SARS before he can approach the courts.

The case involves an entity, Treemo, in which Erasmus and his family trust owned shares and which paid him R1.4bn in a capital distribution and a cash distribution in 2015.

SARS argued the cash distributions from Treemo constituted dividend payments to Erasmus and his family trust, which were therefore subject to dividend tax.

SARS furnished him with an assessment of R183.5m in dividends tax, an understatement penalty of R137.6m, plus interest.

According to the judgment on Friday, Erasmus told SARS the payments from Treemo had not been disclosed because of an ‘oversight’ by his accountants.

According to the Business Day report, Erasmus held no tax consequences flowed from the oversight as the cash payments were exempt from tax.

SARS argued Erasmus and the trust and others had engaged in an ‘impermissible tax avoidance scheme or arrangement via a series of interrelated transactions in 2014 and 2015’.

SARS insisted that money due to the fiscus was not paid and after much to and fro Erasmus opted to approach the court for relief. SARS cautioned him that he must exhaust internal remedies before he sought assistance from the judiciary.

Judge Mark Sher upheld SARS’ view, arguing even if the commissioner’s interpretation of the transactions was incorrect, it could see no reason why Erasmus could not challenge this via an objection or appeal. 

‘To allow a review in this court at this stage would only add to the costs and delay, not reduce them. Given the congested court rolls and capacity constraints of the High Court, having the dispute resolved by way of the dispute resolution processes of the Tax Administration Act will in fact be much quicker and more convenient for both the applicant and the commissioner.’

Full Business Day report

Judgment