An Expensive Tax Battle Rages in South Africa
blurb:isstoday:05052008satax
5 May 2008: An Expensive Tax Battle Rages in South Africa
A battle is raging between Dave King, owner of a trust registered offshore called Ben Nevis, and the South African Revenue Service (SARS) over an estimated profit of R1,3 billion held by the trust, that SARS believes should be taxed.
King has meanwhile been arrested by the National Prosecuting Authority (NPA) and was expected to appear in court in Pretoria next month on charges relating to a separate case of tax fraud.
The SARS / NPA / King cases, which are of much interest to South Africans, come at a time of enhanced interest in the utility of the measures against money laundering on suppressing tax evasion.
Many South Africans know the history of the Dave King-sage as he is well known for starting an outfit called Specialised Outsourcing, which he listed on the Johannesburg Stock Exchange (JSE) within a relatively short period of its existence.
At the time of the listing, about seventy percent of the shares were held by the Ben Nevis- trust registered offshore. Between 1997 and the end of 1999, institutional investors were so keen to grab whatever shares they could in this new entity that the share price kept rising, peaking at R80. At the end of the rush, the institutions sat with the bulk of very overpriced shares while Ben Nevis had made an estimated R1.3 billion profit. In other words King, the beneficial owner of Ben Nevis, made a substantial profit, on which the South African Revenue Service (SARS) thought he should pay tax.
A disagreement, which has deteriorated into litigation, has been raging ever since. The conflict with SARS revolves around whether the proceeds from a series of transactions apparently carried out in the name of Ben Nevis should have been taxed in South Africa.
The King-case is being supported by the Reserve Bank, which is pursuing King for expatriating money from South Africa. SARS is also pursuing its claim of tax evasion with great energy. It is estimated that SARS has spent about R2 million on the case, which is admittedly small fry compared to the approximately R150 million King has forked out in defending himself.
A significant feature of the SARS/King battle is the effort expended to track and attach assets owned by or linked to King in various parts of the world even before a case against him has been proved. Apart from various bank accounts, such assets include a private aircraft, traced to France. According to Business Day of3 March 2008 the aircraft was reportedly valued at $41.96 million. The court has authorised its sale, with the proceeds being invested in an account controlled by the attorney of SARS. It is understood that the plane has been sold for more than R100 million.
Claiming that King owes more than R4 billion in tax and interest, SARS is now trying to get King to be forced by a court in London to disclose his assets held anywhere in the world. A judgment is pending in the Royal Court of Justice in London.
SARS believes that such a ruling would ease its recovery of the allegedly outstanding taxes. At the same time, SARS has also succeeded in ‘freezing’ more than R300m of King’s South African assets, including houses in Sandhurst and Plettenberg Bay.
The Financial Mail of 21 March 2008 claims that further assets in cash held in the UK and Guernsey have also been targeted, as SARS presses its claims.
In a related criminal case the NPA meanwhile arrested Dave King for tax fraud. King is facing 322 criminal charges including tax evasion, fraud, money laundering, racketeering and breaching of exchange controls. As in the SARS claims, King insists that the proceeds of the sale of the shares were not taxable in South Africa at the time of the sale. The case was expected to be heard in Pretoria in May, but is likely to be postponed, because of an unresolved dispute over King’s access to certain documents in the custody of the prosecution.
Tax evasion is certainly not a uniquely South African issue. In the wake of the spat between Germany and Lichtenstein discussed in the ISS Today of 5 March 2008, the European Commission has announced that it will consider new proposals to widen the scope of tax evasion laws. It is estimated that the European Union loses billions of euros every year because of tax evasion, with Germany alone claiming it is losing up to €30b.
The loss to South Africa attributable to tax evasion is yet to be quantified.
Thobani Matheza: Researcher, Organised Crime and Money Laundering Programme, ISS Cape Town
