Editorial

• Jurisdiction: South Africa
• Date: 01 June 2023
• Pages: v-vi
• Author: Michael Rudnicki Rudnicki
• Published date: 01 June 2023
• DOI: 10.10520/ejc-btclq_v14_n2_a1

v

© Juta and Company (Pty) Ltd

Editorial

MICHAEL RUDNICKI

The authors of the journal welcome the move to the Juta stable of tax

literature and look forward to many years of expanding the readership of

the journal to those interested in the commercial features of tax and corpo-

rate law.

* * *

David Clegg, in the f‌i rst article of this issue, provides criticism on the recent

judgment in C ommissioner for the South African Revenue Service v Coronation

Investment Management SA (Pty) Ltd 2023 JDR 0295 (SCA). The case deals

with whether a primary operation of a company can be outsourced in the

context of the ‘foreign business establishment’ (FBE) def‌i nition contained

in section 9D of the Income Tax Act, 1962. An FBE is exempt from the attri-

bution of income, Controlled Foreign Company (CFC), rules.

Central to the FBE def‌i nition is the requirement that in order to qualify,

there must be a ‘f‌i xed place of business’ located in the foreign country and

‘used for the carrying on of the business of the CFC, … where that f‌i xed

place of business is (inter alia) … suitably staffed with on-site managerial

and operational employees … who conduct the primary operations of that

business …’. The judgment considered whether a primary operation can be

outsourced. The taxpayer lost its case.

The court concluded that the primary operations of the CFC included

‘investment management’ which was one of the functions which it was

licensed to undertake by the Irish Authority and, further, that ‘investment

management’ was the ‘core function’ of the business. It was held that the

f‌i xed place of business was not ‘suitably staffed’ as contemplated in the

def‌i nition of an FBE, because the primary ‘business’ was outsourced to

entities in the UK and South Africa and was therefore not ‘conducted’ by

managerial and operational staff of the CFC at its off‌i ce in Ireland.

Clegg argues that the licence obtained by Coronation, which included

a laundry list of investment activities, did not preclude it from outsourcing

its investment function, provided the business of the company included

the monitoring of the investment manager. Clegg argues that the moni-

toring would be one of such a management company’s primary opera-

tional activities.

Clegg contends further, on the facts of Coronation, that the question is

therefore ‘what was the CFC’s business and what were its ‘primary opera-

tions’ in that business? The author concludes that the business was the

orchestration of a collective investment scheme (CIS) in all its parts and

its primary operations were the sourcing of investment funds and the