Entrepreneur Mark Shuttleworth recently won a significant victory in the Supreme Court of Appeal when his application to have the exit charge on his exported capital reversed was granted. Shuttleworth had accumulated great wealth through his IT company, which was the first to produce a secure, encrypted e-commerce web server outside the USA.
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After selling his company, he emigrated to the Isle of Man, as South Africa’s exchange control environment proved too restrictive for his international business activities. He applied for Reserve Bank approval to move the bulk of his capital offshore, and this was granted subject to a 10% withholding charge. Significantly, the levy was repealed on 27 October 2010, after Shuttleworth had paid his 10%. At the time, payment was made under protest after he obtained legal advice pronouncing the charge illegal.
Raising revenue for the state
Briefly, the reasoning was that regulation 10(1) (c), on which the Reserve Bank relied to impose the levy, did not authorise the raising of revenue. After the North Gauteng High Court found that the exit charge had been legally applied, Shuttleworth’s counsel approached the Supreme Court of Appeal. The latter pointed out that the 10% levy on the export of capital was one of general application imposed on every export of capital in excess of R750 000. In other words, it was clearly a revenue-raising mechanism for the state.
The only way in which it could be legal was if the levy had been raised in terms of the provisions of Section 9 of the Currency and Exchange Act 9 of 1933. These prescribe how a regulation calculated to raise revenue has to be promulgated. But this procedure was not followed. The levy was therefore ultra vires – beyond the powers of the state.
Referring to Section 77 of the Constitution, the Appeal Court also held that it is unconstitutional for taxes or levies to be raised by delegated legislation, which is not specifically authorised in a money bill enacted in accordance with the money bill provisions of the Constitution.
On the question of whether Shuttleworth was entitled to a refund, the court referred to a 1915 Appellate Division Judgement, which held that “it would be in the highest degree inequitable that the Treasury should be permitted to retain what it had no right to claim” (see Union Government Minister of Finance vs Gowar 1915 AD 426 at 433/4).
Under protest
By paying under protest, Shuttleworth contended that the payment was not voluntary and that he reserved the right to seek reversal thereof. He was thus awarded the return of his capital, plus interest from the date on which he had amended his application to include interest. This case contains much that will interest tax professionals, so look up Shuttleworth vs SA Reserve Bank (864/2013) [2014] ZASCA 157 (1 October 2014).
