Pepkor CEO Pieter Erasmus will next week lock horns with the SA Revenue Service (Sars), which is demanding more than R300m from him over his private business dealings.
The tax agency is steadfast that Erasmus, who returned as Pepkor’s CEO in 2023 after five years, was party to an alleged “impermissible tax avoidance arrangement” in terms of the Income Tax Act.
The case involves an entity, Treemo, in which Erasmus and his family trust owned shares and which paid him R1.4bn in a capital distribution and a cash distribution in 2015.
Sars argued that the cash distributions from Treemo constituted dividend payments to Erasmus and his family trust, which were therefore subject to dividend tax.
Sars furnished him with an assessment of R183.5m in dividends tax, an understatement penalty of R137.6m, plus interest.
The tax agency’s position is that no dividend tax was levied or paid because at the time Treemo had secondary tax on companies (STC) credits of more than R1bn, which were set off against the value of the distributions.
Four years after the transactions, Sars asked Erasmus to explain and provide documentation on the transactions that had taken place between Treemo, the trust and himself between the 2015 and 2018 tax years.
Erasmus responded to Sars in April 2019, indicating that in December 2014 he disposed of 5.5-million shares he held in Pepkor, which at the time carried a value of R510m. He sold his shareholding in an entity called Klee for R310m.
The two transactions were in exchange for shares in Treemo. He also sold redeemable preference shares in Newshelf with a market value of R750m to Treemo, in exchange for shares in it.
Erasmus told Sars that the payments from Treemo had not been disclosed because of an “oversight” by his accountants.
Erasmus was of the view, however, that no tax consequences flowed from the oversight as the cash payments were exempt from tax because of the STC credits held by Treemo. Also, the capital distribution was exempt from tax as it constituted a return of capital.
Sars rebuffed the explanation, arguing that Erasmus and the trust and others had engaged in an “impermissible tax avoidance scheme or arrangement via a series of interrelated transactions in 2014 and 2015”. It accused them of contriving to obtain the STC credits to shield Erasmus from dividend tax.
Erasmus has denied that he had gone out of his way to avoid paying what was due to the fiscus, informing Sars in 2013 that he had decided to consolidate his assets into a single holding company, acquiring Treemo for this purpose in 2014 and swapping his assets into it.
Steinhoff bought 92% of Pepkor later that year, leaving the remaining 8% in the hands of the retailer’s management, including Erasmus.
The tax court has ruled in Erasmus’ favor, a ruling that Sars is asking the Supreme Court of Appeal to set aside.
