Below, please find issue 61 of ENSafrica's tax in brief, a snapshot of the latest tax developments in South Africa.

case law

  • The Supreme Court of Appeal ("SCA") | Commissioner: SARS ("CSARS") v Levi Strauss SA (Pty) Ltd
    • The Commissioner for the South African Revenue Service ("SARS") appealed the decision of the Gauteng Division of the High Court, disallowing its origin and transaction value determinations for Levi Strauss South Africa (Pty) Ltd ("Levi SA").
    • During the period from 2010 to 2014, Levi SA imported goods from members of the South African Development Community ("SADC"). The arrangements with the suppliers were made by Levi Strauss Asia Pacific Division Pte Ltd ("Levi APD"). The goods were purchased directly from the producers in the SADC, but from 2011 Levi SA purchased the goods from Levi Strauss Global Trading Company Limited ("Levi GTC"), a company incorporated in Hong Kong. In turn, Levi GTC would purchase the goods from the same contracted suppliers in SADC countries as before, and sell them to Levi SA at a mark-up.
    • The SCA considered, inter alia:
      • Annex I of the Protocol on Trade in the SADC Region;
      • section 67(1)(a)(i) of the Customs and Excise Act, 1964;
      • section 65(9) of the Customs and Excise Act, 1964; and
      • section 74A of the Customs and Excise Act, 1964.
    • The SCA:
      • upheld the High Court's determination that SARS' contention that certificates of origin presented by Levi SA in support of its entry of goods from SADC suppliers were invalid was incorrect. This was on the basis that the relevant requirement (ie, "consigned directly from a Member State to a consignee in another Member State") refers to the physical transport of the goods from one member state to another and not to the underlying commercial transactions giving rise to that;
      • overturned the High Court's findings to the contrary and held that Levi APD was not acting as a buying agent on behalf of Levi SA;
      • overturned the High Court's findings to the contrary and held that the export of goods to South Africa is directly linked with the payment of a royalty.
    • Find a copy of the judgment here.
  • The High Court of South Africa (Gauteng Division, Pretoria) | Samsung Electronics SA (Pty) Ltd v CSARS
    • Samsung Electronics SA (Pty) Ltd (the "Applicant") sought an order in terms of section 47(9)(e) of the Customs and Excise Act, 1964, setting aside the decision of SARS made on 11 April 2018 to withdraw a tariff determination under tariff heading 8517.12.10 and its replacement by tariff determination under tariff heading 8517.62.90.
    • On 3 July 2017, the Applicant applied for a tariff determination for its imported multi-functional devices, the Samsung Galaxy 7 ("the product"), under tariff heading 8517.62.90 or tariff heading 8517.69.
    • The Applicant's attorneys having previously received a tariff determination under tariff heading 8517.62.90 for an Apple iPhone 6s on behalf of another client, submitted applications for refunds of the customs duty on previously imported goods. SARS rejected these refund applications.
    • On 27 September 2017, the Applicant received a tariff determination from SARS determining that the products were "...smart devices classifiable under tariff sub-heading 8517.62.90".
    • On 14 April 2018, SARS withdrew the tariff determination made on 27 September 2017, with retrospective effect from 4 August 2017, and made a new determination in terms of which the product was classified under tariff heading 8517.12.10.
    • The court considered, inter alia:
      • whether the product should be classified under tariff heading 8517.62.90 as argued for by the Applicant, or tariff heading 8517.12.10 as argued for by SARS;
      • tariff heading 8517.62.90 (Machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus: Other);
      • tariff heading 8517.12.10 (Telephones for cellular networks or for other wireless networks: Designed for use when carried in the hand or on the person); and
      • the principal function of the product.
    • The court held that it is not convinced that the product is a machine other than a smartphone and that the Applicant premised its proposition that the product is not a telephone for cellular networks on the post-usage of the device. The application was dismissed and SARS' determination was upheld.
    • Find a copy of the judgment here.
  • SCA | Massmart Holdings Limited v CSARS
    • Massmart Holdings Limited ("Massmart") appealed the decision of the Tax Court to dismiss Massmart's appeal against SARS' decision to disallow Massmart's claims for capital losses for the period 2007-2013.
    • In the year 2000, Massmart resolved to adopt and implement a share incentive scheme, which was to be conducted through the Massmart Holdings Limited Employee Share Trust (the "Trust").
    • During the period 2007-2013, Massmart claimed capital losses amounting to ZAR954-million. SARS disallowed these claims, and Massmart appealed this decision to the Tax Court.
    • Massmart initially claimed the amounts as a capital loss on the basis that it was a vested beneficiary of the Trust. Massmart then amended its argument to say that Massmart instructed the Trust to grant call options to employees, and Massmart acquired a right against the Trust to require the Trust to grant the options to the offerees, and that the loss was suffered in respect of its right against the Trust.
    • The Tax Court had to consider whether during the 2007-2013 years of assessment, Massmart suffered capital losses for capital gains tax ("CGT") purposes, by virtue of its dealings with and in relation to the Trust. The Tax Court dismissed Massmart's appeal and confirmed SARS' assessments.
    • In the SCA, Massmart argued that when it issued instructions to the Trust to offer specific share options to specific employees at specified prices (the strike prices), the appellant acquired a jus in personam ad faciendum, ie, a right to claim performance, against the trustees, requiring them to offer the share options as aforesaid. The right was an "asset" for CGT purposes.
    • The court considered, inter alia:
      • paragraph 4 of Eighth Schedule to the Income Tax Act, 1962 ("ITA"); and
      • the definition of an "asset" under paragraph 1 of the Eighth Schedule to the ITA;
    • The court held that Massmart purported to account for the Trust's losses in its books, despite the fact that at the outset they had received legal advice noting that they could not, by arrangement between them and the Trust, change the incidence of capital gains or losses. The court, therefore, dismissed Massmart's appeal.
    • Find a copy of the judgment here.

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