I am engaged in a long running dispute with SARS regarding the tax treatment of the profit on the sale of shares in a JSE listed company (“SOL”) by Ben Nevis Holdings Limited (“BN”) as well as income and benefits that I personally received thereafter. BN was the controlling shareholder of SOL when it listed in October 1997. BN, in turn, was controlled by an off‐shore trust of which I and my immediate family were the beneficiaries.
At the time that SOL was listed the markets were in turmoil and the sponsoring broker wished to delay the listing. I prevailed upon them to proceed despite the market gloom. Shortly after the listing market conditions unexpectedly reversed and there was a boom in certain sectors of the equity markets. The SOL share price rose dramatically. During this boom period BN sold a substantial portion of its shareholding in SOL via two large empowerment transactions and the placing of shares
to meet a strong demand from local and foreign institutions. The proceeds were, by law, deposited into a non‐resident bank account and hence transferable to anywhere in the world. The reason that the SOL share price did so well was that the market perceived that it had a new and unique business model‐ which is exactly what it did have.
The success of the JSE listing enhanced the ability of the trustees to make further substantial investments in SA (and elsewhere) as well as generous capital distributions to me. Capital distributions were not and are not taxable in the hands of individuals in SA. I consequently had no taxable income. When the Commissioner commenced his investigation into my tax affairs nine years ago I offered to fully explain my circumstances and volunteered to bring some of my non‐taxable income into the SA tax net. I fully accepted that I must give full disclosure on my non‐taxable income to allow the Commissioner to validate my position. This disclosure however would not render the income taxable‐ hence my offer to the Commissioner to structure a mechanism to bring some income into the net.
In partial “mitigation” for my position I feel that it is not untrue to state that it was almost a national sport for SA residents to have off shore structures during the apartheid era SA and this had by necessity continued into the early years of the young SA democracy. It is for this reason that SA introduced a tax and exchange control amnesty. I would have qualified for the amnesty in both cases based on the allegations that the State has made against me however I was precluded from applying
by both SARS and SARB. I believe that it is difficult for the State to argue that my matter has significant national policy importance given the recognised need for an amnesty and my deliberate exclusion therefrom. Furthermore, the compliance benefit that my matter generated has already been banked.
South Africa is rightly recognised to be a fledgling democracy with a text‐book constitution. Much has been achieved in a short time. The Commissioner has a range of legal powers which are entrenched by the Constitution and which would not be available to the average litigant. These “extra” powers are in common with the position in other major economies around the world. Without them tax collection would be extremely difficult. The balancing mechanism for extra powers has to be accountability. I believe that in my matter the Commissioner has behaved as if he believes that he will not be held accountable for his actions, irrespective of how he wields his authority.
The Constitutional protection that is afforded taxpayers should not be compromised by the tax collection process. The Commissioner cannot be allowed to violate the constitutional and common law rights of taxpayers. The Commissioner must be seen to be accountable to the Courts and to his employer. Destroying lives should be a last resort‐ not a standard tax collection technique. A couple of years ago the Commissioner had to attend a parliamentary finance committee meeting to motivate his request for extended powers to conclude a negotiated settlement of income tax
matters. To my recollection the astute Barbara Hogan raised her concern that the Commissioner’s powers placed him in an overly dominant position to negotiate such settlements. Ms Hogan recognised that in virtually every instance a taxpayer would not be able to stand his ground in a “negotiation” with the Commissioner. Ms Hogan was looking for checks and balances. How prophetic her concerns were! I feel that the Commissioner’s approach to my tax dispute borders on jackboot tax collection or extortion. Certainly, if the Commissioner’s actions are taken together over a period of time, it is inescapable that a most severe abuse has occurred. It is not difficult to join the dots.
The Commissioner can not approach the courts as an ordinary litigant. The commissioner can not use the court system for tactical advantage. The Commissioner is constitutionally obliged to act with the highest integrity.
The late Professor Mureinik captured the essence of the ethos of the new Constitution in his article "A Bridge to Where? Introducing the Interim Bill of Rights" :"If the new Constitution is a bridge away from a culture of authority, it is clear what it must be a bridge to. It must lead to a culture of justification – a culture in which every exercise of power is expected to be justified in which the
leadership given by government rests on the cogency of the case offered in defence of its decisions, not the fear inspired by the force of its command. The new order must be a community built on persuasion not coercion." This quote has been quoted with approval in a number of constitutional court cases. A further relevant quote is that “Accountability of those exercising public power is one of the founding values of our Constitution".
Our constitution demands the following of the State and the Commissioner is bound by this:
THE STATE'S POSITIVE DUTIES
The duty to lead by example.
The duty to respect, protect, promote and fulfil the Bill of Rights.
The Commissioner is also bound by the obligations imposed on the public administration by Section 195 of the Constitution which provides:
“195 Basic values and principles governing public administration
(1) Public administration must be governed by the democratic values and principles enshrined in the Constitution, including the following principles:
(a) a high standard of professional ethics must be promoted and maintained.
(b) efficient, economic and effective use of resources must be promoted.
(c) services must be provided impartially, fairly, equitably and without bias.
(e) public administration must be accountable.
(g) transparency must be fostered by providing the public with timely, accessible and accurate information.
(2) The above principles apply to ‐
(a) administration in every sphere of government;
(b) organs of State; and
(c) public enterprises. ...”
Cooperation with SARS and the secret report
My reluctance to debate the merits of the tax case other than before the ITC has allowed SARS to create the impression that I am a massive tax fraudster who will do anything, legal or otherwise, to avoid paying tax. SARS is greatly assisted in this endeavour by the simple fact that the courts and the media will always give SARS the benefit of the doubt when making assertions. This is not surprising because the courts and the media must assume that SARS appears before them with clean hands.
As a result of SARS “court rhetoric” and public spin doctoring the courts and the media assume that I have dirty hands. In order to give an initial flavour of this I will quote an example from transcribed commentary by one of the most senior Pretoria judges in relation to his decision in one of the court cases.
• The Judge stated “ … because I don’t trust your client.” This was immediately followed by …”Your client is somewhat of an eel”. Given that the clients in this matter were corporate entities it is apparent that the Judge was referring to me personally and in so doing was piercing the corporate veil in his own mind without the matter being before him. The judge went on to say ”But you know, full marks for Mr. King.” followed by “Well, the fact that you are opposing the relief is, in itself, an indication that I ought to grant it.” I found comments such as these from a senior judge to be quite disturbing.
Contrary to SARS’ assertions I believe that I can demonstrate that I tried, from the earliest point of dispute, to engage the Commissioner to openly explain the background and nature of my relationship with the various legal entities with which I am or have been involved and how this connects to my personal tax affairs.
The Commissioner however, despite his legal obligation to do so, was reluctant to engage me in a meaningful way in an attempt to understand my tax affairs. His motives for this only became clear to me once events unfolded. The initial focus of the Commissioner’s efforts would be to seize assets with a view to creating a forced settlement without having to test the merits of his case before the ITC.
There is substantial written and verbal communication between myself and the Commissioner that demonstrates that my attitude was one of cooperation and that I made numerous efforts to provide SARS with a thorough understanding of the background events and corporate structures that impact upon my tax position.
