Supreme Court of Appeal Judgment – Controlled Foreign Company and section 9D exemptions

8 February 2023  

CSARS V Coronation Investment Management SA (Pty) Ltd

Relevant Acts: Income Tax Act, 1962, and Tax Administration Act, 2011

The judgment deals with section 9D exemptions – whether a ‘controlled foreign company’ is a ‘foreign business establishment’ as defined – Tax Administration Act 28 of 2011 and the respective issue of understatement penalties charged. Section 9D Controlled Foreign Company (CFC) provisions are aimed to reduce the opportunity for income to be diverted and taxed offshore in the hands of foreign companies.

The Supreme Court of Appeal (SCA) upheld with costs an appeal by SARS against the decision of Western Cape Division of the High Court, Cape Town, sitting as a tax court (the tax court) which found in favour of Coronation Investment Management SA (Pty) Ltd (CIMSA).

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 s 9D of the Income Tax Act was applicable to the income that had been earned by CGFM in the UK. The answer, was dependent on what the primary functions of CGFM in Dublin, Ireland were. If it were found that the primary operations were conducted in Ireland, then the s 9D exemption would apply. CGFM had adopted an outsource business model where its investment management function was conducted by Coronation Asset Management (Pty) Ltd in South Africa and Coronation International Ltd in the UK.

You can read the detailed judgment here.

You can read the media summary here.