This is an appeal against four amended income tax assessments number 20211442 for the year ending 31 December 2009; 20211443 for the year ending 31 December 2010; 202211446 for the year ending 31 December 2011; and 20211448 for the year ending 31 December 2012 that were issued against the appellant by the respondent on 27 June 2014….,.

On 25 July 2014, the appellant objected to the amended assessments in terms of section 62 of the Income Tax Act [Chapter 23:06]. On 22 October 2014, all the objections were disallowed save for a few relating to penalties.

The appellant gave notice of its intention to appeal on 30 October 2014 and duly filed the present appeal on 18 December 2014....,.

The respondent is created by section 3 of the Revenue Authority Act [Chapter 23:11] as a single entity with the seamless functions outlined in section 4, amongst which is the assessment, collection, and enforcement of the payment of all revenues under the administrative purview of a single Commissioner-General appointed in terms of section 19.

However, in terms of section 20 and 21, the Board also appoints Commissioners in charge of such departments or divisions that the Board may establish but who serve under the control of the Commissioner General and who administer the Scheduled Acts listed in the First Schedule amongst which are the Customs and Excise Act and the Income Tax Act.

The Commissioner-General is empowered to exercise the functions conferred on each of these Commissioners and may delegate such authority to any member of staff.

The delegated authority, unless set aside by him, is deemed to be his authority.

This is an appeal against four amended income tax assessments number 20211442 for the year ending 31 December 2009; 20211443 for the year ending 31 December 2010; 202211446 for the year ending 31 December 2011; and 20211448 for the year ending 31 December 2012 that were issued against the appellant by the respondent on 27 June 2014….,.

On 25 July 2014, the appellant objected to the amended assessments in terms of section 62 of the Income Tax Act [Chapter 23:06]. On 22 October 2014, all the objections were disallowed save for a few relating to penalties.

The appellant gave notice of its intention to appeal on 30 October 2014 and duly filed the present appeal on 18 December 2014.

The appellant called the evidence of two witnesses, an independent tax consultant, LM, who worked for the respondent for the 16 years to 2006 and its Managing Director. In addition, it produced four voluminous documentary exhibits in excess of 500 pages, exhibits 1 to 4.

The respondent called its Chief Investigations Officer, OM, who has held that office since 2011 but with a total of 14 years experience, produced a 9 paged documentary exhibit, exhibit 5, and relied on the mandatory R11 documents.

The appellant was incorporated on 29 September 1995 and underwent two name changes, on 24 April 1996 and 9 October 2014….,.

The second name change was precipitated by the acquisition of the South African registered sister company by the appellant's holding company on 1 June 2005.

Sometime in 2010…, the respondent commenced the tax compliance investigation on the appellant that resulted in the amended tax assessments that gave rise to this appeal. The appellant's main business activities in the four years in question were in the importation, distribution, and marketing of motor vehicles and spare parts of a specified brand….,.

Initially, on 24 June 1997, the appellant entered into a detailed 53 article distributor-assembler three year agreement, the original agreement, with NML, a Japanese conglomerate engaged in the development, manufacture, and assembly and worldwide distribution and sale of an international brand of various models of motor vehicles and spare parts, retroactively from 1 April 1996….,.

The appellant had access to the conglomerate's trademarks, trade names, and engineering technology and was authorised to purchase, manufacture, assemble, market, distribute, and sell certain models of the brand, knocked down components, and spare parts through a network of dealers appointed by the appellant and approved by the conglomerate in Zimbabwe.

The ordering, production, shipment prices, and payment of the vehicles and components, in an amount sufficient to cover the price, was regulated by Articles 5 to 7 of exhibit 3….,.

The appellant met the full cost and expenses of the shipment and demurrage, and storage costs of the vehicles and spare parts. The risk for loss or damage passed to the appellant once the goods crossed the ship's rail at the port of shipment - but ownership and title of the goods was retained by the conglomerate until the payment obligation had been discharged.

It was discharged by payment into an L/C bank account opened in the name of the conglomerate by a bank acceptable to the conglomerate by irrevocable letters of credit at sight in favour of the conglomerate at which point the appellant simultaneously received the shipping documents for the relevant goods through that opening bank.

Because the timelines for ordering and the confirmation of the orders and payment preceded the production of the vehicles, ownership passed to the appellant on delivery of the vehicle FOB past the ship's rail at the port of shipment.

The appellant was solely responsible for securing Government licences and permits required to complete payments for and importation of the ordered goods….,.

The terms and conditions contemplated a cash before delivery sale.

The conglomerate could export and deliver to, and sell in Zimbabwe, brand vehicles in its own name through the agency of the appellant and pay the appellant for the services rendered.

The conglomerate played an active advisory role in the establishment of the appellant's business and was entitled to receive prescribed mandatory reports at specified periods and to inspect the appellant's operations.

The appellant undertook to maintain sufficient working capital and investment capital to enhance its business activities.

Each party was, in terms of Article 39-2, responsible for any and all expenditure incurred and assumed in the performance of its duties, obligations, and responsibilities.

Article 44 provided that:

“This agreement does not constitute either party as the agent or legal representative of the other party for any purpose whatsoever. Neither party is granted any expressed or implied right or authority to assume or to create any obligation or responsibility on behalf or in the name of the other party or to bind the same in any manner whatsoever.”

The appellant was also required to purchase a specified minimum number of vehicles, gain market share, and, in the event of a decline due to circumstances beyond its control, implement agreed counter measures to arrest the decline or risk termination of the agreement.

It appears to me, that, these were standard terms and conditions found in international contracts for the facilitation of international trade as demonstrated by their striking similarity with the conditions found in Lendalease Finance (Pty) Ltd v Corporacion de Mercadeo Agricola & Ors 1976 (4) SA 464 (A) especially in regards to the payment arrangements and the passing of both risk and ownership.

The appellant and the related party…, whom I shall refer in this judgment as the intermediary, signed a memorial of the procedures for importation of vehicles into Zimbabwe in the Memorandum of Understanding dated 1 August 2007.

The intermediary was required to place monthly production orders with the brand suppliers. The importation value of the consignment was reflected in a manual invoice issued by the intermediary to the appellant. The vehicles were imported into Zimbabwe and held in the appellant's bonded warehouse as consignment stock with the intermediary retaining ownership of the vehicles until payment was made. Once payment was made, the invoice was stamped by customs officials and duty and other imposts paid for the consignment by a clearing agent before ownership was transferred to the appellant. The appellant, in turn, invoiced and transferred the vehicles to an authorised dealer for sale.