The tax dispute first came to my notice on the 5th June 2000 when I received a letter from Mr Chipps of SARS (which was dated 29th May 2000) in which he queried the gap between my wealth based on press reports against that which he could identify from my tax returns. This letter contained assumptions, on the basis that they were facts, merely based on the press report. In particular there was confusion regarding whether so called profits were mine, or not. I fully respected the
Commissioner’s right to inquire into my tax affairs. I am also acutely aware of the propensity for the media to publish stories that blur the distinction between personal and corporate wealth.
I telephoned Mr Chipps on the 29th June 2000 and advised him that an explanation of my tax affairs would be lengthy and complex. I requested a meeting with him to give SARS the relevant background. I was surprised that Mr Chipps refused to meet with me. I believed that I had the right to make submissions and that Mr Chipps would have wanted as much background and documentation as possible to assist in his inquiry.
I consequently responded to Chipp’s letter and stated: “ You will recall that I telephoned you and requested a meeting which you declined. I assumed that you wished to get to the true position ASAP and clearly (given the alleged amount) a one on one meeting would have seemed an obvious way forward.” I then proceeded in the letter to answer his questions as best as I could in accordance with the way they had been framed.
By the 5th September 2000 further exchanges of correspondence had ensued during which SARS expanded its information gathering requirements. I again telephoned Mr Chipps following a letter that I received from him on the 4th September 2000. I was frustrated with the lack of progress. I had a sense that a view had already been taken by the Commissioner and that he was not really interested in my representations. My request for a meeting was again refused.
I therefore wrote to Mr Chipps on the 5th September 2000 and stated the following in my letter: “I refer to your fax letter dated 4th September and my telecon of today during which I tried to give you some insight into the bigger picture. I understand that you have a difficult job to do but feel that I should not be compromised by legitimate tax structuring. I am concerned that you refer to
an article by a professional gossip columnist to state that “it is evident that contrary to what was stated”. This could be construed as being defamatory and biased”
On the 18th December 2000 I wrote a letter to Mr Chipps in which I stated: “You will require my assistance in reconciling contracts and cashflows where I acted as nominee for companies in existence and to be formed. I once again offer my full cooperation and await your request for assistance”
On 1st March 2001 I was advised that the investigation had been moved to Mr Fiamingo at SARS’ Randburg office. I therefore again took the opportunity to try to have a meeting as I still considered it to be impossible to deal with the complexities involved through an exchange of correspondence. Also some of SARS questions were framed in ways that made them unanswerable.
I wrote a letter to Mr Fiamingo on the 12th March 2001 in which I stated: “I am extremely pleased that the Special Investigations Unit has taken my income tax matters over from Mr Chipps. No doubt you have copies of my correspondence with him which incorporates numerous requests to assist him in what is a relatively complex matter. I would like to move away from vague allegations and vivid imagination to dealing with the tax regime in South Africa” After answering a number of queries I conclude the letter by stating: “I look forward to the opportunity to assist you in finalising this matter which I will treat as a priority. I understand the need of your department to be suspicious but do not want to waste your time with unsubstantiated gossip in the press”. Mr Fiamingo was removed from the matter without further progress being made by either side.
After numerous further exchanges with Chipps I wrote to him on the 30th October 2001 in which I stated: “ We have had numerous exchanges of correspondence over the last couple of years regarding my personal tax affairs. During this exchange, and in personal telephone calls I have offered to meet with you and assist you in any way I can. In particular I expressed concern about your reliance on incorrect press reports which in any event fail to distinguish between myself and companies on whose Board I am represented.”
After more than a year of my requests to meet the Commissioner finally concurred. The
Commissioner however requested a formal inquiry with my evidence being given under oath. On the 1st November 2001 I received a letter from SARS in which was stated inter alia:
1. “I have noted your willingness to explain your situation to the South African Revenue Service”.
2. “To my mind such explanation should be properly structured”.
3. “I invite you to agree thereto that an inquiry in terms of section 74C of the Income Tax Act be held in order to afford you the opportunity to explain your situation to the South African Revenue Service in the presence of and under the control of an impartial presiding officer”.
4. “I suggest that a suitable presiding officer could be Adv. Piet Marais SC, an experienced income tax lawyer who, although he sometimes advises the
Commissioner, more often acts against the South African Revenue Service. He is well
known for his impartiality”.
Based on my own belief and previous recommendations regarding how the matter should proceed I was delighted that the Commissioner had finally come round to my way of thinking. I was further delighted at the prospect of having an impartial Presiding Officer who “more often acts against” theCommissioner.
I wrote back to Mr Chipps on November 5th 2001. In my short letter I stated: “Thank you for your fax dated 1st November which I had the opportunity to review this morning. Instinctively, I believe that your proposed solution has a lot of merit. It should certainly help bring matters to a close. Could you please fax me details of what is involved in such an inquiry”..
I had not engaged a legal team up to this point but in view of the formal inquiry I engaged legal assistance from this point onwards. SARS must have already been adequately prepared as they wished the inquiry to start immediately. My legal team insisted on a reasonable preparation time. The inquiry was finally agreed for a duration of three days commencing on the 28th January 2002.
SARS provided a lengthy affidavit that highlighted all the individual tax items that would be interrogated at the inquiry. I was comforted and encouraged by the fact that I would finally have my say in respect of all the matters that the Commissioner was still uncertain about.
I prepared extensively with my legal team for the inquiry. Supporting documentation was extracted and I was fully prepared to provide comprehensive explanations when I arrived at the inquiry on the 28th January 2002.
Before I commenced giving evidence on the morning of the 28th January there was a discussion between my legal team and the Commissioner’s legal team regarding my rights to certain documentation. According to my legal team SARS had unlawfully and unconstitutionally refused to afford me access to all the documentation and information in its possession in relation to my affairs. I was advised that I had the right to postpone giving testimony until this matter was resolved. If I had
wished to avoid or delay matters I could have taken this opportunity to cause a material delay. I had waited a long time to give my side of the story and I wished to press ahead. I asked to continue and my legal team reserved my rights regarding the documentation issue.
As far as the procedure for the inquiry was concerned it was agreed that I would first give evidence and that my legal team would subsequently question me. This would guarantee fairness in that the Commissioner would be able to cover everything that he intended to and then I would be able to fill in any gaps that I felt were relevant and that had not been canvassed by the Commissioner or had been misconstrued. I commenced my interrogation with a mood of optimism and a sense that I was participating in a process that would finally resolve this matter to the satisfaction of all concerned. I was questioned for two and a half days and then (with half a day of the time allocated still available) SARS requested a postponement as they felt that they had covered enough at that point. The inquiry
was consequently adjourned on the basis that I would provide further documentation and information that had been called for. In turn, the Commissioner would conduct further investigations prior to resuming the questioning of me at a later date.
I was disappointed by the early adjournment. We had made little progress up to that point and very few of the relevant issues had been covered. I had a lot of documentation and evidence that was yet to be presented to the Commissioner and I still had to undergo the clarifying questioning by my legal team. I could see a delay of some months looming before I would get the opportunity to complete my evidence and finally conclude my interaction with the Commissioner.
It transpired later that the Commissioner had not intended to give me a full and fair hearing. He had avoided certain key areas rather than run the risk that my evidence and documentation could compromise his next premeditated step.
What happened next is quite astonishing. Adv. Marais was playing an undisclosed dual role as presiding officer (purportedly impartial) at the inquiry while simultaneously advising the Commissioner on my tax affairs. The comfort level that the Commissioner had given me in recommending Adv. Marais was about to be shattered.
