Why Shuttleworth lost his R250 million tax battle

A R250.5 million exit levy charged to billionaire Mark Shuttleworth when he transferred his assets out of South Africa in 2009 was “not inconsistent with the constitution”.

This is according to a judgment handed down on Thursday by the Constitutional Court.

Shuttleworth paid a R250.5 million exit levy when he transferred his assets out of South Africa to the Isle of Man in 2009. The levy was 10% of the value of the assets he wanted to export.

But the billionaire, who first made the headlines when he sold his tech company Thawte in 1999 to VeriSign for $575 million, challenged the levy and last year the Supreme Court of Appeal (SCA) ordered the South African Reserve Bank (Sarb) to repay Shuttleworth R250 million plus interest.

However, Sarb and the minister of finance then took the matter to the Constitutional Court, which then decided on the matter on Thursday.

The Constitutional Court then overturned the the SCA ruling and also dismissed Shuttleworth’s application before the North Gauteng High Court in Pretoria.

A media summary subsequently details the key reasons for the Constitutional Court’s decision in what has been described as a majority judgment.

“The Court granted leave to appeal in the main appeal, finding that even though the exit charge is no longer imposed, the matter is not moot because the state could be exposed to approximately R2.9 billion in potential claims if it is found that the imposition was unlawful,” reads part of the summary.

“The Court further found that the exit charge was not inconsistent with the Constitution. The dominant purpose of the exit charge was not to raise revenue but rather to regulate conduct by discouraging the export of capital to protect the domestic economy.”

The Court further said that it granted leave to appeal in the cross-appeal “but only in respect of the attack on the constitutional validity of the section of the Act that enables the making of Regulations and the provision in the Regulations prohibiting the export of capital without authorisation under certain conditions”.

“These provisions were found to be constitutionally valid as the broad discretionary powers granted to the Minister ensure a speedy and flexible approach to our exchange control system and are reasonably necessary to stem the outflow of capital, protect the local currency and safeguard the domestic economy.

The Constitutional Court has also made no order regarding costs.

Fin24

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Why Shuttleworth lost his R250 million tax battle