MP Finance Group CC (In Liquidation) V C: SARS: Adding to the Financial Hardship of Victims of Illegal Transactions

Abstract

This article analyses the interpretation of the phrase “received by, accrued to or in favour of” in the gross income definition of the Income Tax Act, as applied to illegal receipts. During the last few decades, South Africans have been victims of a number of Ponzi-type schemes. In MP Finance, the Supreme Court of Appeal considered whether illegal receipts received by the Krion Ponzi-type scheme should be included in gross income. After considering the relationship between the taxpayer and the fiscus, the court concluded that, as from a specified juncture, the taxpayer received the amount for its own benefit and it should therefore be included in gross income.

The court recognised that the contractual relationship between the investor and the scheme (taxpayer) could in fact be void, resulting in the investor having a right to recover the investment from the taxpayer. The court did not consider whether the levying of income tax on amounts received by the operator of the scheme could infringe on the investor’s right to property espoused under the Constitution of the Republic of South Africa, 1996. It is submitted that the levying of tax does infringe on this right as it reduces the amount that could be recovered from the scheme because the original investment in the scheme is void.

Keywords: Gross Income Definition of the Income Tax Act, “Received By, Accrued To or In Favour of”, Received for own Benefit, Krion Ponzi-type Scheme, Illegal Receipts, MP Finance Group, Right to Property