Sat, 30 May 2020

Telkom is taking its fight with the South African Revenue Service to the Constitutional Court, following an adverse judgment handed down in the Supreme Court of Appeal earlier in March.

Telkom will apply for leave to appeal the judgment, it said in a statement on Tuesday.

The dispute dates back to 2012. According to court documents, the telecommunications giant, in its financial statements, claimed a loan deduction of R3.96 billion was a foreign exchange loss instead of recording the realisation of the loan as a foreign exchange gain after selling Telecommunications Ltd (Multi-Links), a company it acquired between 2007 and 2009.

This meant that what would have been reflected as a taxable income of R3.12 billion, with a resultant tax liability of R875 million, was reflected as a tax loss of R106 billion, the court papers added.

The loan in question had been given by Telkom to Multi-Links over a period of time to help make the company financially viable.

On 25 March, the SCA ruled that the R3.9 billion loss in foreign exchange and a R136 million incentive bonus were not tax deductible, meaning R875 million worth of tax liability raised by the commissioner will stand, and Telkom would be liable for commissioner's legal fees.

In a note to shareholders on Tuesday, Telkom said: "Shareholders are advised that the appeal against the Tax Court judgement received on the dispute between Telkom and South African Revenue Services (SARS) relating to the tax treatment of the loss that arose in the 2012 financial year on the sale of a foreign subsidiary, was heard by the Supreme Court of Appeal on 4 March 2020.

"The judgement was handed down on 25 March 2020 against Telkom. We intend to apply to the Constitutional Court for leave to appeal the judgement."

It added that it had provided for the "implications" of the matter - but that it owed the revenue service R1 billion.

"Shareholders are reminded Telkom fully provided for the implications of the matter, as it relates to both the 2012 and 2014 years of assessment, in prior financial years and therefore this will be earnings neutral.

"However, the cash flow implications of the outstanding liability of approximately R1 billion, which includes the implications of the judgement on the 2014 financial year, will be informed by a payment arrangement to be agreed with SARS."

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