On 25 April 2011, the appellant and the conglomerate entered into a “Distribution Agreement”…, consisting of 39 Articles with retroactive effect…, from 1 February 2007.

It appeared to be a reproduction of an incomplete Distribution Agreement dated 31 January 2007 that was only signed and initialled by the appellant's Managing Director….,.

It substituted the original agreement.

The preamble, structure, and, in most respects, the contents, mirrored word for word the original agreement. The noticeable change was the wholesale removal of the right to purchase knocked-down kits for assembling from and the transfer of technological assistance and assembly by the conglomerate to the appellant.

Articles 21, 22 and 23 mirrored word for word Articles 5, 6 and 7 of the original agreement in respect of the ordering, production, and shipment of the vehicles and spare parts.

Article 24, like Article 10 in the original agreement, dealt with the supply of spare parts whose purchase prices were computed on a cost, insurance and freight (CIF) or free on board (FOB) basis derived from a price list provided by the conglomerate.

The grounds for termination were generally similar to those in the original agreement.

The appellant and the conglomerate entered into a memorandum on Sales and Purchases of brand vehicles with the intermediary, retroactive from 1 February 2007, soon after signing the Distribution Agreement.

The appellant appointed and the conglomerate approved the appointment of the intermediary as the intermediary for the sale and purchase of the vehicles from the conglomerate under the Distribution Agreement.

The three parties agreed that the intermediary would purchase the vehicles from the conglomerate and sell them to the appellant.

The parties all incorporated the ordering, pricing, and payment and supply of spare parts provisions in Articles 21, 23 and 24 of the Distribution Agreement. They further agreed that any violation or default of those provisions, by the intermediary, would be ascribed to the appellant.

On 2 March 2009, the appellant and the intermediary entered into a Management Services/Technical Services Agreement which was governed by the laws of Zimbabwe and took effect on 1 March 2009.

They were motivated by the introduction of the multi-currency financial regime in Zimbabwe. It was to run for an indefinite period. The intermediary undertook to:

“Provide administrative services, financial services and support and logistical services and support to help appellant achieve its goals in terms of gaining market share, growth and profitability…, ensure that new developments and systems will be properly communicated together with appropriate facilitation of technical support, system materials and training…, (and) be available to provide help and guidance on any aspect of the business mentioned, at the request of appellant.”

In regards to the computation of the fees, the parties agreed that:

“The intermediary will calculate the fees based on both the turnover reported by appellant and also the level of input that has been provided in terms of this agreement. The fees to be provided for shall be 2% of turnover; however, this will not necessarily be the amount finally invoiced. The amount finally invoiced shall not exceed 4% of turnover.”

And, in respect of payment, they agreed that:

“Payment of the management fees shall ordinarily be made in the year following that on which the fees have been based on receipt of an invoice from the intermediary. For cash flow purposes, it will be permissible to make part payments, but, at least two half-yearly payments will be required.”

The evidence of the appellant's Managing Director was that the intermediary, a Mauritian registered short-term credit financier interposed between the conglomerate and the appellant in the purchase of the vehicles and spare parts destined to Zimbabwe.

Customers in Zimbabwe would place an order on the brand model of their choice, either to the appellant or an approved dealer appointed by the appellant. The appellant would group the orders and submit a bulky order of the required stock of vehicles, four (4) months in advance, to the intermediary, which, in turn, placed orders with the conglomerate.

The conglomerate would build the ordered vehicles for the intermediary.

The intermediary would purchase the vehicles, in its own name, from the conglomerate, and consign them directly to the appellant's bonded warehouse in Zimbabwe.

The intermediary retained ownership of the consignment in bond until it was paid.

Ownership vested in the appellant upon payment of the purchase price equivalent to the value for duty purposes.

Thereafter, the appellant would, where applicable, pay customs duty, surtaxes, and VAT based on the agreed value, through a clearing agent, before the consignment was released from the bonded warehouse and delivered to the approved dealer and end user.

The appellant used to import stock from a South African related party and the conglomerate under value rulings 18 and 29 of 2001 before the advent of the French holding company. These were replaced by value ruling 15 of 2007, on 5 November 2007, following upon protracted negotiations between the appellant and the respondent that commenced on 26 March 2006….,.

A sample of the documents used in the consignment of the vehicles from the intermediary to the appellant were captured on pp14 to 38 of exhibit 2 and pp1 to 9 of exhibit 5.

These were commercial invoices, telegraphic transfers, and Zimra certificates of origin, bills of entry, and customs clearance certificates.

These commercial invoices…, denoted the intermediary as the supplier and the appellant as the purchaser and consignee.

The vehicles were fully described by model, chassis and engine number, colour, and year of manufacture.

The order number, dates of issue and delivery, method of shipment, origin and destination together with the terms of payment, the free on board purchase price, the cost of freight, insurance and total CIF price, denominated in United States dollars, were also indicated.

The certificates of origin…, certified that each vehicle was manufactured by the supplier in South Africa and bore the same information contained in the commercial invoice in regards to the supplier, consignee, and description of the vehicle.

The bills of entry…, were completed by the clearing agent and identified the intermediary as the exporter or consignor.

They identified the country of supply and destination, the description, and total invoice value of each vehicle separately from the freight and insurance charges.

The customs clearance certificates…, for each vehicle were issued by Zimra.

They contained the full description of the vehicle shown in the commercial invoice. The cost, freight, and insurance price for each vehicle sold was captured in a combined invoice…, issued by the intermediary to the appellant, which the appellant submitted to its bankers with instructions to pay the intermediary by telegraphic transfer….,.

The sequence of dates on these documents showed that an advance payment by telegraphic transfer was made on 12 February 2007, the certificate of origin was presented on 15 April 2007 while the commercial invoice was issued on 24 April 2007 and the vehicle was cleared by a bill of entry at the port of entry on 9 May 2007. Thereafter, a customs clearance certificate was issued on 19 June 2007.

It was common ground, that, the intermediary's consignment was delivered to Zimbabwe and warehoused by the appellant in bond.

It was common cause, that, the appellant did not suffer any exposure to foreign currency risk or credit risk since the end users were required to make payment before the relevant vehicles were dispatched from South Africa…, in 2009 and 2010.