I only found out about the existence of a secret report months later when on the 31st May 2002, after much difficulty and resistance from the Commissioner, my legal team managed to get access to documents that had been claimed by the Commissioner to be privileged. The documents included a secret report to the Commissioner that had been prepared at the Commissioner’s request by Adv Marais. The report was issued to the Commissioner on the 18th February 2002 and its existence was concealed from me.
SARS had used the report in preparing the tax assessments and its supporting legal strategy and hence, to SARS mind, it was subject to legal privilege. The Commissioner only realised that he had a dilemma when the document was about to be discovered in another action. If Adv Marais was to retain the perception of being an independent presiding officer then the Commissioner would have to change his stance and declare the document as being without privilege. He consequently had no
wriggle room and therefore discovered the document. The Commissioner’s true position became clear in a subsequent affidavit when he stated that the document was privileged but that the Commissioner had subsequently decided to waive his privilege. That is a shocking abuse for the Commissioner to admit.
Adv Marais presented the Commissioner with the secret report on the 18th February 2002 albeit it was apparently available to the Commissioner (according to certain references in the report) in draft form a few days earlier. The Commissioner secretly completed tax assessments against me without bothering to meet his commitment given at the time of requesting a postponement of the partially
At that time I remained mistaken in my confidence that my input and cooperation was proving to be useful and constructive and hopefully in the fullness of time would prove compelling. The Commissioner however, in contrast with his pretence of due process, was about to use the partially completed inquiry as a basis for issuing indefensibly large tax assessments purely as a tactic to approach the Courts on an ex‐parte basis to seize assets and thereby create an environment for a forced settlement. The fact that my rights were being violated and that there was an incomplete and inconclusive inquiry was not a deterrent from the Commissioner’s perspective. If he could create a forced outcome, which was clearly anticipated at that stage, then he would never be held accountable. Even the fact that the assessments had been issued was kept secret from me.
Interestingly, Mr Latif of SARS told me personally in a subsequent discussion that “if SARS had known that I was a street‐fighter they would have taken a different approach”. This was echoed by SARS in subsequent affidavits when they advised the court that I had not behaved as the Commissioner had expected me too. The Commissioner’s game plan was always to achieve a favourable settlement by putting me under emotional, financial and reputational pressure.
My legal team and I had been led to believe that no legal action would be taken until the agreed process for the inquiry had been concluded. The Commissioner knew that this was not the case and wanted it like that. The Commissioner had ulterior motives from day one and had requested the report that was deliberately kept secret from me and my legal team. Interestingly, Adv Marais’ initial response was to deny issuing a secret report.
Adv Marais’ independence is not only destroyed by the mere issuance of a secret report but a number of quotes from the report make Adv Marais’ and the Commissioner’s position indefensible.
Quote 1‐ “Moreover, I have been requested by the Commissioner in this matter to bring out this report.”
Quote 2‐ “Affidavit: Engelbrecht, para 14.3.1” This indicates he was cross referencing to a document being undertaken by Engelbrecht who is a SARS employee and was preparing his founding affidavit for the ex parte order.
Quote 3‐ “In terms of international law it is not competent for a foreign state to have a claim for taxes enforced in another state as appears from the following:”
Quote 4‐ “It can therefore be accepted that the Commissioner would not be successful in collecting income tax on the proceeds derived by Ben Nevis on the sale of the shares.”
Quote 5‐ “As far as possible criminal proceedings are concerned, however, it should be mentioned that in terms of section 74C(17)(b) of the ACT, no incriminating evidence obtained during an inquiry shall be admissible in any criminal proceedings against the person giving evidence. This, of course, would make it difficult for the State to prove a case against King, which is a situation which differs toto caelo from the situation where King would have to discharge the onus resisting on him in terms of section 82 of the Act, in proceedings in the Income Tax Special Court”.
If my legal team had been aware, as the Commissioner was, that a report was to be issued at the end of the three days then I am certain that they would have adopted a different approach to the inquiry and ensured that I would have been afforded the right of re‐examination on the issues that had been canvassed to date. They would also have ensured that my evidence was fully led (and which is not complete to the present day). My legal team was content to leave my examination until the end of the postponed inquiry in the belief that this would not compromise me. My legal team
were intentionally misled and acted accordingly. They would have advised me differently if they had been aware of the Commissioner’s true intentions or if they had reason to distrust the process that had been agreed. In an affidavit dated 22nd August 2002 Engelbrecht stated in reference to the S74C inquiry: “However, I do not dispute that it was understood by all concerned that Mr King’s legal representatives would have been entitled to re‐examine him if and when the Inquiry was ever reconvened for this purpose.”
The Commissioner’s reaction once he was aware that my legal team would gain sight of the report is enlightening. The Commissioner had clearly used the report in litigation and assessments however he realised the difficulties that this created for him and so resorted to the type of response that was to become standard in my dealings with him thereafter. He chose to brazenly deny the truth to me and to my legal team and to the Court. Without highlighting all the instances of deception I will focus on a few key and relatively simple ones.
In a letter to my attorneys dated 18th June 2002 the attorney for the Commissioner stated: “Our client has at no stage relied on the report of Advocate Marais SC for purposes of Court proceedings. Our client has also not relied on the report of Advocate Marais SC for purposes of the assessments, as it was, amongst other things, only received after the assessments were raised.”
I will highlight why this statement is obviously false. On the 12th March 2002 my attorneys addressed a letter to the Commissioner requesting reasons for the new assessments. In its response to this letter SARS made a number of revealing statements which indicated the Commissioner’s use of the secret report. I will highlight some of the more obvious ones.
In the secret report Adv Marais gave the following opinion to the Commissioner: “This is highly improbable, if not patently untrue: King was wholly responsible for his mother’s wealth, and not the other way round.” In the letter from SARS the following is stated in relation to the same matter:
“….is highly improbable, if not patently untrue. The fact is that your client was wholly responsible for his mother’s wealth, and not the other way round.” The similarity is strikingly obvious and cannot be coincidental.
In the secret report Adv. Marais advised the Commissioner as follows: “…he states that he owes everything to his mother, that he is wholly dependant on her goodwill for what he receives,….” In the letter the following is stated by SARS: “…that he owes everything to his mother and that he is
therefore prepared to be wholly dependant on her goodwill for whatever he receives….”. If that represents an independent meeting of minds then it is quite uncanny.
In the secret report Adv. Marais advised the following to the Commissioner: “ he does not operate those accounts but his wife…..the money is not his, but that of Ben Nevis….the interest earned on the funds in the account, not even on the face of it, can be said to accrue to him…..he and his wife, nevertheless, was (sic) entitled to use whatever was in the accounts and which was not needed for Ben Nevis’s investment purposes”. The letter from SARS contained the following: “ he does not operate those accounts but his wife does…..the money is not his, but rather that of Ben Nevis….the interest earned on the funds in the account, not even on the face of it, can be said to accrue to
him…..he and his wife, nevertheless, were entitled to use whatever was in the accounts and which was not needed for Ben Nevis’ investment purposes”. It can be seen that it is identical other than for a few minor grammatical enhancements.
In the secret report Adv. Marais gave the Commissioner the following opinion: “In my view the above outlined arrangement is far removed from how independent arm’s length businessmen would deal with each other. It is much more probable that all the funds in the relevant accounts, were there for the exclusive use of King, and were probably his property, having been earned through his efforts.” In the SARS letter the following is stated: “The above in the opinion of my client is far removed from how independent businesspeople will deal with each other. It is much more probable that all the funds in the relevant accounts were there for the exclusive use of your client and were probably his property, having been earned through his efforts.”
