NWK could face R50 million fine

A Supreme Court of Appeal ruling that found Lichtenburg agricultural company NWK guilty of simulating a loan agreement with First National Bank (FNB) to increase its interest deduction for tax purposes has come as a surprise for NWK’s top brass.

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“The tax court ruled in our favour on the same matter in July 2008,” said NWK managing director Danie Marais. “The South African Revenue Service appealed against the verdict. This ruling will have far-reaching consequences for other companies that went into similar transactions with financial institutions. These institutions, including commercial banks that proposed and marketed these transactions, will also have to answer for it.” FNB and NWK designed a R50 million loan that allowed NWK to deduct interest on a R96 million loan amount, reported the Sunday Times newspaper.

This gave NWK a tax advantage in the 1999 to 2003 period, while FNB made a R600 000 profit on one of many transactions used to simulate the R96 million loan. NWK faces a 100% fine on the amount plus interest, which could be as much as R50 million, said Marais. The Sunday Times reported, in terms of the FNB/NWK deal, that NWK would pay off its loan by delivering a certain quantity of maize to FNB five years later, but the parties didn’t include a description of the maize quality, which would influence market prices.