However, in 2011 and 2012, the appellant was exposed to foreign currency risk through the importation of inventory, the liability of which was settled in South Africa in a carrying amount of US$264,729 and US$294,956 respectively….,.

It was common ground that the appellant received vehicle prepayments in the sum of US$2,064,187…, in 2010 that was subsequently revised to US$4,693,512…, in the 2011 financial statements, US$3,086,165 in 2011…, and US$755,673…, in 2012.

The nature and scope of the tripartite arrangement between the parties was concisely set out by counsel for the respondent in paragraph 5 of his written heads of argument.

A customer placed an order to the appellant through an approved dealer appointed by the appellant. The appellant placed orders with the intermediary, which, in turn, procured the motor vehicles from the conglomerate.

The appellant received the motor vehicles in Zimbabwe and kept them in a bonded warehouse.

Ownership of the motor vehicles remained with the intermediary until duty had been paid by the appellant.

The purchase of a motor vehicle by a customer resulted in the payment of duty to the respondent by the appellant before the vehicle was released to the customer.

The intermediary was paid the transaction value of the motor vehicle, which, according to the letter of the appellant to the respondent, of 8 August 2007, included a 5% administration charge and interest of the selling price on the price list…, in which was incorporated its mark-up of between 7.5% and 10%.

The appellant was responsible for rentals, marketing expenses, and payment of duty.

It sold the vehicles to the dealers at a mark-up of 7.5% and the dealers sold the vehicle to the end customer.

At the commencement of hearing, the appellant confirmed the concession first made in the letter of 19 June 2014, that, it was remiss in failing to charge the intermediary a mark-up of 7% for transit services rendered in the sum of US$2,240 for 2009, US$2,505=87 for 2010 US$2,198=13 for 2011 and US$3,273=40 for 2012 in respect of vehicles exported by the intermediary to Zambia, Malawi and Tanzania.

Again, the appellant conceded, that, it paid management fees to the intermediary when such fees were not due in the sum of US$130,000 in 2009, US$140,000 in 2010, US$256,629 in 2011 and US$140,000 in 2012.

In the same vein, the respondent conceded, that, it wrongly raised notional interest at the rate of 24% in the sum of US$97,279=92 in respect of the 2012 loan to GS and in the sum of US$106,953=12 for 2010, US$266,879=52 for 2011 and US$124,666=80 for 2012 in respect of the loans availed to ADI.

The appellant acted in a devious manner in regards to management fees. Its conduct amounted to a deliberate act of transfer pricing which was done with intent to avoid tax.

The production of backdated agreements gave the impression that these were created as a response to the tax investigation.

This was apparent from the purported agreement of 31 January 2007 which had the appellant's signatures only that was rejected by the respondent and resulted in the production of duly signed agreement of 25 April 2011 backdated to 1 February 2007.

The appellant acted in a devious manner in regards to management fees. Its conduct amounted to a deliberate act of transfer pricing which was done with intent to avoid tax....,.

The Managing Director misled the court that the appellant provided functional analysis input under duress, contrary to his letter of 12 July 2013 in which he requested two weeks within which to provide the requested information, thus affording the appellant in excess of a month from the date of the initial request.

He disputed making prepayments to the intermediary yet the financial statements, in note 17 on p71 of exhibit 1, show that US$4,693,512 was paid in 2010 and US$3,086,165 in 2011 before the vehicles were exported in bond.

He falsely averred, and thus copied the evidence adduced by the Tax Consultant in his presence, that, the audits for his company commenced in November of each year in contradistinction to the timelines indicated in the audit engagement letter.

The tax consultant prevaricated on what the respondent's generally prevailing practice in regards to provisions was.

The chief investigations officer failed to demonstrate how he arrived at the apportionment ratio he used in his functional analysis. He testified that the appellant misled the respondent by claiming ownership of the consignment stock at the time he applied for the value ruling, contrary to the contents in the letters written by the appellant at that time.

He disputed making prepayments to the intermediary yet the financial statements, in note 17 on p71 of exhibit 1, show that US$4,693,512 was paid in 2010 and US$3,086,165 in 2011 before the vehicles were exported in bond.

He falsely averred, and thus copied the evidence adduced by the Tax Consultant in his presence, that, the audits for his company commenced in November of each year in contradistinction to the timelines indicated in the audit engagement letter.

The tax consultant prevaricated on what the respondent's generally prevailing practice in regards to provisions was.

The respondent is created by section 3 of the Revenue Authority Act [Chapter 23:11] as a single entity with the seamless functions outlined in section 4, amongst which is the assessment, collection, and enforcement of the payment of all revenues under the administrative purview of a single Commissioner-General appointed in terms of section 19.

However, in terms of section 20 and 21, the Board also appoints Commissioners in charge of such departments or divisions that the Board may establish but who serve under the control of the Commissioner General and who administer the Scheduled Acts listed in the First Schedule amongst which are the Customs and Excise Act and the Income Tax Act.

The Commissioner-General is empowered to exercise the functions conferred on each of these Commissioners and may delegate such authority to any member of staff.

The delegated authority, unless set aside by him, is deemed to be his authority.

This is an appeal against four amended income tax assessments number 20211442 for the year ending 31 December 2009; 20211443 for the year ending 31 December 2010; 202211446 for the year ending 31 December 2011; and 20211448 for the year ending 31 December 2012 that were issued against the appellant by the respondent on 27 June 2014….,.

On 25 July 2014, the appellant objected to the amended assessments in terms of section 62 of the Income Tax Act [Chapter 23:06]. On 22 October 2014, all the objections were disallowed save for a few relating to penalties.

The appellant gave notice of its intention to appeal on 30 October 2014 and duly filed the present appeal on 18 December 2014.

The appellant called the evidence of two witnesses, an independent tax consultant, LM, who worked for the respondent for the 16 years to 2006 and its Managing Director. In addition, it produced four voluminous documentary exhibits in excess of 500 pages, exhibits 1 to 4.

The respondent called its Chief Investigations Officer, OM, who has held that office since 2011 but with a total of 14 years experience, produced a 9 paged documentary exhibit, exhibit 5, and relied on the mandatory R11 documents.

The appellant was incorporated on 29 September 1995 and underwent two name changes, on 24 April 1996 and 9 October 2014….,.