In the secret report Adv. Marais advises the Commissioner: “In my view there is an inconsistency in King’s approach in regard to nomineeship, agency and ownership. In fact, I got the distinct impression that he adapts his views as it suits him. The following are examples of the aforementioned.” The SARS letter states as follows: “There was a glaring inconsistency in your
client’s approach with regard to nomineeship, agency and ownership. At the inquiry he adapted his views as it suited him. The following are examples of the aforementioned.”
Another aspect that is particularly relevant from the resumed inquiry is that Adv. Marais ruled that the transcript of the first two and a half days of the inquiry was patently defective and that it was the Commissioner’s responsibility to rectify this. To date I have not been provided with a rectified copy of the transcript as the Commissioner is unable to do so.
The tax assessments
Tax assessments were raised by the 15th February 2002 reflecting that I was personally liable for R913 million and BN for R1,4 billion. The numbers had to be large enough to allow SARS to gain the ex‐parte order that it required as SARS wished to encumber a substantial asset base. The assessments were deliberately withheld from myself and BN.
The ex‐parte preservation order based on the alleged tax debts was granted by the Court on the 18th February 2002. The preservation order was served on myself and BN the next day as were the tax assessments. Astonishingly the tax assessments required payment the same day. I do not believe that even the largest corporations in SA could have complied with such payment terms. SARS was high handed and arrogant and obviously felt that this secretive approach had established an environment in which SARS would call the shots and achieve its predetermined goal of forced settlement irrespective of the merits of the underlying tax assessments. I was not yet aware that the secret report had played such an important role but at least I was now acutely aware that the Commissioner had not been acting in good faith.
Importantly, BN was not party to the inquiry and therefore had not had the opportunity to make representations to the Commissioner prior to the raising of the unlawful assessments.
The position with BN is relatively simple to deal with. SARS initially commenced its investigation because newspaper reports indicated that I had personally profited by over R 1 billion through selling shares in SOL. Despite the fact that SARS pursued this incorrect contention with me for a long period, they clearly recognised when the assessments were being secretly prepared that this was an untenable position for SARS to maintain. SARS came round to accept that the gain from selling shares had not accrued to me but to BN. SARS therefore did the only thing that it could do to achieve the appropriate conditions for a forced outcome. SARS raised a massive assessment against BN on the simple untested basis that any amounts received by BN were of a revenue rather than of a capital nature. 200% penalties were then applied.
BN is resisting the assessments on two fronts. The first is that as an offshore investor it is not subject to tax in SA. If BN is successful with this argument the assessments will have to be withdrawn. If SARS succeeds in establishing that BN is subject to tax in SA it will then have to convince the court that the gains were of a revenue nature. The Commissioner agrees that he relied on estimates in raising the assessments. It is generally accepted by tax experts that the capital versus revenue
argument is complicated to prove for either party but that the overriding factor that must be gleaned from the evidence is what the intent of the investor was. This can only be determined by way of evidence. An undated (which is not unusual) letter was sent by SARS to BN’s attorneys in which, inter alia, the following was stated: “My client carefully considered whether the aforesaid profit was of a capital or of a revenue nature. It was concluded that it was of revenue nature
because it was concluded that your client intended to trade in these shares in South Africa with the intent to derive profit therefrom. The above conclusion was reached despite evidence to the contrary by Mr DC King who at all relevant stages acted on behalf of your client in respect of the aforementioned transactions”
I will now deal with my personal tax assessments which will reveal the mala fides of the Commissioner beyond doubt. SARS raised new and additional assessments against me amounting to R913 million. Of this amount R272 million is for normal tax and the balance comprises interest and penalties.
SARS supported such massive assessments against me by way of a fairly simple supporting schedule numbering 16 items.
1. Interest R 3,033,495.08
2. Profit on sale of shares 1,097,311.11
3. Loan Bothmasburg Farming (Pty) Ltd 1,000,000.00
4. Loan Bothma Boerdery (Pty) Ltd 4,953,000.00
5. Loan SOL 7,116,169.00
6. Sale Republic Ratings 6,999,999.49
7. Sandhurst Property 4,800,000.00
8. Ferrari 2,100,000.00
9. Mercedes Benz S500 817,809.00
10. Hawker 800 XP 73,562,330.00
11. Falcon 900 101,437,670.00
12. Talacar shareholders loan account 188,466,597.00
13. Rangers Football Club 200,000,000.00
14. Amazulu Football Club 20,000,000.00
15. Living expenses 17,236,344.18
16. Less income declared (898,924.00)
These items total an amount of R632 million which SARS declared as being non‐disclosed income by me and to which was applied the normal tax rate plus 200% penalties and interest to arrive at the total assessments of R913 million.
It is also interesting to note the inconsistency in SARS’ own version that completely belies the confidence exuded by SARS on its prospects in the tax case. Having taxed me on the full capital value of a number of assets which are owned by independent companies for the purpose of building up the assessment for the ex‐parte order SARS then owned up to the truth only a couple of months later. In an affidavit before the Court dated 24th May 2002 SARS stated: “The Respondent has now
already for a number of years enjoyed fringe benefits in the form of free housing in a multi‐million Rand mansion, free holiday accommodation and free use of an aircraft for personal purposes. He has also enjoyed the free use of exclusive motor vehicles worth millions of rand over an extended period of time by his own admission. These fringe benefits were not disclosed in the Respondent’s income tax returns.” (The underlining was inserted by me.) This statement is extremely revealing for a number of critical reasons.
1. The Commissioner seems to have committed perjury. He has also overruled the
assessments that anchored the ex‐parte order by stating that the assets were not owned by me but were merely utilised by me: hence his view that fringe benefit tax should be assessed.
2. He admits that I was open and frank regarding these material disclosures.
The above clearly demonstrates the mala fides displayed in the preparation and submission of the assessments. The Commissioner did not hesitate to mislead the Court to suit whatever short term outcome was required for any specific application. SARS peculiar logic causes me to be taxed on a personal basis on the full capital value of an aircraft that SARS alternatively alleges that I should be taxed on as a fringe benefit. An owner could not be subject to fringe benefits.
SARS true position on the aircraft can be demonstrated by the following quotes in an affidavit signed on the 14th April 2003 in relation to a VAT dispute between SARS and the partnership that owned the aircraft in question:
• “The Falcon was initially purchased by Ben Nevis Holdings Limited for $25 million (United States Dollars) and was fully paid for and registered in the name of the Fifth Respondent (Hawker Air Services (Pty) Ltd). Ben Nevis then sold the Falcon to the old partnership during September 2000, although Fifth Respondent remained the registered owner of the Falcon.”
• SARS later stated: “The purchase of the Falcon from Ben Nevis by the old partnership was financed through a term loan agreement with RMB. Initially the partnership’s asset was a Hawker XP 800 aircraft. The Falcon was added and the Hawker sold not long thereafter.”
On the 5th December 2003 another affidavit was completed by SARS in the VAT dispute with the partnership. I provide the following quotes:
• “The partnership claimed a VAT input in an amount of approximately R10,2 million following the acquisition of a Hawker 800 XP (ZS‐DCK) aircraft (“the Hawker”) during the 08/99 VAT period.”
