Tax disputes are an awkward thing for companies. They want to be law abiding and good citizens and whatnot, but they don’t want to pay millions of rands in taxes that they don’t believe they owe. Case in point – Royal Bafokeng Platinum is gearing up to fight SARS over a R437m combination of taxes and penalties that SARS says were incurred during the transfer of certain mineral rights.
As is always the case with tax stuff, the whole thing seems really complicated, and will probably end up in a boring and confusing legal arbitration. Both SARS and RB Platinum are, of course, fully confident that they are right.
What matters from an investment perspective is what will this do to RB Platinum’s finances? Happily, it seems like the charges won’t lead to financial ruin. Indeed, the worst case scenario is a temporary cash flow issue, which will only happen if SARS insists on payment before the legal process is completed. Hopefully, SARS can be reasonable in support of a solid and well-managed, black-owned South African business. – FD
To watch this CNBC Power Lunch video click here
ALEC HOGG: Royal Bafokeng Platinum posted full-year results today – very strong results, too. Steve Phiri, Chief Executive of Royal Bafokeng Platinum, joins us in the studio to look at their numbers. Unfortunately, we’ve had four days of rain here in Johannesburg. That’s put everybody’s schedules out including yours, Steve. We had quite a long ad break and unfortunately, we don’t have too much to talk to you about, so let’s focus on the two big issues. Your fight with SARS: we haven’t seen companies fighting with the South African Revenue Services in a long time. In your results, it says they want 437 million from you: half of that through penalties. What’s going on there?
STEVE PHIRI: Well, just briefly to give you the background of the dispute between SARS and us: this happened in 2008 when Royal Bafokeng Resources was still a wholly owned subsidiary of Royal Bafokeng Nation. Bafokeng Nation held the mineral rights, which we currently are holding, and it happened that when Bafokeng Nation applied for new order rights in its own name the DMR issued new order mineral rights in the name of Royal Bafokeng Resources instead of Royal Bafokeng Nation, which in itself, is technically an irregularity. It’s not fatal, but it’s fatal in the sense that one asset is transferred to another company/another entity, without any legal basis as a legal identity that is going to be taking those rights. Bafokeng sought to resolve that dispute with the DMR to retransfer the rights, issue them correctly, and then you can do a Section 11 transfer of those mineral rights. However, the DMR said ‘no, we can’t do that’. There were also complications there, but at the end, the advice was ‘Royal Bafokeng Nation can waive that’. However, transactionally, as Bafokeng always wanted to flip those rights to Royal Bafokeng Resources…it came too early for them when they were not ready.
ALEC HOGG: It sounds very complex and very detailed, but at the end of the day, SARS wants the money from you. Are you going to be able to work this out? It sounds as though the DMR should be paying it.
STEVE PHIRI: It’s mostly an interest charge, which was allowed by SARS at a time when it was revised to say it was not correctly allowed, because they believed that the shareholder loan did not exist. We’re saying it does exist because we cannot just abandon our rights and say ‘I no longer have my rights. I’ve abandoned them’.
ALEC HOGG: Is this issue going to cause problems with the rights issue?
STEVE PHIRI: No, definitely not. We have not provided for it. It’s just reported a contingency. Legal advice from senior counsel is that we have good prospects of success in that regard. The only problem that we may have is a cash flow issue if SARS were to want us to pay immediately. We are engaging SARS in that regard to say ‘we believe we have a good case. You say you have a good case. That’s fine. Let’s go to court and debate this issue without necessarily giving you the money’. On the merit itself, we are very confident that we have good prospects of success. The rights issues as you’ve just mentioned, is not going to affect it. As I’m speaking to you now, on a book-billed basis we are three times oversubscribed in six hours’ time.
ALEC HOGG: Wow.
GUGULETHU MFUPHI: Six hours.
STEVE PHIRI: Yes.
ALEC HOGG: Pretty good going. Why don’t you go for four-and-a half billion? You need it because you’re going to be building this big expansion project.
STEVE PHIRI: Well, we need it but we have it in the sense that we’re generating cash flows from existing business. We have existing facility. We will still raise, in the form of a term debt, the remaining portion and we have so many offers coming from the banks that we do not think we’ll have a problem. The advantage there is that banks can then compete with one another on the rate.
ALEC HOGG: It’s a nice place to be, when the banker comes to you with an umbrella, when it hasn’t even started raining yet. Steve Phiri, thank you. He is the Chief Executive of Royal Bafokeng Platinum.
