SARS’ Kieswetter wants R300 million from Pepkor boss

Pepkor CEO Pieter Erasmus is in a legal battle with the South African Revenue Service (SARS) over a R300 million tax bill.

BusinessDay reported that SARS alleged Erasmus was party to an “impermissible tax avoidance arrangement” in 2014 and 2015, which Erasmus denies.

The issue revolves around Erasmus and his family trust, which owned shares in Treemo, which paid him R1.4 billion in a capital distribution and a cash distribution in 2015.

SARS argued that the cash distributions from Treemo constituted dividend payments to Erasmus and his family trust and were, therefore, subject to dividend tax.

SARS provided Erasmus with an assessment of R183.5 million in dividends tax, an understatement penalty of R137.6 million, plus interest, BusinessDay reported.

SARS told the court that no dividend tax was levied or paid because, at the time, Treemo had secondary tax on companies (STC) credits of more than R1 billion set off against the value of the distributions. 

According to accounting firm Moore South Africa, an STC credit is applied to reduce the amount of a dividend that is potentially subject to dividends tax.

Four years after Erasmus’ transactions, SARS wanted him to provide documentation on the transactions that had taken place between Treemo, the trust and himself between 2015 and 2018.

Erasmus told SARS that he disposed of 5.5 million shares he held in Pepkor in December 2014, which had a value of R510 million. 

He sold his shareholding in an entity called Klee for R310 million. The two transactions were in exchange for shares in Treemo.

He also sold redeemable preference shares in Newshelf with a market value of R750 million to Treemo in exchange for shares in the company, BusinessDay reported.

Erasmus told SARS the payments from Treemo had not been disclosed because of an “oversight” by his accountants.

He said the payments were exempt from tax because Treemo had STC credits of more than R1 billion.

In addition, the said the capital distribution was exempt from tax as it constituted a return of capital.

However, SARS rejected his explanation, arguing that Erasmus, the trust and others had engaged in an “impermissible tax avoidance scheme or arrangement via a series of interrelated transactions in 2014 and 2015”. 

The revenue service accused them of contriving to obtain the STC credits to shield Erasmus from dividend tax. Erasmus denied this, saying he was not trying to avoid paying taxes.

This back-and-forth prompted Erasmus to take his case up with the Western Cape High Court.

On Friday, 18 August, the court ruled that Erasmus must exhaust internal remedies at SARS before he can approach the courts.

In other words, Erasmus must first file an objection or appeal with SARS, and if the revenue service rejects his objection or appeal, he can approach the courts.