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Pepkor boss Pieter Erasmus in court battle with Sars over tax assessment of share dealings

Western Cape High Court. Picture: Armand Hough/African News Agency (ANA)

Western Cape High Court. Picture: Armand Hough/African News Agency (ANA)

Published Aug 22, 2023


Cape Town - The Western Cape High Court has dismissed an application for exemption from exhausting the remedies of objection and appeal to a tax assessment by Pepkor Holdings chief executive Pieter Erasmus against the SA Revenue Service (Sars).

The case was over an assessment that the businessman was liable for dividends tax and an understatement penalty for more than R320 million.

Sars had also accused the businessman of being party to an alleged “impermissible tax avoidance arrangement” in terms of the Income Tax Act.

Sars argued that Erasmus had not used the internal remedies available to him to dispute the assessment.

The court heard that Erasmus had been a director and shareholder of Pepkor and numerous other companies, including Treemo Ltd. He had also been a beneficiary of the PJ Erasmus Family Trust, which in 2015 changed its name to the Black River View Trust, and was also a shareholder in Treemo.

On March 25, 2015 Treemo’s directors approved what they termed a capital distribution to Erasmus of R167.6 million and cash distributions of R1.22 billion and R1.2 million.

In addition, approval was granted for the payment of a cash distribution to the Trust of R8.7 million which was paid out two days later, on March 27, 2015.

Judge Mark Sher said: “As shareholders of Treemo, the cash distributions constituted the payment of dividends to Erasmus and the Trust, and in the ordinary course would accordingly have been subject to dividend tax at the rate of 15%.

“But no such tax was levied or paid, because at the time Treemo had so-called STC (secondary tax on companies) credits which in value exceeded a billion rand, and these were set off against the value of the distributions.”

The judge said that prior to 2012, resident companies that paid dividends in South Africa were subject to a secondary dividend tax at a flat rate of 10%.

He said an amendment to the act in 2012, whereby the tax payable on dividends was increased to 15%, allowed companies with STC credits to carry them over for three years, until March 31, 2015.

Thus, the STC credits held by Treemo were used days before they were due to expire.

Four years later, on March 20, 2019, Erasmus was requested to provide the Sars commissioner with a detailed explanation and documentation about the various transactions that had taken place between Treemo, the Trust and himself, between the 2015 and 2018 tax years.

In his application to the court, Erasmus blamed the situation on an oversight by his accountants and told Sars he had not intended to avoid paying what he owed to the tax authority.

Erasmus denied that the transactions detailed by the commissioner constituted steps in, or were parts of, a tax avoidance arrangement. He said they had taken place after he decided in 2013 to restructure his assets.

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Cape Argus