• “ I calculated that the Partnership failed to declare income derived from charters involving the Hawker during the 08/99 to 06/2000 VAT periods.” ……“ It should be noted that I eventually upheld the Partnership’s objection against this assessment including the penalty, additional tax and interest components thereof, in view of the fact that I established that the revenue flights during the 08/99 tot (sic) 06/2000 VAT periods were in fact declared in the partnership’s 08/2000 VAT return”
• : “The assessment is based on a disallowance of a portion of the input tax applicable on the acquisition of a Falcon 900B aircraft (ZS‐DAV) (“the Falcon”), by the Partnership during the 12/2000 VAT period:”
It is clear from the above that the Commissioner is fully aware of the true and legal ownership of the aircraft and had merely assessed me on a mala fides basis to support a large enough assessment to justify the ex parte application. SARS can have no prospect of success in respect of this item.
In a subsequent affidavit SARS made the following comments: “ From this it is clear that neither the Applicant (SARS) (nor even Mr Dunlop) intended to portray that the deponent (me) purchased the aircraft in his own name and/or that the partnership agreements constituted a sham” and “ From
this it is clear that neither the Applicant (SARS) (nor even Mr Dunlop) intended to portray that the deponent (me) purchased the aircraft in his own name and/or that the partnership agreements constituted a sham.”
In a recent action before the Court the Commissioner, in his desperation to exclude me from the litigation, agreed that he will abandon his claim that I am the true owner of the SA assets and will never reinstate such a claim in the future. This destroys virtually all of the tax case against me.
The role of criminal charges
From the onset of my investigation SARS regarded the leverage of a criminal prosecution as being an important weapon in his armoury.
During the section 74C inquiry the possibility of criminal charges being laid against me was mentioned for the first time. I was surprised by this. If the purpose of the section 74C inquiry was information gathering then it seemed to me that the premature issuance of a threat regarding possible criminal charges was inappropriate and could only have been designed to intimidate me. I was not overly concerned at that stage. I was confident that I could not be exposed to any serious criminal sanction albeit I recognised that there were statutory issues regarding disclosure in my income tax returns.
The issue of criminal charges resurfaced as a threat once SARS realised that the initial settlement discussions that followed the granting of the ex‐parte preservation order would not yield the desired effect and hence additional leverage was required. This time the threat extended to SARS being able to secure my imminent arrest. I now became extremely concerned about the blatancy of the threat and the fact that SARS was treating the criminal authorities as if they were a branch of SARS to do its bidding.
I immediately reported this turn of events to my legal team who expressed concern about this development. They were particularly concerned that on one of my frequent overseas trips that I could be viewed as fleeing from justice. I therefore immediately retained criminal counsel at whose recommendation a letter was addressed to SARS attorney on 5th March 2002 setting out my committed overseas travel arrangements for the balance of the year. I completed the first two trips exactly in accordance with the schedule that I had provided.
The third trip was scheduled for the 11th May 2002. My wife and I were flying out of the country for a week and our children were not with us. I was interrupted at the airport by Adv Nel of the Scorpions. He advised me that SARS had laid fraud charges totalling R900 million against me and that SARS had advised him that I was leaving SA. The inference was that I was fleeing justice. As with the tax case the Commissioner had chosen to be dishonest ab initio. Even on SARS numbers I could not
be guilty of a fraud of R 900 million. 200% penalties imposed by SARS cannot be fraudulently attributed to me.
Before approaching me Adv. Nel had taken my passport from the immigration officer. I advised Adv. Nel that SARS’ knowledge of my travel arrangements derived from a schedule that I had given to him in order to avoid this very occurrence‐ one would not give the State advance notice of one’s intention to flee. Adv Nel threatened my arrest if I boarded the aircraft. I agreed to return home. Adv Nel wished to retain my passport. Under the circumstances I had little option but to agree.
I was formally arrested by agreement mid June 2002. I was granted bail of R1million subject to handing my passport over to the authorities. This was done. I had initially wished to retain my passport but SARS asked the State to apply for bail of R600million if I was to retain my passport. It was argued by the State that I was a material flight risk.
During the arrest procedure the investigating officer advised me that the State had not yet commenced its investigation and was acting solely on input from SARS but that if the charges proved to be “just for pressure” the Scorpions would not prosecute. I was given the clear impression that SARS had a track record of pressing criminal charges without any real prospect of conviction, but rather “just for pressure” as a means to an end.
This was reinforced by the fact that the State was unable to provide me with a charge sheet at the bail hearing. It took three years before an indictment was received and even this was done only under pressure from my legal team. The only reasonable conclusion that one can arrive at is that the criminal charges were, at best, premature and were designed solely to create a “forced outcome”.
An extremely disturbing (albeit revealing) development occurred during the first quarter of the following year. My Counsel received a call from Adv Nel on the 18th March 2003 stating that if I did not present myself to the Scorpions the next day for a second arrest (this time on charges of fraud and corruption against Umgeni) that they would come to my house and arrest me. The Scorpions urgency was inexplicable for the following reasons:
1. I was already an arrested person and my passport had been retained by them for almost a year.
2. I had complied with all my bail conditions and had attended Court whenever obliged to do so, without ever requesting a change of dates.
3. If the Scorpions were willing to wait until the next day then they did not truly consider that I was a flight risk.
The picture however became clearer during that afternoon. My counsel received a call from SARS legal team asking that we attend a meeting in Pretoria to again discuss settlement. I was confounded by the timing of this out of the blue request and mandated my counsel to engage telephonically prior to seeing if it was worthwhile going to Pretoria that evening. I had a previous bad experience in this regard.
During the telephonic discussion with SARS in which settlement amounts were being discussed, SARS introduced the possibility that the Umgeni matter could form part of the settlement (as if it were a commercial dispute) if we agreed to a certain figure. Alarm bells began to ring and when questioned on the obvious unrelated nature of the two matters Engelbrecht supplied the cell number of Adv, Nel of the Scorpions to confirm that this could be achieved.
My counsel phoned Adv. Nel who confirmed the theoretical difficulty of linking the two matters however then stated that it could be possible, given that the State is complainant in both matters. I regarded this whole exercise as a further abuse of my rights and refused to attend the meeting with SARS but to rather present myself to the Scorpions for another arrest and to deal with that charge on its own (lack of) merits.
I was formally arrested on the Umgeni matter on the 19th March 2003 and had to provide bail of a further R1million and had my passport “taken away” again as part of my bail conditions (even though the Scorpions already had it in their possession). It is inescapable that the Scorpions were
actively working with SARS in this second arrest and thereby assisting them in their Machiavellian approach.
After my arrest the Scorpions proved extremely reluctant to take the matter to Court. This was a total abuse of power at the behest of SARS. They seemed concerned that they might lose the tactical advantage that they hoped to gain by using the Umgeni matter for leverage in the tax case.
During August 2003 at a remand hearing on the Umgeni charges the Scorpions informed my legal team that they intended to prosecute the Umgeni charges after the tax charges had been prosecuted. I instructed my legal team to apply for the earliest trial date. Despite stern resistance from the Scorpions we were eventually given a trial date for the 31st May 2004. The Scorpions had gained some time but I was comforted that they were at least on a short leash.
