The expenses an American company’s subsidiary incurred in its fight against apartheid in South Africa were tax deductible, the Appeal Court ruled in Bloemfontein on Friday.
A full bench of appeal judges found in favour of the company Warner Lambert SA in a ruling concerning around R7-million. Appeal judge Johan Conradie said in his judgement the expenses were required to preserve the company from harm, or at least to avert the risk of harm.
”I regard these payments as similar to insurance payments.”
Warner Lambert SA invested the money in question from 1990 to 1993 in social responsibility programmes. These were prescribed first by the so-called Sullivan
Principles, authored by anti-apartheid activist Reverend Sullivan, and later by America’s Comprehensive Anti-Apartheid Act.
The Sullivan Principles, and later the act, were aimed at governing the business conduct of American companies trading in apartheid South Africa.
Warner Lambert SA was one of the local signatories to the Sullivan Code.
Conradie said in his judgement the company’s senior management devoted much time to what were called social responsibility projects. These projects eventually cost the company, as dictated by the Sullivan Code, an equivalent of 12% of its payroll.
”Warner Lambert SA was a model of compliance (to the Sullivan Code). Each year when its performance was assessed in the US, it attained the highest mark.”
In its appeal Warner Lambert SA maintained the expenditure was necessary to prevent its American parent company from disinvesting in South Africa.
It was vital to ensure continued income-earning operations in the country and was therefore tax-deductible, the company argued.
The Commissioner for the SA Revenue Services (Sars) disagreed, maintaining it was merely spent for philantropic and political reasons.
Conradie dismissed this argument.
Appeal judges Craig Howie, Peter Schutz and Carol Lewis and acting appeal judge D Mlambo concurred with his ruling.
Warner Lambert SA manufactures pharmaceutical products and, among others, Schick razor blades.
It has been trading in South Africa for 125 years. – Sapa