- The tax court ruled for an unnamed taxpayer – which is clearly the Spur Steak Ranches group – in a R48 million dispute with Sars.
- Sars had argued the money Spur paid into a vehicle for the benefit of its executives was not a legitimate business expense.
- But complicated as the scheme was, it did incentivise executives, the court said, and Spur has the right to claim it as an expense.
The Spur group of steakhouse fame is allowed a R48 million deduction disputed by the SA Revenue Service (Sars), the tax court ruled on Wednesday.
The court set aside additional assessments Sars had raised for Spur in tax years between 2005 and 2012, after it had re-thought deductions it had originally allowed.
The court did not, however, order that Sars pay Spur's costs, as the company had asked.
The dispute had been around a convoluted incentive scheme Spur set up for its executives in 2004. The company used a trust to fund a shelf company that bought Spur shares and warehoused them for the benefit of executives – who started to share in payments that topped R29 million by 2011, after a five-year lockup had expired.
Sars initially allowed as a business expense the R48 million Spur put into the trust in the first place, but later disputed it as having had "no direct, causal link" with the production of the company's income.
Whatever its structure, the scheme had worked, said tax court judge JI Cloete. Spur's share price had increased, only a handful of the 26 executives involved had left (and so given up their shares in the scheme), and thus the money put into the scheme was a legitimate expense.
"That the contribution paid by the taxpayer remains extant under the control of another entity in the group does not detract from the purpose for which that expenditure was incurred by the taxpayer, namely the production of income," Cloete said in judgment.
But Sars had not been unreasonable in interpreting matters differently, Cloete said, and so should not be held liable for costs.
The judgment appears to pave the way for baroque share incentive scheme structures – where the money put in up front can be claimed as an expense as long as executives get money out on the other side, and the company is seen to benefit.
Its own scheme had been set up to ensure executives benefit from share price appreciation without running any downside risk, Spur had argued.
Because tax matters are confidential, the company involved is referred to only as "S G Taxpayer" and "one of the S group of companies". However, the judgment identifies Ronel Van Dijk as its chief financial officer (CFO) and one of the scheme participants.
Van Dijk was appointed Spur Corporation's CFO in 2005.
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