The second name change was precipitated by the acquisition of the South African registered sister company by the appellant's holding company on 1 June 2005.

Sometime in 2010…, the respondent commenced the tax compliance investigation on the appellant that resulted in the amended tax assessments that gave rise to this appeal. The appellant's main business activities in the four years in question were in the importation, distribution, and marketing of motor vehicles and spare parts of a specified brand….,.

Initially, on 24 June 1997, the appellant entered into a detailed 53 article distributor-assembler three year agreement, the original agreement, with NML, a Japanese conglomerate engaged in the development, manufacture, and assembly and worldwide distribution and sale of an international brand of various models of motor vehicles and spare parts, retroactively from 1 April 1996….,.

The appellant had access to the conglomerate's trademarks, trade names, and engineering technology and was authorised to purchase, manufacture, assemble, market, distribute, and sell certain models of the brand, knocked down components, and spare parts through a network of dealers appointed by the appellant and approved by the conglomerate in Zimbabwe.

The ordering, production, shipment prices, and payment of the vehicles and components, in an amount sufficient to cover the price, was regulated by Articles 5 to 7 of exhibit 3….,.

The appellant met the full cost and expenses of the shipment and demurrage, and storage costs of the vehicles and spare parts. The risk for loss or damage passed to the appellant once the goods crossed the ship's rail at the port of shipment - but ownership and title of the goods was retained by the conglomerate until the payment obligation had been discharged.

It was discharged by payment into an L/C bank account opened in the name of the conglomerate by a bank acceptable to the conglomerate by irrevocable letters of credit at sight in favour of the conglomerate at which point the appellant simultaneously received the shipping documents for the relevant goods through that opening bank.

Because the timelines for ordering and the confirmation of the orders and payment preceded the production of the vehicles, ownership passed to the appellant on delivery of the vehicle FOB past the ship's rail at the port of shipment.

The appellant was solely responsible for securing Government licences and permits required to complete payments for and importation of the ordered goods….,.

The terms and conditions contemplated a cash before delivery sale.

The conglomerate could export and deliver to, and sell in Zimbabwe, brand vehicles in its own name through the agency of the appellant and pay the appellant for the services rendered.

The conglomerate played an active advisory role in the establishment of the appellant's business and was entitled to receive prescribed mandatory reports at specified periods and to inspect the appellant's operations.

The appellant undertook to maintain sufficient working capital and investment capital to enhance its business activities.

Each party was, in terms of Article 39-2, responsible for any and all expenditure incurred and assumed in the performance of its duties, obligations, and responsibilities.

Article 44 provided that:

“This agreement does not constitute either party as the agent or legal representative of the other party for any purpose whatsoever. Neither party is granted any expressed or implied right or authority to assume or to create any obligation or responsibility on behalf or in the name of the other party or to bind the same in any manner whatsoever.”

The appellant was also required to purchase a specified minimum number of vehicles, gain market share, and, in the event of a decline due to circumstances beyond its control, implement agreed counter measures to arrest the decline or risk termination of the agreement.

It appears to me, that, these were standard terms and conditions found in international contracts for the facilitation of international trade as demonstrated by their striking similarity with the conditions found in Lendalease Finance (Pty) Ltd v Corporacion de Mercadeo Agricola & Ors 1976 (4) SA 464 (A) especially in regards to the payment arrangements and the passing of both risk and ownership.

The appellant and the related party…, whom I shall refer in this judgment as the intermediary, signed a memorial of the procedures for importation of vehicles into Zimbabwe in the Memorandum of Understanding dated 1 August 2007.

The intermediary was required to place monthly production orders with the brand suppliers. The importation value of the consignment was reflected in a manual invoice issued by the intermediary to the appellant. The vehicles were imported into Zimbabwe and held in the appellant's bonded warehouse as consignment stock with the intermediary retaining ownership of the vehicles until payment was made. Once payment was made, the invoice was stamped by customs officials and duty and other imposts paid for the consignment by a clearing agent before ownership was transferred to the appellant. The appellant, in turn, invoiced and transferred the vehicles to an authorised dealer for sale.

On 25 April 2011, the appellant and the conglomerate entered into a “Distribution Agreement”…, consisting of 39 Articles with retroactive effect…, from 1 February 2007.

It appeared to be a reproduction of an incomplete Distribution Agreement dated 31 January 2007 that was only signed and initialled by the appellant's Managing Director….,.

It substituted the original agreement.

The preamble, structure, and, in most respects, the contents, mirrored word for word the original agreement. The noticeable change was the wholesale removal of the right to purchase knocked-down kits for assembling from and the transfer of technological assistance and assembly by the conglomerate to the appellant.

Articles 21, 22 and 23 mirrored word for word Articles 5, 6 and 7 of the original agreement in respect of the ordering, production, and shipment of the vehicles and spare parts.

Article 24, like Article 10 in the original agreement, dealt with the supply of spare parts whose purchase prices were computed on a cost, insurance and freight (CIF) or free on board (FOB) basis derived from a price list provided by the conglomerate.

The grounds for termination were generally similar to those in the original agreement.

The appellant and the conglomerate entered into a memorandum on Sales and Purchases of brand vehicles with the intermediary, retroactive from 1 February 2007, soon after signing the Distribution Agreement.

The appellant appointed and the conglomerate approved the appointment of the intermediary as the intermediary for the sale and purchase of the vehicles from the conglomerate under the Distribution Agreement.

The three parties agreed that the intermediary would purchase the vehicles from the conglomerate and sell them to the appellant.

The parties all incorporated the ordering, pricing, and payment and supply of spare parts provisions in Articles 21, 23 and 24 of the Distribution Agreement. They further agreed that any violation or default of those provisions, by the intermediary, would be ascribed to the appellant.

On 2 March 2009, the appellant and the intermediary entered into a Management Services/Technical Services Agreement which was governed by the laws of Zimbabwe and took effect on 1 March 2009.

They were motivated by the introduction of the multi-currency financial regime in Zimbabwe. It was to run for an indefinite period. The intermediary undertook to:

“Provide administrative services, financial services and support and logistical services and support to help appellant achieve its goals in terms of gaining market share, growth and profitability…, ensure that new developments and systems will be properly communicated together with appropriate facilitation of technical support, system materials and training…, (and) be available to provide help and guidance on any aspect of the business mentioned, at the request of appellant.”

