Media release :
1 June 2009
Radio station wins trade mark case
against SARS
The Tax Court has upheld a
taxpayer's claim to deduct a payment of R50 million for a radio
station’s trade mark and name for income tax purposes.
Nina Keyser, partner at Webber
Wentzel who acted for the taxpayer says SARS has been known to
aggressively dispute the prices allocated to trade marks in
business purchases and they have not yet indicated whether they
will appeal the outcome in this case.
She clarified that the
Income Tax Act has been amended in
the interim so that taxpayers can no longer claim a deduction in
respect of trademarks.
The case arose when the SABC sold
off its regional radio stations in 1996 in a public bidding
process. The taxpayer was the successful bidder and purchased a
radio station from the SABC for R65 million. R50 million of the
purchase price was allocated to the trade mark and the name of the
station.
At that time taxpayers could
write off trade marks for tax purposes. SARS was of the view that
the trade marks and the name of the radio station was not worth
R50 million and that the bulk of the purchase price should have
been allocated to goodwill. SARS consequently disallowed the
taxpayer's claim.
The Income Tax Act provided for a
deduction for trade marks based on the cost actually incurred by
the taxpayer. SARS argued that the taxpayer did not perform a
formal valuation of the trademark and that the price allocation
was a sham.
The court found that the Income
Tax Act does not require that taxpayers perform a formal valuation
of trademarks in order to obtain a tax deduction.
In this particular case there was
also no evidence that the contract between the SABC and the
taxpayer was a sham because in the taxpayer's honest opinion, the
bulk of the value lay in the trademark and the name. The taxpayers
would not have purchased the radio station without the trademark
and the name. They testified that they would rather have applied
to ICASA for a license to operate a new radio station if they
could not get the name and the trademarks which identifies the
station. The other bidders for the radio stations sold by the SABC
at the time also allocated the bulk of their bid prices to the
trademarks.
SARS also tried to argue that the
value of the radio stations lay in the licenses to be obtained
from ICASA, but the court dismissed this argument on the basis
that the purchase was conditional on the taxpayer obtaining a
license from ICASA. No portion of the R65 million purchase price
was paid to ICASA for the license to operate the radio station and
the SABC could not sell its own right to broadcast to the taxpayer.
Tax partners at Webber Wentzel’s
Cape Town office, Nina Keyser and Patricia Williams, acted for the
taxpayer.
Note to editor: the identity of
taxpayers in Tax Court cases is required to remain anonymous by
virtue of the Income Tax Act.
Prepared by : FD Beachhead