I advised my legal team that I expected capitulation by the Scorpions and that we should not compromise our position. It was very important to me that the Umgeni arrest should be seen to be what I believed it to be‐ a co‐ordinated attempt by the Scorpions and the Commissioner to put me under pressure to settle my tax dispute: in other words, a despicable abuse of State power. Not surprisingly the Scorpions capitulated on the morning of the trial on the 31st May 2004. A statement
was read into Court by their counsel confirming the withdrawal and further stating that: “ The State will not reinstate these charges in future.” .
I only accepted the final wording of the statement once I was happy that it was absolute and that it conveyed the correct impression to the Court. It is extremely unusual for any prosecuting authority to withdraw charges on the basis that they will NEVER be re‐instituted; even in the face of new evidence. I believe that the specific wording of the statement was not lost on the Court that morning. Such a climb down by the Scorpions indicates a clear lack of a starting point, particularly
when arresting an already arrested person.
In the interim the NPA conducted its investigation into the tax criminal charges and this led to discussions regarding a plea agreement. I reached agreement with the NPA and I was advised around March 2004 that our plea agreement had been formally accepted by them and was only subject to the ratification of the Court.
Surprisingly, the Commissioner advised the NPA that he had the right to veto the plea agreement. He threatened legal action against the NPA if it was implemented. My counsel was requested by the NPA, at my expense, to give an opinion in this regard. The opinion stated clearly that the complainant had the right to be consulted on a plea bargain but had no right of veto. The Commissioner’s actions to maintain the ongoing threat of criminal prosecution knowingly delayed his ability to recover genuine taxes that might be due. Conversely it maintained his opportunity for
forced settlement. The following is the final conclusion of the opinion prepared by my counsel: “We have set out the principles of institutional independence at some length because they assume particular significance in the context of a case such as the present. While it is understandable that a complainant has an interest in the contents of a plea bargain, it is unacceptable that a
complainant should ever have any right to compromise the independence of the prosecuting authority. Leaving aside the facts of the present case, an intolerable situation would arise if complainants were able to subject the NPA to improper pressure to accept or reject a particular plea bargain.”
Senior members within the NPA were adamant that the plea bargain had already been accepted and that they had to be seen to be negotiating in good faith. The NPA also believed that the Commissioner, as complainant, had no right to veto the plea agreement. There was a sense within the NPA that it should not be viewed as a debt collector for the Commissioner. There was also a sense by the NPA that they could be accused of bad faith in inducing me to agree to certain charges and that this would not look good if it surfaced at the criminal trial if it went ahead. The Commissioner remained opposed to this and used his political credits to bend the NPA to his will.
The NPA was in some disarray at that time due to the well publicised investigations into the behaviour of its most senior management. The Commissioner insisted on taking control of the investigation including the massive cost of outside legal assistance and forensic services and the appointment of the more aggressive Adv Myburgh as the new lead prosecutor. For whatever reason, the acting head of the NPA reluctantly allowed this structure to be implemented. This led to some
unhappiness within the NPA. From that time we have had a blurring of the role of prosecutor and complainant. The Commissioner is running an unlawful private prosecution under the guise of the NPA.
Adv Myburgh was under pressure from the Commissioner to get things moving. The assistance of SARB was enlisted and exchange control charges were added despite the fact that to this day SARB have not queried the content of the prospectus that they approved. SARB came into the matter at the behest of the Commissioner and were not of an independent mind. By the time the indictment was served on me in April 2005 further charges had been added in respect of money laundering, racketeering, and organised crime, albeit it was repeatedly disclosed to me that the latter charges
My alleged failure to disclose my interest in SOL
Much has been made by the State before the various courts of the fact that I went out of my way to conceal my involvement with the overseas trusts. I believe that the following indicates the untenability of that position.
During September 1997 I agreed to the disclosure in the prospectus for the listing of SOL on the JSE and signed this on behalf of BN as was requested of me by the sponsoring broker. I fully disclosed my status as a beneficiary of the Caledonia Trust.
On the 2nd October 1997 I signed a letter of acceptance of the prospectus on behalf of BN.
The Prospectus for the listing of Specialised Outsourcing Limited was issued on the 6th October 1997 with the actual listing date being the 29th October 1997.
On page 9 of the prospectus I am stated as being the Chief Executive of the company with my role described as follows: “Dave is responsible for the strategic positioning, direction and growth of the company.”
On page 10 of the prospectus the following is stated under the heading: “Interests of directors”‐“Mr DC King who will become a director of Specialised Outsourcing on the listing is a beneficiary of
the Caledonia Trust which has a controlling interest in Ben Nevis Holdings Limited, the controlling shareholder of Specialised Outsourcing.”
On page 16 the position is reinforced. Under the heading‐ “6.4 CONTROLLING SHAREHOLDER” the following is stated: “Ben Nevis Holdings Limited, a Guernsey domiciled investment company has, pursuant to the placing, an effective interest in Specialised Outsourcing of approximately 71,1% of
the issued share capital. Mr DC King who will become a director of Specialised Outsourcing on the listing is a beneficiary of the Caledonia Trust which has a controlling interest in Ben Nevis Holdings Limited. There is no change in the control of Specialised Outsourcing as a result of the placing. Ben Nevis Holdings Limited has been the controlling shareholder since incorporation.”
On page 18 of the prospectus the following was stated under the heading “EXCHANGE CONTROL
REGULATIONS”: 188.8.131.52. – “All share certificates issued to non‐residents of South Africa will be endorsed “non‐resident” in accordance with the Exchange Control Regulations of South Africa.”This clearly applied to the BN shares.
I was fully alerted by the sponsoring broker to the requirement by the JSE that prior approval by Exchange Control was required. Because SOL was foreign controlled I anticipated a more vigorous scrutiny by Excon than might be the case for a SA owned company.
Furthermore, the Annual Report to shareholders of the company disclosed my interest on an ongoing basis. SARS could hardly pretend to have conducted a detailed investigation of my tax affairs based on newspaper reports surrounding my wealth from the sale of shares in a public company without perusing the public prospectus and annual report of the company in question. In fact such a review would be the only logical starting point. SARS were clearly aware of my full and frank disclosure in that regard.
My provisional sequestration
SARS successfully applied for my provisional sequestration on the “pay now‐ argue later” basis. This application was subsequently overturned. In making the application for my sequestration the Commissioner was obliged to confirm to the court that if he was successful that he would not take advantage of my reduced legal capacity in the pending litigation. This commitment made to the
Judge was crucial to SARS success.
In a pattern of bad faith and contempt for the sanctity of the judiciary that became prevalent throughout our litigation, SARS attorneys stated the following in a letter concerning the very next matter that came before the court: “Subsequently, Mr King’s estate has provisionally been
sequestrated by the High Court and we are of the view that he no longer has locus standi to oppose the preservation application….”
SARS provided a further lengthy affidavit under this case number on the 19th August 2002 in which the following was stated: “ Mr King’s estate is under provisional sequestration. This deprives Mr King of standing in law.”
When I attempted to have the provisional sequestration overturned SARS provided an affidavit in which it stated: “It is clearly undesirable that an insolvent, like Mr King, continues with litigation unabated, without the consent of his trustee.”That low benchmark of bona fides continued over the ensuing years.
A letter to SARS attorney
The following letter was sent on the 25th February 2008
Attention: Mr G Hay
As you are aware from your long standing personal involvement in the matter, the Commissioner has advised the UK Court (in an extremely important court case and after having applied his mind to new information that had come to his attention) that he has formed the clear view that Ben Nevis is my alter ego i.e. does not legitimately exist independently of me. This change of mind happened subsequent to the initial tax assessments being raised against me and Ben Nevis. Simply put, if the
Commissioner had known then what he knows now he would not have issued assessments against Ben Nevis. It is common cause that the Commissioner is ethically and legally bound to act in accordance with his mind.
