Coronation announced that it would return the gains of its victory against the SA Revenue Service (Sars) to shareholders, in the form of a special dividend.
Following the Constitutional Court’s ruling, which excused the asset manager from paying Sars a hefty R794m fine, Coronation’s board of directors has approved a special dividend of 153cs per ordinary share.
Given a 20% special dividend tax, shareholders who are not exempt from dividend tax will thus receive 122.4c per share.
The one-off cash injection for investors will be paid from Coronation’s income reserves. Subject to approval by Sars, the special dividend will be finalised on September 2 and paid out on September 16.
Coronation had been embroiled in a court battle with Sars since 2023, when the tax authority successfully argued that Coronation had dramatically underestimated taxes involving its Irish subsidiary. The Supreme Court of Appeal ruled in favour of Sars, imposing a R794m tax on Coronation.
Coronation challenged the decision at the Constitutional Court. The company’s argument centred on its Irish subsidiary’s classification as a “foreign business establishment (FBE)”, which makes it exempt from the taxes in question in terms of SA tax law.
In June, the Constitutional Court ruled in favour of Coronation, overturning the SCA’s decision. Judge Steven Majiedt accused the SCA of using “fallacious reasoning based on a misconception of what [the Irish subsidiary’s] business entailed”.
Majiedt also said the SCA’s “narrow” approach “would inadvertently discourage legitimate business practices that contribute to the efficiency and competitiveness of SA companies on a global stage”.
Following the legal victory, Coronation’s R794m tax provision will be reversed, with the company no longer having to pay the fine.
Since the tax provision had previously been included in Coronation’s financial accounts, its reversal will boost reported earnings for the group’s financial year to end-September, with an estimated impact on earnings of 205c per share.
Bowmans’ James McKinnell, who represented Coronation, said the ruling goes beyond Coronation, and could affect all SA firms with foreign businesses.
“The judgement and interpretation of the tax rules have a material impact not only for Coronation,” said McKinnell, “but for the large number of SA taxpayers that have controlled foreign subsidiary companies and that rely on the foreign business establishment exclusion.”
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