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CIR v Niko: A Question of Economic Reality

Southern African Business Review

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Field Value
 
Title CIR v Niko: A Question of Economic Reality
 
Creator Stack, EM
Stiglingh, M
Koekemoer, A
 
Subject Integrated Group Tax System, Economic Reality, Economic Unit, Group of Companies, Lock-stock-and-barrel Sale, Principles of Equity and Neutrality, Sale of a Business
 
Description This article analyses the facts and judgment in CIR v Niko, involving the transfer of business assets from a sole trader to a company, the shares of which were substantially owned by the same sole trader. This case changed the inherently flawed, but prevailing practice at that stage of regarding a lump-sum payment from a lock-stock-and-barrel sale of a business as a receipt of a capital nature, to a receipt that needed to be allocated to the various assets included in the sale, and therefore potentially the receipt would be partly of a capital and partly of a revenue nature. Although the conclusion relating to lock-stock-and-barrel sales in general was sound, the submission made in this article is that, in the particular circumstances of the case, the economic reality of the transaction was not considered – virtually no economic gain was realised by J. Niko, the seller and sole owner of the business to a company of which he was also the substantial shareholder. Two subsequent court decisions, which similarly ignored the economic reality of the transactions in the context of a group of companies, followed this judgment. In this article, the problematic nature of the decisions that ignored the economic reality of the transactions is demonstrated with reference to accepted canons of a good taxation system. The article also explains the partial legislative relief that has subsequently been granted for transfers of assets from a person to a company and for transfers within a group of companies, but concludes that there is a need for full recognition of a group of companies as an economic entity for tax purposes.Keywords: Integrated Group Tax System, Economic Reality, Economic Unit, Group of Companies, Lock-stock-and-barrel Sale, Principles of Equity and Neutrality, Sale of a Business
 
Publisher College of Economic and Management Sciences (UNISA)
 
Contributor —
 
Date 2015-08-26
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://www.ajol.info/index.php/sabr/article/view/121270
 
Source Southern African Business Review; Vol 19, No 1 (2015): Special Edition; 139-160
1998-8125
1561-896X
 
Language eng
 
Relation http://www.ajol.info/index.php/sabr/article/view/121270/110701
 
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