It is strikingly apparent from a plain reading of the submissions on behalf of the Commissioner to the overseas courts that they had a single purpose: to convince the overseas courts that SARS could reconcile the alter ego contention that was being advanced before them (in order to support the ex parte freezing orders in foreign jurisdictions) with the mutually exclusive position that had hitherto been presented before the SA court, namely that Ben Nevis and I are independent of one another
and therefore were correctly taxed separately. There was only one solution that could have credibility ‐ the Commissioner confirmed that it was initially correct (in 2002) to issue separate assessments as it was only subsequently that he realised (discovered) that Ben Nevis was my alter ego. His submission to the overseas courts therefore reflected his current changed position and it could be assumed by the overseas court that the SA litigation would be brought into line with his revised viewpoint. When the Commissioner was applying his mind to the submission to secure the overseas freezing order he would have been fully aware that he could not maintain mutually exclusive positions in different jurisdictions.
The difficulty I personally have is that the Commissioner has not yet acted on his new found belief by withdrawing the assessments against Ben Nevis and (I presume) issuing new (combined) ones on me. I am consequently placed in the invidious position of not being able to properly assess my potential exposure to tax. I am also unable to get the proper legal advice that is necessary to assess my risk and responsibility with regard to the “true status” of the SA litigation because the funding agreement does not cater for this change in legal circumstances. I am also unable to properly assess the extent to which an offer of settlement could be considered. None of this will be clear until the Commissioner has acted on his well considered change of mind. I have discussed with Dale Cohen the need to secure changes to the funding agreement but will in the meantime deal with you directly.
For present purposes I will simply deal with Ben Nevis and myself as being one and the same in accordance with the considered belief of the Commissioner. It will clearly be useful for you that I make submissions to the Commissioner in advance of his issuance of the new assessments. This will save us both the trouble of having to subsequently deal with the carry forward of the more obvious errors that I have identified, some of which the Commissioner is already aware of. To this end I have,
over the last two weeks, done considerable analysis of the tax position in order to properly understand what the combined position will look like. I trust that you will find what follows to be useful. I confirm that I have steadfastly avoided taking advantage of any without prejudice discussions that we have had over the years.
SARS has repeatedly addressed the merits of the now defunct initial tax assessments in pleadings before the court and stated that it is guaranteed a successful outcome. Without this assertion many of its applications would have been difficult to present to the court and certainly would have been less successful. The fact that the assessments are now untenable cuts the legal legs away from virtually every application that the Commissioner has before the SA courts. This is a time of new
I will split this submission into two components: the alter ego in isolation and the errors in assessments. As a precursor to my submission on errors I quote from a report I made 5 years ago for my legal team: “Even if the Commissioner succeeds in establishing that BNHL is subject to tax in SA he will then have to justify that the gains were of a revenue nature. I can state quite categorically
from my own knowledge that the Commissioner’s calculations in respect of the gains allegedly made by BNHL are wrong. In addition, the Commissioner will agree that he relied on estimates in raising the assessments.”. This was always known to me!
The extent to which the Commissioner relied on slipshod preparation of the initial assessments for the sole purpose of urgently securing the initial ex parte preservation orders is manifest. In my discussions with SARS it was always clear to me that SARS initially had no expectation that the tax cases would actually go to Court. A forced settlement in SARS’ favour was always envisaged by them.
I will now deal with my personal tax assessments. The Commissioner raised assessments against me amounting to R913 million. Of this amount R272 million is for normal tax and the balance comprises interest and penalties at the rate of 200%.
The Commissioner supported his massive and unprecedented assessments against me by way of a fairly simple supporting schedule numbering 16 items. I list them below as they were so simply itemised on SARS’ schedule:
1. Interest R 3,033,495.08
2. Profit on sale of shares 1,097,311.11
3. Loan Bothmasburg Farming (Pty) Ltd 1,000,000.00
4. Loan Bothma Boerdery (Pty) Ltd 4,953,000.00
5. Loan SOL 7,116,169.00
6. Sale Republic Ratings 6,999,999.49
7. Sandhurst Property 4,800,000.00
8. Ferrari 2,100,000.00
9. Mercedes Benz S500 817,809.00
10. Hawker 800 XP 73,562,330.00
11. Falcon 900 101,437,670.00
12. Talacar shareholders loan account 188,466,597.00
13. Rangers Football Club 200,000,000.00
14. Amazulu Football Club 20,000,000.00
15. Living expenses 17,236,344.18
16. Less income declared (898,924.00)
These items total an amount of R632 million which the Commissioner declared as being nondisclosed income by me and to which he applied the normal tax rate and penalties and interest to arrive at the total assessments of R913 million. (For the record I would like to state that Lana Pinkham from SARS confirmed to me during a telecon at 11h25 on 28th February 2003 that there was a mistake in the interest calculation. It has not been rectified yet.)
While there are, to my knowledge, errors in the calculations that the Commissioner has supplied in support of the various items, I nevertheless feel that it is not necessary for me to allude to all of those individual errors for present purposes. The basic validity of many of the items will require argument before the ITC irrespective of the incorrectly attributed value. For present purposes I will
only focus on the “no brainers” from the alter ego perspective, namely items 10 to 14 inclusive. It is common cause that those 5 items were simplistically based on an allegation by the Commissioner (because they were investments made by the trust out of the proceeds of the share sales in SOL) that those specific investments should be deemed to be personal compensation to me arising from the services that I provided to the trust in successfully managing SOL on its behalf. Now that the Commissioner has revealed his alter ego belief he is faced with the stark tax reality that I can not compensate myself with my own money for work I did on behalf of myself. This immediately eliminates R583million (92%) of my personal tax assessment. The balance of 8% will further reduce as a result of the errors in the relatively smaller other amounts.
The next step arising from the Commissioner’s alter ego revelation is that the Ben Nevis assessments must be withdrawn and the proceeds of the sale of shares in SOL must become a capital v revenue argument in my hands. This debate must be fully traversed before the ITC in due course however for present purposes I will merely highlight the errors that are contained in the assessments and that arise mainly from the slipshod manner in which SARS guessed the estimates that it used to support
the rushed assessments. SARS simply wished to create a number that was large enough to support the substantial ex parte preservation order that it wished to launch on an urgent basis. The Commissioner is already aware of most of those errors.
When the Commissioner was preparing his estimate of the proceeds arising from the sale of shares in SOL he enthusiastically duplicated share sales by double counting broker notes (evidencing a sale) with the subsequent settlement against the broker’s note. He also added third party sales (due to poor/zero validation) to the Ben Nevis total. The following duplicated transactions (larger items only) that can not factually be disputed by SARS are:
17th Feb 1998 R 41,400,000.00
13th March 1998 R 20,458,699.99
27th March 1998 R 6,874,007.64
2nd April 1998 R 3,655,582.53
26th March 1999 R 7,705,687.50
13th April 1999 R 109,722,311.73
13th April 1999 R 5,908,990.50
13th April 1999 R 4,907,191.10
13th April 1999 R 7,320,029.73
The above errors total R 208 million. In addition to the above there are amounts received in respect of black economic empowerment partners that have been erroneously included in the taxable income figure. The amounts relate to Wiphold (R 39,439,056.03) and Kgorong (R 10,000,000.00). This totals another approximately R 50 million.
