Most Read Contributor in South Africa, September 2016
The concept of the "place of effective management" was
considered in the recent judgment of the Western Cape High Court in
the matter between The Oceanic Trust Co. Ltd N.O, and the
Commissioner for the South African Revenue Service
("SARS") (as yet unreported).
Oceanic Trust is
a Mauritian registered and incorporated company which was the sole
trustee of a trust in Mauritius ("SISM"). Oceanic
Trust was the applicant in this case in its capacity as the trustee
SISM carried on
business as a captive reinsurer to MCubed Life Ltd. The
premiums of the reinsurance policies were transferred to SISM and
constituted assets invested by SISM in South Africa and
elsewhere. In respect of the South African assets, SISM
utilised an asset manager in South Africa.
assessments to SISM, inter alia, on the basis that SISM
was a South African resident by virtue of having its place of
effective management in South Africa. SISM approached the
High Court to issue a declaratory order declaring, inter
alia, that it was not a resident of South Africa.
that its management decisions would have been taken by its sole
trustee (i.e. Oceanic Trust) and that such decisions would have
been made in Mauritius. Reliance was placed on a recent UK
decision, Commissioner for Her Majesty's Revenue and
Customs v Smallwood and Anor  EWCA Civ 778.
The High Court
held that the relevant key features of the Smallwood case relating
to the place of effective management of an entity are, inter
alia, the following:
The place of effective management is the place where key management and commercial decisions that are
necessary for the conduct of the entity's business are in
The place of effective management will ordinarily be the place
where the most senior group of persons (e.g. a board of directors)
makes its decision, where the actions to be taken by the entity as
a whole are determined;
No definite rule can be given and all relevant facts and
circumstances must be considered to determine the place of
effective management of an entity; and
Although there may be more than one place of management, there
may only be one place of effective management at any one time.
It should be
noted that SISM did not provide SARS with any documentation to
substantiate the claim that management decisions were made in
Mauritius. As such, this had not been factually
The High Court
only had jurisdiction to hear the matter if the issues to be
decided were questions of law and did not require the court to make
a finding of fact. It was held that the question was not
simply a question of law and that the Court was not entitled to
enquire into and make findings of fact. The request for the
declaratory order was dismissed on the following basis:
if the facts are sufficiently clear to make a decision,the place where key management and
commercial decisions that were necessary for the conduct of
SISM's business, were in substance made, has in
my view not been established to be outside South Africa. ...
Therefore, applying the Smallwood test, the facts to the extent
that they have been established, do not, in my view, establish that
the place of effective management of SISM was in Mauritius, and not
in South Africa." (our emphasis)
As the facts in
the case were not sufficiently clear, in our view, no significant
inferences can be made from the dismissal of the request for the
declaratory order. However, in our view, the importance of
this decision is the acknowledgement by the Court that the place of
effective management of a person other than a natural person is the
place where key management and commercial decisions that are
necessary for the conduct of a person's business are in
interpretation corresponds to that of the Commentary of the
Organisation for Economic Co-operation and Development ("OECD
Commentary") and casts doubt on the accuracy of SARS'
Interpretation Note on the meaning of "effective
management" which seems to focus on day to day management.
Interpretation Note also acknowledges that the factual
circumstances of each case must be considered and that there is no
hard and fast rule, the Interpretation Note seems to focus more on
the day-to-day management as is evidenced by the following
place where the company is managed on a
regular or day-to-day basisby the directors
or senior managers of the company, irrespective of where the
overriding control is exercised, or where the board of directors
meets." (our emphasis)
The Oceanic Trust
decision is therefore welcome guidance on the meaning of the term
"place of effective management" in the South African
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