Sibanda & Zantwijk

Another interesting twist:

 

For a few years now, the case of Couve has gained general acceptance (in particular, after having been commented on in Pratt), and the issue was somewhat clear:

 

• IP constituted “capital” for the purposes of Reg. 10(1)(c) of our Exchange Control Regulations;
• any assignment of IP to a foreigner required SARB approval to be valid;
• failure to secure SARB approval rendered the transaction null and void ab initio; and
• any assignment of IP in contravention of Regulation 10(1)(c) could be challenged by SARB at any time.

 

However, the recent judgment of Oilwell v Protec failed to follow the principles in Couve in every respect. According to Prinsloo J of the North Gauteng High Court (Pretoria):

 

• IP does not constitute “capital” for the purposes of Reg. 10(1)(c);
• the assignment of IP to a foreigner does not require SARB approval to be valid;
• in any event, for the purposes of Reg. 10(1)(c), failure to secure SARB approval does not render the transaction null and void ab initio; and
• in any event, any claims for the return of IP that are based on a contravention of Reg. 10(1)(c) prescribes after 3 years.

 

(Download a copy of the Protec case (2MB))

 

So, we now have one High Court case saying Yin (and commented on with approval by a second High Court case), and a third High Court case saying Yang.

 

The judgment in Couve was never binding on High Courts. And, since any case of this type would always find its way before the High Court, the Protec judgment does not have a direct impact on future decisions. However, High Court judges will in future have to consider carefully Couve, Pratt and Protec before coming to their own conclusions.

 

Interestingly, none of SARB, the Minister of Finance and Treasury was joined in this matter, so they were not given an opportunity to present their arguments. It is somewhat (but not exactly) akin to two private individuals arguing amongst themselves about the meaning of a tax section without inviting SARS to the debate to present its views / position /argument. And, despite the possibility that each individual’s argument may be flawed or poorly reasoned, providing that the resulting judgment impacts on the application of the Tax Act by SARS - doesn’t seem quite right.

 

The bottom line is that we need one of these cases (including SARB’s arguments) to go to the Supreme Court of Appeals to clarify this matter once and for all. Let’s hope this happens soon, else we will have to continue to live with this mess.

 

 

Anthony van Zantwijk

 

1 March 2010