The presidency says it was unaware of a R3.7-billion court action by the South African Revenue Service (Sars), which involves the law firm ENSAfrica, when it appointed the legal firm’s chairperson Michael Katz as an adviser to the Nugent commission.The commission was set up to probe Sars’s governance and administration.
Sars describes the case as an “impermissible tax [avoidance] agreement”. The respondents include a former ENSAfrica executive, Gert Viljoen, and billionaire businessperson Christo Wiese. It says Viljoen, Wiese and two other people are personally liable for about R217-million in unpaid taxes based on the restructuring of Dutch oil company Tullow in 2007.
Wiese appeared on Sars’s radar when he was stopped in 2009 from boarding a flight in London carrying suitcases stuffed with hundreds of thousands of pounds, according to amaBhungane Centre for Investigative Journalism.
The case centres on an aggressive tax structure set up by ENSAfrica, which Sars claims helped Tullow to evade tax. Tullow was able to transfer the ownership of assets worth R3.9-billion offshore as a result of the structure, according to Sars.
Afterthe restructuring of Tullow, ENSAfrica was left with the ownership of a holding company that it sold to Wiese, who allegedly used the company’s R198-million assessed tax loss to avoid paying tax. Wiese has denied deriving a tax benefit.
Judge Robert Nugent, with three advisers, including Katz, has been tasked by President Cyril Ramaphosa with probing what led to poor revenue collection at Sars, which performed poorly under the now suspended tax commissioner Tom Moyane.
Asked to comment on Katz’s role on the commission while the case involving ENSAfrica was being pursued by Sars in the courts, presidency spokesperson Khusela Diko said Ramaphosa had no knowledge of the Sars court action implicating ENSAfrica at the time that he appointed Katz as an adviser to the commission.
“He will, however, consider taking action if there is any evidence of a conflict of interest,” Diko said.
Moyane’s legal team, led by advocate Dali Mpofu, has attempted to make Katz’s participation as an adviser an issue, given that he is a “personal and business legal representative” to Ramaphosa, who appointed the commission.
Nugent ruled that Katz had been appointed by Ramaphosa and the commission did not have the power to recuse him. Nugent also clarified that he, Nugent, represented the commission and was only being assisted by the advisers. In his ruling, Nugent said Katz was appointed to the commission “for good reason”. He said Katz, who has advised former administrations on tax issues, was “well known to have expertise in the administration of tax collection”.
“The president has chosen to have the benefit of the expertise of [Katz] by appointing him to assist the commission, and I am grateful that he has done so,” Nugent said.
ENSAfrica told the Mail & Guardian that, although Katz was and is at all relevant times the chairperson of the law firm, he was not involved nor did he have knowledge of the transactions on which the company advised and continued to advise.
“As a large corporate law firm, ENSafrica regularly advises clients how to structure their transactions and also regularly acts both for and against SARS in dispute matters. None of these mandates impacts in any manner on Professor Katz’s role in the commission of inquiry …nor places him in a position of conflict,” ENSAfrica said.
The commission is looking into the breakdown of the systems and operations of Sars from April 2014 to March 2018 and how this led to a weakening of its ability to collect tax.
During the commission’s public hearings this week, current and former Sars officials testified about how the operating model introduced by Moyane in 2015 had destroyed key units, such as the enforcement division and the large business centre.
The centre was instrumental in pursuing the long-standing investigation into the tax matter that involves Tullow, Wiese and Viljoen, who left the firm in 2011.
Experts this week were divided over the issue of Katz’s participation in the Nugent inquiry.
Advocate Vuyani Ngalwana said if the Sars allegations were true “then this is a matter that calls for Katz’s automatic disqualification and not even his recusal”.
“The point is the perception that whatever decision Nugent makes or recommendations he makes will be influenced by Katz. All that’s important is perception or appearance. Whether he does in fact influence the final recommendations is not the inquiry,” Ngalwana said.
Professor Thabo Legwaila from the University of Johannesburg’s mercantile law department said,for there to be a conflict of interest, there had to be at least two different interests, which did not apply in this case as the tax claim that Sars is pursuing had nothing to do with the inquiry.
This was supported by advocate Paul Hoffman, the founder of Accountability Now, who said he could not see a successful basis for contending that Katz’s role in the commission represented a conflict of interest.
“Whether the advice to Wiese was right or wrong is still an open question that ought not to deprive the public of South Africa of the services of an acknowledged expert on tax affairs to give an input in the Nugent commission of inquiry,” Hoffman said.
Logan Wort, executive secretary of the African Tax Administration Forum, said it would be difficult to give an opinion on whether Katz’s participation was contentious unless there was a judgment on whether there was indeed tax evasion.
Wort said it was not unusual for big law firms to advise on tax structures to their clients that balance on the “thin line between tax evasion and avoidance. A lot of the advice [of]legal and accounting firms have to do with aggressive tax structuring, especially international transfers, cross-border taxation and transfer pricing.
“Most of those are generally legal transfers but it is legal only because it deals with the type of structure that the law did not intend to allow,” said Wort.
Responding to emailed questions (and copied to Katz), the Nugent commission said it did not discuss its work with individual members of the media and referred to Nugent’s July ruling on Mpofu’s demand that Katz be recused because of his relationship to the president.
Afterthe initial reports in July this year on Sars’s multibillion-rand tax claim, ENSAfrica said: “[Sars] has full knowledge and understanding of all the steps in respect of the separate transactions referred to above and has all the relevant facts in relation to the role of each of the advisers, including the role of our firm and our affiliates.
“Sars has not sought to impugn the role of any of the advisers (including ourselves) arising from these transactions.”
Tebogo Tshwane is an Adamela Trust business reporter at the Mail & Guardian