In regards to the computation of the fees, the parties agreed that:

“The intermediary will calculate the fees based on both the turnover reported by appellant and also the level of input that has been provided in terms of this agreement. The fees to be provided for shall be 2% of turnover; however, this will not necessarily be the amount finally invoiced. The amount finally invoiced shall not exceed 4% of turnover.”

And, in respect of payment, they agreed that:

“Payment of the management fees shall ordinarily be made in the year following that on which the fees have been based on receipt of an invoice from the intermediary. For cash flow purposes, it will be permissible to make part payments, but, at least two half-yearly payments will be required.”

The evidence of the appellant's Managing Director was that the intermediary, a Mauritian registered short-term credit financier interposed between the conglomerate and the appellant in the purchase of the vehicles and spare parts destined to Zimbabwe.

Customers in Zimbabwe would place an order on the brand model of their choice, either to the appellant or an approved dealer appointed by the appellant. The appellant would group the orders and submit a bulky order of the required stock of vehicles, four (4) months in advance, to the intermediary, which, in turn, placed orders with the conglomerate.

The conglomerate would build the ordered vehicles for the intermediary.

The intermediary would purchase the vehicles, in its own name, from the conglomerate, and consign them directly to the appellant's bonded warehouse in Zimbabwe.

The intermediary retained ownership of the consignment in bond until it was paid.

Ownership vested in the appellant upon payment of the purchase price equivalent to the value for duty purposes.

Thereafter, the appellant would, where applicable, pay customs duty, surtaxes, and VAT based on the agreed value, through a clearing agent, before the consignment was released from the bonded warehouse and delivered to the approved dealer and end user.

The appellant used to import stock from a South African related party and the conglomerate under value rulings 18 and 29 of 2001 before the advent of the French holding company. These were replaced by value ruling 15 of 2007, on 5 November 2007, following upon protracted negotiations between the appellant and the respondent that commenced on 26 March 2006….,.

A sample of the documents used in the consignment of the vehicles from the intermediary to the appellant were captured on pp14 to 38 of exhibit 2 and pp1 to 9 of exhibit 5.

These were commercial invoices, telegraphic transfers, and Zimra certificates of origin, bills of entry, and customs clearance certificates.

These commercial invoices…, denoted the intermediary as the supplier and the appellant as the purchaser and consignee.

The vehicles were fully described by model, chassis and engine number, colour, and year of manufacture.

The order number, dates of issue and delivery, method of shipment, origin and destination together with the terms of payment, the free on board purchase price, the cost of freight, insurance and total CIF price, denominated in United States dollars, were also indicated.

The certificates of origin…, certified that each vehicle was manufactured by the supplier in South Africa and bore the same information contained in the commercial invoice in regards to the supplier, consignee, and description of the vehicle.

The bills of entry…, were completed by the clearing agent and identified the intermediary as the exporter or consignor.

They identified the country of supply and destination, the description, and total invoice value of each vehicle separately from the freight and insurance charges.

The customs clearance certificates…, for each vehicle were issued by Zimra.

They contained the full description of the vehicle shown in the commercial invoice. The cost, freight, and insurance price for each vehicle sold was captured in a combined invoice…, issued by the intermediary to the appellant, which the appellant submitted to its bankers with instructions to pay the intermediary by telegraphic transfer….,.

The sequence of dates on these documents showed that an advance payment by telegraphic transfer was made on 12 February 2007, the certificate of origin was presented on 15 April 2007 while the commercial invoice was issued on 24 April 2007 and the vehicle was cleared by a bill of entry at the port of entry on 9 May 2007. Thereafter, a customs clearance certificate was issued on 19 June 2007.

It was common ground, that, the intermediary's consignment was delivered to Zimbabwe and warehoused by the appellant in bond.

It was common cause, that, the appellant did not suffer any exposure to foreign currency risk or credit risk since the end users were required to make payment before the relevant vehicles were dispatched from South Africa…, in 2009 and 2010.

However, in 2011 and 2012, the appellant was exposed to foreign currency risk through the importation of inventory, the liability of which was settled in South Africa in a carrying amount of US$264,729 and US$294,956 respectively….,.

It was common ground that the appellant received vehicle prepayments in the sum of US$2,064,187…, in 2010 that was subsequently revised to US$4,693,512…, in the 2011 financial statements, US$3,086,165 in 2011…, and US$755,673…, in 2012.

The nature and scope of the tripartite arrangement between the parties was concisely set out by counsel for the respondent in paragraph 5 of his written heads of argument.

A customer placed an order to the appellant through an approved dealer appointed by the appellant. The appellant placed orders with the intermediary, which, in turn, procured the motor vehicles from the conglomerate.

The appellant received the motor vehicles in Zimbabwe and kept them in a bonded warehouse.

Ownership of the motor vehicles remained with the intermediary until duty had been paid by the appellant.

The purchase of a motor vehicle by a customer resulted in the payment of duty to the respondent by the appellant before the vehicle was released to the customer.

The intermediary was paid the transaction value of the motor vehicle, which, according to the letter of the appellant to the respondent, of 8 August 2007, included a 5% administration charge and interest of the selling price on the price list…, in which was incorporated its mark-up of between 7.5% and 10%.

The appellant was responsible for rentals, marketing expenses, and payment of duty.

It sold the vehicles to the dealers at a mark-up of 7.5% and the dealers sold the vehicle to the end customer.

At the commencement of hearing, the appellant confirmed the concession first made in the letter of 19 June 2014, that, it was remiss in failing to charge the intermediary a mark-up of 7% for transit services rendered in the sum of US$2,240 for 2009, US$2,505=87 for 2010 US$2,198=13 for 2011 and US$3,273=40 for 2012 in respect of vehicles exported by the intermediary to Zambia, Malawi and Tanzania.

Again, the appellant conceded, that, it paid management fees to the intermediary when such fees were not due in the sum of US$130,000 in 2009, US$140,000 in 2010, US$256,629 in 2011 and US$140,000 in 2012.

In the same vein, the respondent conceded, that, it wrongly raised notional interest at the rate of 24% in the sum of US$97,279=92 in respect of the 2012 loan to GS and in the sum of US$106,953=12 for 2010, US$266,879=52 for 2011 and US$124,666=80 for 2012 in respect of the loans availed to ADI.

The appellant acted in a devious manner in regards to management fees. Its conduct amounted to a deliberate act of transfer pricing which was done with intent to avoid tax.