There are other extremely substantial errors that I have prima facie identified and that require further investigation however I do not have access to the necessary documents to provide certain proof at this time. I do however earnestly believe that prior to the tax case being run I will be in a position to reduce the assessment further in the event that SARS actually wins the capital v revenue debate. I offered some years ago to work with SARS to reconcile the various obvious errors as well
as the prima facie additional errors. My offer was not accepted. I repeat that offer.
A note to the Commissioner
The following note was sent to the Commissioner on 1st September 2008. The Commissioner has been proactively involved on a personal basis throughout my matter. I was however concerned that he may not always have been kept fully informed by his legal team and I wanted to be sure that he was personally aware (or had his memory refreshed) of this background given his personal responsibility as the Commissioner for SARS. I have had a number of such communications directly with the Commissioner.
Note to the Commissioner on the criminal charges
Section 74c inquiry
At the inquiry Mac vd Merwe commented during one of the breaks that criminal charges would be utilised if I failed to “cooperate”. This was deliberately stated in a voice loud enough for me to hear and I immediately reported this comment to my legal team. For the first time I raised the issue of SARS enthusiasm for using the threat of prosecution as a debt collection technique.
Initial settlement discussions
The initial settlement discussions were successfully concluded within the mandates given to our respective legal teams. This settlement precluded the laying of criminal charges by SARS. Your position in this regard was logical and was consistent with your attitude that criminal charges would only be threatened as a weapon to secure agreement. In addition, the true economic approach that you adopted to penalties (and still do) precludes you from alleging fraud.
It transpired that your legal team had inadvertently negotiated a settlement in bad faith. Put simply, they thought that they were acting in good faith until you personally intervened (after settlement was reached) and instructed your legal team to use the agreement as a starting point for a further negotiation. This act of bad faith caused the agreement not to be implemented. Mac vd Merwe phoned my counsel and apologised on a professional basis‐ it is uncommon for mandates to be overridden by a client after agreement has been reached. My counsel related this apology to me.
Adv vd Merwe was clearly professionally embarrassed by your untimely intervention.
I refused to negotiate a higher settlement amount and SARS therefore decided to utilise the Scorpions considerable debt collection techniques. SARS however always made it clear to me that the criminal charges were disposable once settlement was finalised. That position also remains to this day. The slipshod manner in which this was conducted and the fact that a charge sheet was not prepared for a number of years gives full recognition to the reality of the role that the criminal charges played in SARS mind and in that of the NPA.
The Latif settlement discussions
You personally put me in touch with Mr Latif. During the meetings and the numerous telephone calls that I had with Mr Latif it was made absolutely clear to me that the criminal charges would be withdrawn once settlement was reached. In addition, the discussion around penalties made it clear as to what SARS true belief was. As you are aware it again transpired that these discussions were also conducted in bad faith by SARS, this time as a result of the failure to honour the position re the
The Umgeni debacle
SARS then engaged on a number of legal alternatives‐ none of which bore fruit. It was decided to up the ante. I was advised by the Scorpions that I was to now be arrested in relation to extremely serious charges on the “non related” Umgeni matter. I was aware that SARS was behind this. (For present purposes I will not deal with the difficulties that this ultimately created for the NPA as my present concern is SARS.)
I agreed to present myself to the Scorpions for arrest however on the previous afternoon there was a strange occurrence. I was working with my legal team to finalise arrangements for the next day when a call came through from your legal team requesting that we immediately come through to Pretoria for further settlement discussions. The timing would have seemed odd in any matter other than mine. I asked my counsel to telephone SARS in my presence. During this discussion your Mr
Engelbrecht stated the amount that SARS demanded as well as the shocking fact that if I agreed to SARS’ demand then the supposedly non related Umgeni charges would be disposed of. That certainly explained the bizarre timing and sense of urgency. Mr Engelbrecht supplied us with the cell number of Adv Nel of the Scorpions in order for us to obtain confirmation from him of the joint approach that SARS and the NPA had adopted. We immediately phoned Adv Nel to obtain his confirmation.
I was shocked by what had just transpired and by SARS willingness to openly admit its use of unlawful means to collect tax. I decided that I would not allow myself to be subjected to such a blatant abuse and refused to meet with SARS under those conditions. I rather used my newly gained knowledge to force the NPA into an embarrassing withdrawal of the criminal charges on the Umgeni matter. I resolved to deal with the SARS at the appropriate time and forum.
NPA plea agreement
After the first couple of years the NPA were concerned about SARS pattern of utilising prosecutions as a debt collection technique and then withdrawing your support once settlement was agreed to your satisfaction. This was wasting the NPA’s very scarce resources. As far as my matter is concerned the NPA had come to the conclusion that I was only guilty of technical (statutory) offences and that a
fraud had not occurred. This was also consistent with SARS true belief as represented to me.
In order to conserve its resources and to deal with matter justly the NPA concluded a plea agreement with me based on statutory contraventions only. This agreement was approved by the NPA and this approval was communicated to my counsel in my presence. The agreement is still valid but has not yet been put to the court for ratification. The reasons for this are known to you.
Prior to taking the plea agreement to the court you made a personal intervention and threatened the NPA with a legal challenge if the plea agreement was implemented. You made it clear that you were not interested in the right of the NPA to apply its own collective mind – you wished to be a majority of one and to have your wishes alone imposed on your “independent” prosecutor. Adv McCarthy was very upset by your high handedness and possibly unlawful interference. This caused Adv McCarthy to take the very unusual step of confiding his concerns to my legal team and requesting that I agree to fund (on behalf of the NPA) counsel opinion on your legal right to interfere
with decisions lawfully made by the NPA. I agreed to this unusual request and counsel opinion was provided to the NPA. This opinion was in line with Adv McCarthy’s expectations.
Events however took an unexpected turn when you again personally intervened and rather than “allow” the NPA to settle you took the matter over and appointed your own prosecution team at SARS cost. You then commenced a de facto private prosecution that is unlawful in terms of how such prosecutions can proceed and is also in breach of the Public Finance Management Act. This will be dealt with in due course and I believe that there is a real possibility that you will be personally accountable for the massive waste of legal costs that your unlawful intervention cost the State. I also believe that your legal team could be forced to refund all fees received from that point. That however is all for another time.
The mediation initiative advanced to the point that SARS presented me with an agreement for signature which included and recognised the need and support of SARS to ensure resolution of the criminal charges. Common sense dictates that it is not possible to reach settlement without accommodating the criminal matter and SARS have never pretended otherwise in discussions with me. The reason that I did not sign the agreement was due to a last minute change that SARS introduced to the agreement without prior consultation or even alerting me to it. I think that SARS hoped that I would not read the final version from scratch. I am also on record with you on the bad faith displayed by Mr Pillay who enticed me to participate in the mediation by making what turned out to be false written representations. It is interesting for me to review the number of agreements that I have “reached” with SARS and that have ultimately failed because SARS could not keep its word.
In the discussions that led to us finally settling this matter SARS made it clear to me up front that the criminal charges were a debt collection technique and were never understood by senior management at SARS as being anything other than this. It was also indicated to me that SARS recognised the need to dispose of the criminal charges in a manner that worked for me. The agreement correctly reflects this view and requirement. Mr Radebe also indicated that the NPA had no difficulty with SARS position.