The case arose from locomotive procurement contracts linked to Marshall SOC Ltd, where SARS alleged that Taxpayer LE overstated its cost of sales and channelled funds through related entities to facilitate “kickbacks” tied to inflated procurement pricing.
Image: IOL Graphics
The South African Revenue Service (SARS) has won a major Tax Court case against a taxpayer linked to the controversial Chinese locomotive deal tied to the State Capture era.
In the case of Taxpayer LE (Pty) Ltd v CSARS, the court upheld additional tax assessments and a 200% understatement penalty for the taxpayer’s 2013 to 2018 tax years. The ruling means SARS was able to pursue the taxpayer years after the transactions took place.
According to Team Lead: Tax Debts at Tax Consulting SA, Junaid Bhayla, a key issue before the court was whether SARS could reopen tax assessments that would ordinarily have prescribed under Section 99 of the Tax Administration Act.
The taxpayer argued that the additional assessments were issued outside the normal three-year prescription period and were therefore unlawful.
However, the court ruled that prescription does not apply where the failure to assess the correct tax amount arose from fraud, misrepresentation or non-disclosure of material facts.
The court accepted SARS’s argument that critical information only emerged after extensive investigations involving the South African Reserve Bank, forensic investigations, exchange of information requests and broader State Capture inquiries.
Bhayla explained that the judgment also reaffirmed the long-standing principle established in the Metcash Trading case that a SARS assessment remains valid until the taxpayer proves it is incorrect.
The court noted that the taxpayer raised several procedural objections during the proceedings, including applications for recusal and challenges to the admissibility of SARS documents. However, the taxpayer ultimately closed its case without presenting evidence.
The court found that procedural objections could not replace substantive evidence and confirmed the assessments issued by SARS.
SARS imposed a 200% understatement penalty together with interest, reflecting the revenue authority’s increasingly aggressive approach in matters involving alleged deliberate concealment, inflated pricing and unlawful deductions.
The judgment also highlighted the extensive investigation conducted by SARS’s Illicit Economy Unit, which involved requests for information from multiple entities, including commercial banks, auditing firms and the South African Reserve Bank.
SARS further obtained financial information through exchange of information requests under the double taxation agreement between South Africa and Hong Kong.
Bhayla said central to the case was testimony from an experienced SARS investigator who formed part of the team probing illicit financial flows linked to State Capture.
Ultimately, the court confirmed the additional assessments, ruling that the taxpayer failed to discharge the burden of proof required to overturn SARS’s findings.
"The judgment serves as a warning that SARS is becoming increasingly sophisticated and internationally connected in pursuing historic tax matters involving complex financial structures and politically exposed transactions," Bhayla said.
He added that it also reinforces that delays in litigation do not shield taxpayers from eventual accountability, where SARS can support its case with forensic evidence and international financial records.
IOL