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Commissioner for the South African Revenue Service vs. Coronation Investment Management SA (Pty) Ltd - (07 Feb 2023)

Essential operations of the business must be conducted within the jurisdiction in respect of which exemption is sought


The Respondent, CIMSA, is the holding company for the Coronation Group which is registered and tax resident in South Africa. During 2012, CIMSA was a 90% subsidiary of Coronation Fund Managers Limited and the 100% holding company of Coronation Management Company and Coronation Asset Management (Pty) Ltd (CAM), both registered for tax in South Africa. CIMSA was also the 100% holding company of CFM (Isle of Man) Ltd, tax resident in Isle of Man. CFM (Isle of Man) Ltd, in turn, was the 100% owner of Coronation Global Fund Managers (Ireland) Limited (CGFM) and Coronation International Ltd (CIL), which were registered and tax resident in Ireland and the United Kingdom respectively.

The central issue in the appeal was whether the net income of CGFM should have been included in the taxable income of its South African holding company, CIMSA, or whether a tax exemption in terms of Section 9D of the Income Tax Act, 1962 was applicable to the income that had been earned by CGFM.

It was common cause that, the investment function was not located in Ireland. Therefore, if its primary business is that of investment, then its net income as a controlled foreign company should be imputable to CIMSA. The Supreme Court examined CGFM’s objects as recorded in its Memorandum of Association and held that the notion that investment management is not CGFM’s core business was at odds with what is stated in its memorandum of association. The stated objects of CGFM are, to carry on the business of establishing specified collective investment undertakings; to promote, establish, manage, regulate and carry on any investment, unit or other trust or fund; and to carry on the business of investment and financial management.

The essential operations of the business must be conducted within the jurisdiction in respect of which exemption is sought. While there are undoubtedly many functions which a company may choose to legitimately outsource, it cannot outsource its primary business. To enjoy the same tax levels as its foreign rivals, thereby making it internationally competitive, the primary operations of that company must take place in the same foreign jurisdiction. The primary operations of CGFM’s business (and, therefore, the business of the controlled foreign company as defined) is that of fund management which includes investment management. These are not conducted in Ireland. Therefore, CGFM does not meet the requirements for an FBE exemption in terms of Section 9D(1). The net income of CGFM is imputable to CIMSA for the 2012 tax year in terms of Section 9D(2).

CIMSA stated that, it relied on a tax opinion procured from a leading tax expert. However, it did not disclose the contents of the opinion, nor make the opinion available to SARS. SARS claim for understatement penalties failed as the SCA held that CIMSA was not obligated to disclose the tax opinion to SARS and that not making the opinion available to SARS was not sufficient to attribute male fides on the part of CIMSA. The order of the Tax Court is set aside. The Appellant is directed to pay the additional tax imposed in respect of the Respondent’s additional assessment and the interest imposed thereon.


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