The production of backdated agreements gave the impression that these were created as a response to the tax investigation.

This was apparent from the purported agreement of 31 January 2007 which had the appellant's signatures only that was rejected by the respondent and resulted in the production of duly signed agreement of 25 April 2011 backdated to 1 February 2007.

The Managing Director misled the court that the appellant provided functional analysis input under duress, contrary to his letter of 12 July 2013 in which he requested two weeks within which to provide the requested information, thus affording the appellant in excess of a month from the date of the initial request.

He disputed making prepayments to the intermediary yet the financial statements, in note 17 on p71 of exhibit 1, show that US$4,693,512 was paid in 2010 and US$3,086,165 in 2011 before the vehicles were exported in bond.

He falsely averred, and thus copied the evidence adduced by the Tax Consultant in his presence, that, the audits for his company commenced in November of each year in contradistinction to the timelines indicated in the audit engagement letter.

The tax consultant prevaricated on what the respondent's generally prevailing practice in regards to provisions was.

The chief investigations officer failed to demonstrate how he arrived at the apportionment ratio he used in his functional analysis. He testified that the appellant misled the respondent by claiming ownership of the consignment stock at the time he applied for the value ruling, contrary to the contents in the letters written by the appellant at that time.

At the pre-trial hearing of 2 June 2015, the following issues were referred for determination. In view of the concessions made by the respondent at the commencement of trial, it is no longer necessary to outline in respect of the loans advanced by the appellant to GS and ADI.

1. Whether or not the respondent is precluded from adopting its current stance on this issue on account of either:

1.1 The value ruling issued by it; or

1.2 The fact that duties and taxes were assessed and paid to it on a different basis.

2. Whether the respondent is entitled to invoke section 24 of the Act to deem income to have accrued to the appellant which was not actually received by it.

1. Whether it was proper of the appellant and open to the appellant to make provision for the costs in question.

2. Whether the respondent was precluded from issuing amended assessments by virtue of the provisions of section 47 of the Act.

1. What, if any, penalties are payable to the respondent.

I proceed to deal with each issue in turn.

1. Whether or not the respondent is precluded from adopting its current stance on this issue on account of either:

1.1 The value ruling issued by it; or

1.2 The fact that duties and taxes were assessed and paid to it on a different basis.

2. Whether the respondent is entitled to invoke section 24 of the Act to deem income to have accrued to the appellant which was not actually received by it.

The position adopted by the respondent during the investigation, objection, determination, and espoused in correspondence with the appellant, and in evidence and argument at the appeal hearing was to disregard the values of the motor vehicles received into the country by the appellant that were accepted by the Commissioner-General in the Value Ruling No.15 of 2007 of 5 November 2007 issued under sections 106 and 113 of the Customs and Excise Act [Chapter 23:02] in preference to the values derived from the functional analysis purportedly computed in terms of section 24 the Income Tax Act.

The Value Ruling No.15 of 2007 was issued on 5 November 2007. It replaced two other value rulings, Numbers 18 and 29 of 2001.

The transaction value accepted by the respondent, in the first value ruling, was based on the “invoiced prices plus dutiable adjustments” and in the second value ruling it was based on the invoice price plus Yen12,500 on each complete CKD kit and automobile CBU plus dutiable adjustments value and an uplift on the spare parts of 5% of the invoice price plus dutiable adjustments.

The transaction value of the consignment stock provided in section 113(2) of the Customs and Excise Act also included all costs, charges, and expenses incidental to the sale and handling and transport costs from the port of exportation to the port of importation in Zimbabwe.

The application preceding Value Ruling 15 of 2007 was necessitated by the change of ownership in the appellant through the purchase of 75% of the appellant's capital by a French company which also wholly owned the share capital in the intermediary. The holding company instigated the substitution of the conglomerate and the South African company in the supply matrix by the intermediary with the result that the appellant was designated as the importer and the intermediary as the supplier in the Value Ruling Number 15 of 2007.

The Ruling stated that:

“MOTOR VEHICLES

Invoiced prices plus dutiable adjustments are acceptable.

Invoiced prices plus dutiable adjustments are acceptable.

Transaction Value, TV, Method applicable.

Subject also to the inclusion of all costs, charges, and expenses not mentioned above which are incidental to the sale and to placing the goods on board the means of transport they are removed from country of exportation. Any subsequent costs, charges, and expenses incurred in delivering the goods to the place of importation in Zimbabwe should also be included in terms of the Customs and Excise Act.”

The covering letter of the same date explained that:

“Based upon the information you have provided regarding your importations from the intermediary - RSA, the following value ruling number 15/2007 has been issued by the Commissioner General of the Zimbabwe Revenue Authority in terms of section 106 and 113 of the Customs and Excise Act [Chapter 23:02] as amended.

The value for duty purposes will consist of the total price paid or payable (directly or indirectly) for the goods, plus any necessary dutiable adjustments referred to in section 113 of the Customs and Excise Act [Chapter 23:02].

Your necessary dutiable charges/adjustments include the cost (not already included in the invoice) of any packages, packing, loading, handling, transport, and insurance associated with the transportation of the goods to the place of importation in Zimbabwe.

Provided that the relative amounts can be distinguished from the price of the goods and the necessary documentary evidence is furnished with the customs entry, the cost of transport and insurance beyond the place of importation may not be included in the value for duty purposes.

The Commissioner General has made the ruling in accordance with the principles of the WTO valuation code based upon the present terms and conditions of trading between yourselves and the supplier concerned, as made known to the Department.

Any changes of these terms and conditions of trading must be notified to this office immediately.”

In a further covering letter of the same day, the respondent confirmed that the appellant was the importer.

However, this view was contrary to the insurance attestation on pp73 and 74 of exhibit 2, covering the 2007 calendar year, in which the French based insurance brokers certified that the intermediary's vehicles sold to the appellant were validly insured against damage and that the insurance policy was subject to automatic renewal from year to year. The risks covered were identified in bold print as:

“all risks from the warehouse of the seller to the warehouse of the consignee in Zimbabwe, on CIF value.”…,.

Sections 104 to 119 in Part X of the Custom and Excise Act [Chapter 23:02] deal in detail with the computation of the value for duty purposes.

