Most Read Contributor in South Africa, September 2016
The Supreme Court of Appeal ("SCA") delivered judgment
in favour of the South African Revenue Service ("SARS")
on 28 September 2011 in the case of CSARS v Labat Africa
Limited (669/10)  ZASCA 157, where the court was tasked
with deciding whether Labat Africa Limited ("Labat")
could deduct from its income the value of shares issued in
consideration for the acquisition of a trademark by assignment.
During the course of 1999 Labat Africa, under its former name of
Acrem Holdings Ltd ("the purchaser"), purchased "the
entire business operations" of Labat-Anderson (South Africa)
(Pty) Ltd ("the seller") which included the Labat Africa
trade mark. The business operations were purchased for a
consideration of R120 million, a portion of which was apportioned
to the acquisition cost of the trade mark. The liability to pay for
the latter was settled by the issue of shares by the purchaser.
The purchaser sought to claim a deduction equal to the nominal
value of the shares issued to pay for the trade mark in terms of
section 11(gA) of the Income Tax Act 58 of 1962 ("the
Act"), which section essentially provided that a taxpayer may
deduct from its income "expenditure actually incurred" in
acquiring a trademark by assignment from any other person. SARS
however denied the claim on the basis that the issue of shares did
not constitute "expenditure" for income tax purposes.
The North Gauteng High Court (72 SATC 75) ruled in favour of the
taxpayer by holding that the issue of shares constituted deductible
expenditure actually incurred as long as the taxpayer has incurred
an "unconditional legal obligation". However, on appeal,
the SCA overturned this decision.
meaning of "expenditure actually
On appeal, the SCA criticised the conclusion of the court a
quo that the expression "expenditure actually
incurred" merely requires that a taxpayer must incur an
unconditional legal obligation and that the actual discharging of
that obligation is irrelevant.
The court a quo relied on a number of cases, including
ITC 1801 (68 SATC 57) and Edgars Stores Ltd v CIR
(1988 (3) SA 876 (A)), but the SCA pointed out that none of these
cases dealt with the meaning of the term "expenditure" as
much as they did with the question of when the expenditure was
actually incurred. The SCA pointed out that in the current case the
timing of the liability was not in issue and for this reason the
question the court a quo should have posed was: (at
"...whether the issuing of shares by a company amounts to
"expenditure" and not whether the undertaking to issue
shares amounts to an obligation, which it obviously does. The terms
"obligation" or "liability" and
"expenditure": are not synonyms.... In other words, the
liability or obligation must be discharged by means of expenditure
- timing is not the question." (Own emphasis)
In determining whether the issue of shares for the assignment of
a trade mark could constitute expenditure for purposes of section
11(gA), the SCA considered the ordinary meaning of the word
"expenditure" and held (at paragraph 12):
"The term "expenditure" is not defined in the Act
and since it is an ordinary English word and, unless context
indicates otherwise, this meaning must be attributed to it. Its
ordinary meaning refers to the action of spending funds;
disbursement or consumption; and hence the amount of money sp
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The expansion of the West African regional market to foreign investors, and the search for emerging markets has led to a continuous increase in business mobility and cross border investments with Nigeria.
Effective collaboration amongst government agencies, automation of processes and capacity building by tax authorities have always been identified by stakeholders as strategies for achieving an efficient tax system.
The major objective of the waiver is to promote voluntary compliance and consequently generate revenue for government which otherwise, could have been lost.
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