Shuttleworth levy decision should have been made by government minister

Update:

The exchange control charge imposed on Mark Shuttleworth formed part of a regulatory environment and was not a tax, the Constitutional Court heard on Tuesday.

Jeremy Gauntlett SC, for the SA Reserve Bank (SARB), told the court: “The question is, is it a tax for the purpose of the Constitution or is it a charge that forms part of a regulatory environment?

“Our learned friends [Shuttleworth’s counsel] say the former, we say the latter.”

Were it a tax, it would have required an appropriation from Parliament.

Gauntlett said capital outflows were “scary”, as shown for example in 1933 during the Great Depression, where the flight of people and capital posed a serious problem for governments, especially if they happened quickly.

The imposition of the charge served to slow down the movement of capital, not people, Gauntlett said.

Deputy Chief Justice Dikgang Moseneke asked Gauntlett: “On your argument you pay to exit, and you pay only if you choose to exit?

“On your argument it is not a tax… but seeks revenue across the length and breadth of this land?”

Gauntlett replied that the critical thing was that the main purpose of the controls was to discourage the transfer of capital.

“The dominant purpose is to regulatory control conduct,” he said.

Last year, the Supreme Court of Appeal (SCA) ordered that the SARB repay Shuttleworth R250 million plus interest in a case about exchange controls.

The matter dates back to March 5, 2008, when Shuttleworth applied to the SARB to transfer R1.5 billion out of South Africa when he moved to the Isle of Man.

Original article:

The decision whether to reverse an exit charge on Mark Shuttleworth’s capital transfer out of South Africa should have rested with the finance minister and not the SARB, the Constitutional Court heard on Tuesday.

“One major issue underlies the application which we bring and that is the… departure point, which we submit is vital: who took the decision and according to what?” Jeremy Gauntlett, SC, for the bank, told the court.

“We can’t get anywhere unless we establish whose decision it is and how it was taken.”

Gauntlett pointed to the exchange controls announced in the finance minister’s 2003 budget speech allowing for the transfer of capital on the condition that a levy was paid and that a transfer schedule was submitted.

Deputy Chief Justice Dikgang Moseneke asked why it was important to distinguish where the decision was made.

Gauntlett stated that while Shuttleworth referred to the SARB’s decision, the minister, in fact, made the decision, as he was vested with the responsibility to set macro-economic policy, including exchange controls.

He referred to correspondence between Shuttleworth, his authorised dealer bank Standard Bank, and the SARB.

In the correspondence the SARB referred to the minister’s responsibilities, and that the decision regarding exchange controls ultimately rested with the minister, from the time of the 2003 budget speech.

“The previous decision taken in the matter was by the minister,” Gauntlett said.

Last year, the Supreme Court of Appeal (SCA) ordered that the SARB repay Shuttleworth R250 million plus interest.

The matter dates back to March 5, 2008, when Shuttleworth applied to the SARB to transfer R1.5 billion out of South Africa when he moved to the Isle of Man.

This transfer application had to be done through an authorised dealer bank, and Shuttleworth elected Standard Bank.

The application was granted subject to the payment of a R165m exit levy.

A calculating error in working out the 10 percent levy led to Shuttleworth being told later that the amount that could be transferred out of the country was R1.5bn — to bring the exit payment to 10 percent of the total amount.

In June 2009 Shuttleworth decided to transfer his remaining assets out of South Africa. He was advised that the 10 percent levy was unlawful and challenged it, contending that aspects of the exchange regime were unconstitutional.

He however accepted the principle of exchange control.

Shuttleworth paid R250.5m under protest as the 10 percent exit levy to release his blocked assets.

He approached the High Court in Pretoria, which did not order that he be repaid, but struck down certain provisions of the Currency and Exchanges Act and the Exchange Control Regulations.

Shuttleworth approached the SCA to appeal against the high court’s refusal to order repayment. The SARB, the minister of finance, and the president cross-appealed against the orders of invalidity.

The SCA found Shuttleworth’s payment under protest indicated the payment was not voluntary and that he reserved the right to seek its reversal.

The SARB’s imposition of the 10 percent exit levy was set aside, and so too were the high court’s declarations of invalidity of the exchange legislation and regulations.

More on Shuttleworth

SARB to Con Court over Shuttleworth’s R250 million

Shuttleworth ruling paves the way for exchange control review

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Shuttleworth levy decision should have been made by government minister