Shuttleworth scores R250 million in legal battle

South African IT billionaire Mark Shuttleworth has won a R250 million legal fight against the South African Reserve Bank.

It follows a ruling by the Supreme Court of Appeal (SCA) to uphold an appeal by Shuttleworth and a cross appeal by the South African Reserve Bank, the Minister of Finance, and the President of the Republic of South Africa.

In July 2013, Shuttleworth’s bid to have South Africa’s entire exchange control system declared unconstitutional failed, with the judge dismissing his application to set aside the imposition of a R250 million levy he had to pay to get some of his assets out of the country in 2009 and for the Reserve Bank to return his money.

While Shuttleworth was unsuccessful in getting the court to rule in favour of challenges which affected him personally, peripheral challenges of the exchange control system were overturned.

Shuttleworth launched an application to appeal the ruling in early September.

The Supreme Court of Appeal said in a statement on Wednesday (October 1) that it accordingly set aside the order of the North Gauteng High Court in its entirety.

“The issue before the SCA was whether a 10% exit levy imposed by the first respondent, the South African Reserve Bank, on the value of assets sought to be exported by the appellant, Mr Mark Shuttleworth, upon his emigration, was lawful,” the SCA said.

In 2001 Shuttleworth emigrated to the Isle of Man, a British Crown dependency and a tax-efficient jurisdiction. On his emigration, Exchange Control Regulations had the effect of blocking the expatriation of his assets from South Africa.

The aggregate value of his blocked loan accounts was R4 276 757 134.

In 2009 Shuttleworth decided to transfer his remaining assets out of South Africa and applied to the Reserve Bank for permission to do so.

He was informed that his blocked assets would not be released until he paid the 10% exit levy. He thus paid an amount of R250 474 893.50 under protest to secure the release of his blocked assets.

Shuttleworth contended that many facets of the current exchange regime were unconstitutional.

The court ruling read:

“The SCA held that a founding principle of Parliamentary democracy is that there should be no taxation without representation and that the executive branch of government should not itself be entitled to raise revenue but should rather be dependent on the taxing power of Parliament. The Court stated that the levy raised revenue for the State in that it brought in ten per cent of the value of any capital in excess of R750 000 exported out of the country, into the National Revenue Fund. Whilst in force, it raised approximately R2.9 billion. The SCA found therefore that the levy thus fell within the category of ‘taxes, levies or duties’ contemplated by sections 75 and 77 of the Constitution.”

The court set aside the decision of the Reserve Bank to impose the 10% levy. The Reserve Bank was ordered to repay the appellant the amount of R250 474 893,50 with interest at the prescribed rate from 13 April 2012 to date of payment.

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Shuttleworth scores R250 million in legal battle