TC-IT 13512 JHB – (30 March 2015)
28 April 2015
Posted by: Author: Lesedi Seforo
Author: Lesedi Seforo (SAIT Technical)
This case is an appeal to the Johannesburg Tax Court and
considers whether Secondary Tax on Companies ("STC”) should be levied on
interest-free loans lent to the appellant, which subsequently lent to the other
companies within the same group.
The appellant, ABC Pty Ltd ("ABC”), is a company that is
part of the ‘X Group’. The core business of the group is the development of,
and investment in, industrial and commercial property. The group comprises a
trust ("X Family Trust”), which holds interests in various companies, one of
which is ABC. This entity is also used as a treasury company of the X Group;
effectively borrowing from lenders at an interest rate of zero per cent and
then lending to the other group companies without charging interest. It thus
mainly acted as a conduit in respect of these particular loan transactions.
There were other interest-bearing loans which ABC had made to some of the
companies within the X Group, but these did not form part of the dispute with
The Commissioner levied STC in terms of section 64B(2) read
with section 64C(2)(g) in respect of the interest-free loans made by ABC to its
shareholders or connected persons during the 2010 and 2011 years of assessment.
Interest was also charged in terms of section 64B(9) due to the failure of ABC
to pay the STC on time.
In terms of section 64C(2)(g), a deemed dividend is
recognised on the amount of a loan or advance granted or made available to a
shareholder or a connected person in relation to that shareholder. This
provision, however, needs to be read together with section 64C(4), which
excludes a number of loan transactions from being recognised as deemed
One of these exclusions is found in section 64C(4)(bA), which
"The provisions of
subsection (2) shall not apply to the extent of any consideration received by
that company in exchange for-
cash or asset distributed, transferred or otherwise disposed of; or
other benefit granted as contemplated in subsection (2);”
ABC’s main contention was essentially that the loans granted
to the other group companies ought not to be recognised as deemed dividends
based on this provision. As such, no STC
should be payable. On the other hand, the Commissioner’s main argument was that
the 64C(4)(bA) exemption was not applicable because no consideration was
received by ABC for the interest-free loans granted to its debtors.
Van Oosten J accepted the appellant’s argument, holding the
following at paragraph  (emphasis added):
"The consideration, or
quid pro quo, as correctly pointed out by counsel for the appellant, lies in
the nature of the loan agreements: in essence the appellant was granted
equivalent benefits in the form of the interest-free incoming loans as
consideration in exchange for the amounts it loaned by way of interest-free
outgoing loans. The outgoing loans matched the benefits the appellant
received by way of incoming loans. It accordingly clearly constituted a quid
pro quo which the appellant received in return for making the outgoing loans.
Counsel for the Commissioner made much of
the words ‘to the extent of any consideration received’ as militating against
the appellant’s contention. The relevance thereof escapes me. The incoming and
outgoing loans, by their nature, as I have alluded to, clearly qualify for the
The appeal was therefore upheld and the disputed STC
assessments issued by SARS were set aside.
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