Coronation Fund Managers faces an additional tax bill that equates to as much as 70% of its annual profit.
The Cape Town-based asset manager said on Wednesday it will raise provisions of between R800m and R900m to cover the cost of a tax dispute with the SA Revenue Service (Sars) relating to earnings from its offshore operations dating back to 2012. The amount is as much as 70% of the R1.281bn profit Coronation reported for the year to end-September 2022.
The provision — which now assumes that the 2012-2022 financial years will be affected by the tax dispute — will probably result in reduced earnings and no dividend for the financial half-year to end-March 2023. The details of Coronation’s announcement also show the dispute could see Sars raise additional tax claims beyond financial years from 2012 to 2017 as initially indicated.
“Due to the material financial impact, the company will not be paying an interim dividend for the period ended March 31,” Coronation said.
The asset manager first announced the suspension of its interim dividend on February 8 when it said it had lost a court appeal lodged by Sars in a tax dispute dating to 2012. At the heart of the disagreement is whether the profits of Coronation’s Irish subsidiary should have been included in the taxable income of the group’s SA holding company.
Sars first raised the issue in 2017 over whether the net income of Coronation Global Fund Managers (CGFM), should have been included in the taxable income of Coronation Investment Management SA (Cimsa), the group holding company and registered tax entity in SA.
Sars then raised a tax assessment for the firm pertaining to the 2012 to 2017 tax years, which Coronation objected to after consulting with external legal counsel.
The matter ended up in the Western Cape High Court, which sat as a tax court and heard the case in 2021. It ruled in favour of Coronation on September 17 2021.
However, Sars took the matter to the Supreme Court of Appeal (SCA), which heard arguments in November 2022, before finding in favour of the tax authority in February 2023. The SCA ruling ultimately set aside the tax court’s decision and ordered Coronation to pay costs.
“After careful consideration, the boards of the company and Cimsa, informed by the advice of legal counsel and professional tax advisers, have determined that Cimsa should apply to the Constitutional Court for leave to appeal against the SCA judgment,” Coronation said. “Such application will be made within the stipulated timeline.”
Curiously, Wednesday’s statement also says the dispute may affect all of Coronation’s financial years from 2012-2022. That differs from a statement on February 8 when it referred only to a Sars assessment for the 2012-2017 financial years.
“At this time Sars has only issued tax assessments for the company for the six years between 2012 and 2017,” Coronation said in response to questions from Business Day.
“Sars can potentially still issue assessments based on their interpretation of the law for the subsequent years up to 2022. While we remain confident in our legal case, we deemed it prudent to make provision up to and including the financial year ending September 30 2022.”
theunisseng@businesslive.co.za
Updated: February 22 2023
This article has been updated with additional information
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