The value, for duty purposes, is derived from the transaction value of the goods or services imported or due to be imported into Zimbabwe. The formula is provided in section 105(1) and in the opening words of section 106(1) of the Custom and Excise Act in these terms:

“105 Value for duty purposes

(1) For the purpose of assessing the amount of any duty payable on any imported goods and for the purpose of any declaration or oath which may be required by this Act or any other enactment in relation to any question of value or duty in connection with the importation of goods, or goods which are likely to be imported, the value of such goods shall, subject to this Act, be the transaction value thereof as established or determined in terms of sections one hundred and six to one hundred and twelve.

(1) Subject to this Act, the value for duty purposes of any imported goods shall be the transaction value of the goods, that is to say, the price actually paid or payable for the goods when sold for export to Zimbabwe, adjusted in terms of section one hundred and thirteen, if —“…,.

The price actually paid or payable on imported goods is defined in section 104 of the Customs and Excise Act as the aggregate of all payments made or to be made on these goods by the importer to the seller that is to the satisfaction of the Commissioner and the value determined by the Commissioner of any consideration or services rendered or to be rendered by the importer for the benefit of the seller.

The concept of related parties is captured in section 104(3) of the Customs and Excise Act to include individuals who, inter alia, are officers or commissioners in each other's businesses or corporate bodies in which any other person, directly or indirectly, owns, controls or holds at least 5% of the issued shares of both or both are so controlled by a third person or control a third person or are members of the same family.

In terms of section 104(4) of the Customs and Excise Act, any sole agent or distributor or concessionaire of the other who falls into any of the categories listed in subsection (3) is deemed to be a related party under Part X of the Customs and Excise Act.

There are five other elaborate methods of computing the transaction value of goods for duty purposes set out from section 107 to section 112 of the Customs and Excise Act.

These comprise of the first alternative method and second alternative method which are based on the values of identical and similar goods, respectively, exported to Zimbabwe at about the same commercial level and the same quantity at about the same time.

The third alternative deductive method is based on comparative sales between unrelated parties of similar or identical goods less any commissions, mark-up, cost of sales, transport, loading and unloading, handling and insurance costs within Zimbabwe from the place of importation and any duty or tax payable locally on importation or sale of the goods.

The fourth alternative method relies on the manufacturer's production costs plus mark-up.

The final alternative method is a fall back method, which incorporates the preceding four methods with necessary modifications.

The respondent is precluded from resorting to fictitious or higher alternative values from the country of origin or to any prescribed minimum custom values.

The adjustments prescribed by section 113 of the Customs and Excise Act are additional to the price actually paid or payable by the importer to the seller to the extent that they were incurred by the buyer and were excluded in the price actually paid or payable. These includes: packing, loading and unloading, handling, transport and insurance, royalties and licence fees for the use of intellectual property rights, transport and insurance from the place of manufacture to the place of export to place of importation into Zimbabwe but the costs incurred within Zimbabwe, from the place of importation, are excluded from the transaction value.

It is clear from the provisions of section 114 of the Customs and Excise Act, that, the value of any imported goods in the Bill of Entry does not constitute the value determined and accepted by the Commissioner for duty purposes.

In correspondence, and the determination to the objection, as well as in pleadings, evidence, and argument, the respondent advanced two reasons for abandoning the Value Ruling in the present matter and electing to assess the appellant for income tax purposes on a different basis:

(i) The first was that the Value Ruling applied to the determination of the duty value of the imported motor vehicles, which constitute the subject matter of the income tax appeals.

(ii) The second and alternative contention was that the respondent was not bound by the Value Ruling as from 1 March 2009 and throughout the tax years in which the appeals relate because the appellant reneged on one of the terms and conditions going to the root of the Value Ruling in that it failed to inform the Commissioner General of the Management Fees/Technical Fees Agreement entered into with the intermediary on 2 March 2009.

Counsel for the appellant contended, that, the Commissioner was bound by the Value Ruling in question in the present income tax appeals even though it was made to resolve a Customs and Excise question.

Counsel for the respondent made contrary submissions on the point.

Counsel for the appellant contended, that, as a single entity, the Zimbabwe Revenue Authority was obliged by the fundamental provisions section 68 of the Constitution and section 3(1)(a) of the Administrative Justice Act [Chapter 10:28] to act in a lawful, reasonable, and fair manner in utilising its opinion formed under the Customs and Excise Act on the transaction value of the imported motor vehicles to the computation of the purchase price under the Income Tax Act.

He contended, that, the Commissioner could not possibly justify the change of opinion, reflective as it was of his state of mind, in the finding that the relationship between the appellant and intermediary did not influence the transaction value.

He further contended, that, the importer had proved, to the satisfaction of the Commissioner, that, the transaction value closely approximated the values referred to in section 106(2) of the Customs and Excise Act.

Counsel were however agreed, that, there was no specific section in the Scheduled Acts which require the Commissioner to act in the manner advocated by counsel for the appellant.

It is indisputable, that, the respondent is created by section 3 of the Revenue Authority Act [Chapter 23:11] as a single entity with the seamless functions outlined in section 4, amongst which is the assessment, collection, and enforcement of the payment of all revenues under the administrative purview of a single Commissioner-General appointed in terms of section 19.

However, in terms of section 20 and 21, the Board also appoints Commissioners in charge of such departments or divisions that the Board may establish but who serve under the control of the Commissioner General and who administer the Scheduled Acts listed in the First Schedule amongst which are the Customs and Excise Act and the Income Tax Act.

The Commissioner-General is empowered to exercise the functions conferred on each of these Commissioners and may delegate such authority to any member of staff.

The delegated authority, unless set aside by him, is deemed to be his authority.

In terms of section 34D, the Commissioner General may personally, or by proxy, make an advance tax ruling on any provision of any of the Acts in the First Schedule of his own accord or on application by an interested person to a taxable transaction.

Tax is defined in the Fourth Schedule as “any tax, duty, fee, levy, charge, penalty, fine or any money levied, imposed, collected or received in terms of any of the Acts specified in the First Schedule” while “relevant Act in relation to an advance tax ruling means any one the Acts specified in the First Schedule in respect of which the ruling is made or sought.”

The context and the 13 minimum contents of an Advance Tax Ruling are provided in paragraph 2(2) of the Fourth Schedule to the Revenue Authority Act.

Sub-paragraphs (2)(c) to (f) require a complete description of the proposed transaction for which the ruling is sought and its impact on the tax liability of the applicant and a citation of the relevant statutory provisions or issues and reasons why the proposed ruling should be made.

