Spur Group heads to Constitutional Court in SA Revenue Services battle
Share this article:
THE SPUR GROUP will approach the Constitutional Court over a ruling by the Supreme Court of Appeal (SCA) on Friday pertaining to a dispute the restaurant chain has with the SA Revenue Services (Sars) over a R48 million tax return endowed to the group's employees for a share purchase scheme.
In a notice to shareholders yesterday, Spur said that following an SCA hearing in August, it believed that the appropriate course of action “could only include making application to challenge the SCA ruling at the Constitutional court”.
The matter dates back to a legal dispute since the group's 2015 financial year regarding the tax deductibility of a R48m payment related to the Spur Group Management Incentive Share Scheme 2004.
The SCA judgment found that the Contribution by Spur Group to the trust was used only to finance the purchase of Spur Corporation's shares in a separate company owned by employees.
The funding provided by the trust was repaid to the trust on conclusion of the Share Scheme, with Spur Corporation being the only capital beneficiary of the trust.
The SCA, therefore, concluded that the contribution itself did not benefit the employees, despite it being used to facilitate the benefits that accrued to the participants of the Share Scheme.
“On this basis, the SCA concluded that there was an insufficient link between the expenditure incurred by Spur Group and the benefits arising from the incentivisation of Spur Group's key staff,” Spur said.
The SCA also addressed the issue of prescription as, at the time of Sars issuing the additional income tax assessments relating to this matter, the original income tax assessments for the 2005 to 2009 years of assessment had prescribed.
During 2018, the Income Tax Court found in Spur Group's favour in the original hearing on this matter, and in 2019 the Western Cape High Court found in the Spur Group's favour dismissing the subsequent appeal by Sars.
However, the SCA has now upheld Sars' appeal, effectively ruling against Spur.
As a result of the SCA ruling, a more than R22m tax receivable, recognised as an asset on Spur Corporations consolidated statement of financial position as at June 30 will be charged to profit or loss as an additional income tax and interest expense.
In terms of the judgment the Spur Group will be required to settle Sars' legal costs, which were not yet determined.
The disputed income tax assessments were settled in cash in earlier financial years. The SCA judgment, therefore, had no cash flow impact on Spur Group, other than Sars' legal costs, Spur said.
Spur said prior to the SCA judgment, based on the advice of counsel and Spur group's tax advisers, as well as
the findings of the earlier judgments, its board of directors was confident that the prospects of Sars' appeal being successful was low.
Consequently, the total payments made previously were reflected as an income tax receivable asset, an overpayment of income tax in Spur Corporation's consolidated statement of financial position.