Coronation Fund Managers says its R716m tax dispute with the SA Revenue Service (Sars) may take up to two years to be finalised due to the length of time it takes for Constitutional Court processes to run their course.
Still, the Cape Town-headquartered asset manager plans to go on targeting offshore growth as it battles a stagnant economy and shrinking savings pool in its home market of SA. This is despite the Sars tax dispute relating to earnings from its offshore operations dating back to 2012.
The crux of the tax dispute, which dates back to 2012, is whether profits of Coronation’s Irish subsidiary should have been included in the taxable income of the group’s SA holding company. Coronation has applied to the Constitutional Court for leave to appeal against a February Supreme Court of Appeal (SCA) ruling that it is liable for tax payments stemming from those operations.
“It’s not only a matter that affects Coronation, we believe it affects all the multinationals in SA given that it’s a matter of interpretation of the law that we need to get clarity on,” Coronation CEO Anton Pillay said in an interview.
“The next step naturally is to go to the ConCourt. There’s two parts to the process — the one is that ConCourt first needs to agree to hear the appeal, and then we go to court on the case itself. That can take anything up to two years.”
Pillay said it could take two to nine months just for the Constitutional Court to decide whether to hear the firm’s appeal against the SCA ruling. He said Coronation made provisions to cover the disputed tax liability, which relates to the 2012 to 2023 financial years, should the Constitutional Court rule against it.
“We’ve gotten to a point now where we’ve taken this matter as far as we can and we’ve accounted for it,” said Pillay. “There’s not much more that can be said. We’ve done everything we can at this point. We can’t really take it forward other than wait for the court process.”
Pillay’s comments came after Coronation said on Tuesday that profit fell 96.8% to R22m for the six months to end-March while revenue decreased 6.2% to R1.8bn. Headline earnings per share (HEPS), a common profit measure in SA that excludes certain items, slumped from 199.1c to 6.2c, prompting the firm to waive its interim dividend.
Coronation said fund management earnings, used to measure operating financial performance, fell 106.1% in the interim period to a loss of R46m. However, excluding the impact of the R716m set aside for the Sars tax issue the group said fund management earnings would have been 191.5c per share, compared with 214.8c per share for the previous matching period.
Coronation had originally expected to set aside between R800m and R900m to cover the Sars dispute, but has since reduced this figure.
While assets under management (AUM) grew 8.5% to R623bn in the period, Coronation said it still had net outflows equivalent to 4.6% of its average AUM. While it expects this trend to continue, thanks largely to SA’s shrinking savings pool and stagnant economy, Pillay said the group plans to counter this by growing its institutional business in the UK and EU.
“International markets will provide us with an opportunity to grow,” said Pillay. “We’ve got more people sitting offshore in the UK office — more portfolio managers and analysts have moved to the UK office. We’re running multi-offices now, and that should help us grow on the international front.”
Pillay said the UK office would target growth from institutional clients in that market, while Ireland would be used as a springboard to grow its market share in the EU. This was as a consequence of Brexit, which resulted in the UK leaving the European common market.
About a third of Coronation’s AUM is allocated to offshore portfolios.
“We’re still finding good opportunities out there and with all the challenges the world is facing right now it works very well for active asset managers like Coronation,” said Pillay. “Our business is well capitalised. It’s a resilient business and it’s got legs.”
With Nico Gous
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