Coronation Fund Managers has successfully appealed in the Constitutional Court and had a Supreme Court of Appeal judgment on a tax matter with SA Revenue Services (Sars) set aside, the full impact of which amounted to R794 million for the company.
The asset manager said in a statement on Friday that the Constitutional Court had delivered its judgment on the international tax matter, ruling in favour of Coronation Investment Management (CIMSA) and setting aside the orders of the Supreme Court of Appeal.
Coronation said it welcomed the judgment of the Constitutional Court, which confirmed that CIMSA's interpretation and application of the relevant tax legislation had been correct and appropriate.
The R794m had been provided for in Coronation’s financial accounts in prior financial years. The Constitutional Court had indicated on September 1, 2023, that it would hear Coronation’s application for leave to appeal.
This had followed the Supreme Court of Appeal upholding an appeal by Sars in February, and it at that time ordered CIMSA to pay additional taxes earned on its international operations, with interest and costs.
The amount provided for by Coronation equalled all the tax assessments from March 2012 to March 31, 2023.
Sars had taken CIMSA to the SCA in 2022, arguing against a previous decision of the Tax Court that the net income of Coronation Global Fund Managers (Ireland) (CGFM) was not subject to tax in South Africa for the 2012 tax year.
The Ireland-based subsidiary is 100% held by CIMSA. CGFM is considered a “controlled foreign company” (CFC) under South Africa’s tax laws.
Sars had believed the profits earned by CGFM should be included in CIMSA’s taxable income. CIMSA believed the income of Coronation Ireland should be excluded under the “foreign business establishment” (FBE) exemption.
CIMSA preferred the profits be taxed in Ireland because that country had lower tax rates than South Africa.
Sars had first raised the issue in 2017. Sars subsequently raised an assessment for the 2012 to 2017 financial periods that Coronation took on appeal to the High Court in Cape Town, which sat as a Tax Court.
Sars argued that Coronation Ireland did not have sufficient “economic substance” to meet the FBE exemption and thus wanted to impute the full Irish profits to the South African shareholder.
In September 2021, the Tax Court had ruled that the tax exemption did apply, and that the company had demonstrated it was carrying out its business in Ireland, and so the profits were not subject to South African tax.
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