Spur lost a legal battle against the SA Revenue Service in the Supreme Court of Appeal (SCA) – but the restaurant group may turn to the Constitutional Court in a final bid to win a case over tax deductions.
The battle concerns a R48 million payment that Spur made to a trust that manages its share incentive scheme for managers.
The trust provided funding to another company, owned by employees, to buy shares in Spur, after which the money would be paid back. Spur deducted the R48 million against its income for tax purposes in 2005.
SARS initially was not aware of the arrangement, but in a 2011 audit ,it found that the deduction should not be allowed, given that it was not expenditure incurred in the production of Spur’s income.
SARS issued additional income tax assessments to Spur between 2005 and 2012 of R22 million (which included penalties) following the disallowance of the deduction. Spur paid the amounts in 2015 and 2016.
But it did not agree with the SARS position that the amount could not be deducted, and took legal action. In 2018, the Income Tax Court found in Spur’s favour and when SARS appealed, the Western Cape High Court also ruled against the tax authority.
Last week, the SCA held that the payment was not sufficiently closely connected to the business operations of Spur that it could be regarded as part of its costs in performing its business. It found that the funding provided by the trust was repaid to the trust, and Spur was the only beneficiary – the R48 million contribution itself did not benefit the employees,
The SCA also found that Spur had not made “truthful disclosures” in its returns for the 2005 to 2009 years of assessment. As a result, SARS only found out about the payment of the R48 million in 2011. Spur says that this was “as a result of an inadvertent administrative error made by the management of the group at the time”.
The SCA ruled that Spur had to pay SARS’ legal costs.
Spur said the disputed income tax assessments were settled in cash in earlier financial years, and that the latest judgment will have no cash flow impact on Spur Group, other than SARS’ legal costs.
But it is considering taking the matter to the Constitutional Court.
“The group is considering its rights in consultation with legal counsel and will determine the appropriate course of action, which it believes, at best, could only include making application to challenge the SCA ruling at the Constitutional Court,” Spur said in a statement.
Its share price was half a percent weaker at R20.08 by lunchtime on Monday.