It is apparent to me, contrary to the contention propounded by counsel for the appellant, in paragraph 12(b) of his written heads of argument, that, the application for the Value Ruling, set out in exhibit 2, does not meet these minimum requirements in respect of the Income Tax Act.

In this regard, the submission made by counsel for the appellant, in paragraph 10 of his written heads of argument, to the effect that one ruling in respect of one Schedule Act fits all the other Scheduled Acts in regards to the same imported item, is devoid of any merit.

The differentiation applied by the respondent was lawfully grounded in the minimum requirements for an Advance Tax Ruling provided in paragraph 2(2) to the Fourth Schedule of the Revenue Authority Act.

Again, the Value Ruling falls woefully short of the requirements of paragraph 6 of the same Schedule failing as it does to apply to the relevant Income Tax Act.

While the facts and circumstances may be the same as in the value ruling, the four requirements in paragraph 6 are conjunctive; so, the failure to fulfil any one is fatal to the appellant's contention seeing it falls outside the time frame of the advance ruling and the requirement to update the Commissioner with any new information affecting the value ruling.

The attempt to export the favourable interpretation in paragraph 4(1) of the Fourth Schedule to the Revenue Authority Act, from the Customs and Excise Act to the Income Tax Act, flounders on the phrase “apply the relevant Act” defined with reference to the specified Act in respect of which the ruling was made or sought.

The value ruling was not sought and obtained in terms of the Income Tax Act but in terms of the Customs and Excise Act.

In the alternative, counsel for the appellant submitted, that, like should be treated alike otherwise it would be unconscionable for the respondent to alter its opinion merely for the sake of extracting as much income tax from the appellant as it did with respect to customs duty on the same facts and circumstances.

He submitted, that, by making the Value Ruling, the respondent, in essence, determined, as contemplated by section 106(2) of the Customs and Excise Act, that the two related parties acted at arm's length, a consideration in convergence with the requirements of section 24 of the Income Tax Act.

He argued, that, the juxtaposition of a different and contradictory opinion on the purchase price, under the Income Tax Act, to the transaction value under the Customs and Excise Act of the self-same imported vehicles, was both illogical and unlawful.

The word opinion is not defined in any of the Taxes Acts. It has been judicially defined in a number of cases:

In Judes v District Registrar of Mining Rights, Krugersdorp 1907 TS 1046…, INNES CJ equated a decision, in the absence of a qualification, with a final determination.

Both Herbert Porter & Co Ltd and Another v Johannesburg Stock Exchange 1974 (4) SA 781 (W)…, and Knop v Johannesburg City Council 1995 (2) SA 1 (A)…, defined decision as “the final and definite result of examining a question” and “adjudication in the juristic sense, i.e. a final and definite result in consequence of examining a question”, respectively.

These definitions were adopted in Media Workers Association of South Africa & Ors v Press Corporation of South Africa Ltd (Preskor) 1992 (4) SA 791 (A)…,. This was a labour matter in which the relevant statutory provision stipulated that “an assessor shall be a person, who, in the opinion of the Chairman of the Court, has experience in the administration of justice or skill in any matter which may be considered by the Court.”

By reference to The Shorter Oxford Dictionary, it was held, at 796E, that, an opinion was a matter of speculation which could not be proved by any available evidence to be right or wrong.

In the local case of R v Foster 1962 (1) SA 280 (SR)…, BEADLE CJ held that:

“Opinion means something different from 'intention'…,. If the long and complex definition of 'opinion' in the Shorter Oxford Dictionary is examined, it will be seen that the meaning of 'opinion' includes only such things as 'a judgment' or 'a belief of something'. It does not include merely an intention.”

However, in R v Sibanda & Ors 1965 RLR 363…, an opinion of a court was equated with a judgment derived from objective facts and not a belief.

In my view, the publication and contents of the Value Ruling No.15 of 2007, and the accompanying correspondence, demonstrated that the Commissioner-General was alive to the powers vested in him generally by Part X, and, in particular, by section 106 and 113 of the Customs and Excise Act.

It seems to me, that, the provisions in Part X delineate almost all the possible ingredients that constitute a transaction value for the purposes of computing the duty value of an imported item under the Customs and Excise Act.

In summary, the ruling was that the sum payable to the intermediary was the value for duty purposes and that amount was religiously treated by the appellant as the purchase price of the motor vehicles in all its tax returns from the time it took effect.

And rightly so, for those ingredients, in my view, are similar to the considerations which must necessarily constitute the purchase price of such an imported item for Income Tax purposes.

In ruling on the transaction value for duty purposes, the Commissioner General made a final and definitive determination amounting to an “adjudication in the juristic sense, i.e. a final and definite result in consequence of examining a question” or a 'judgment' as indicated in Knop v Johannesburg City Council 1995 (2) SA 1 (A) and R v Foster 1962 (1) SA 280 (SR), respectively.

That final and definite determination was that the relationship between the appellant and the intermediary did not influence the price actually paid for the goods concerned.

The opinion of the Commissioner was that the parties acted at arm's length in setting the transaction value.

The finding was based on the objective assessment of the information provided to the Commissioner, which information would, more or less, be used to determine the purchase price of the imported vehicles.

The introduction of a different statute would not change the value of the motor vehicles nor the finding that the parties had an arm's length relationship, especially in view of the respondent's refusal to refund the duty, surtax, and VAT paid on the higher transactional value.

Clearly, the appellant cannot approbate and reprobate in respect of the same motor vehicles simply because the imposts are levied under two different statutes.

Contrary to the submission by counsel for the respondent, in paragraph 11.2 of his written heads of argument, I am satisfied, that, the assessment and payment of import duties and taxes based on the transaction value of these vehicles, which was objectively ascertained by the respondent, is binding on the respondent.

The appellant has shown that it knows of no other means and the respondent has not discharged the evidentiary onus that shifted to it of showing how the purchase price required for the computation of taxable income on these vehicles could have been arrived at other than in the same way that was used to ascertain the transaction value.

The respondent conducted a tax compliance investigation of the appellant in respect of the four years in question. It was dissatisfied with the transactions between the appellant and the intermediary, who were related parties.

The basis of the disquiet was that import documents showed the appellant as the owner of the vehicles in the bonded warehouse when in fact ownership vested in the intermediary who insured them whilst in bond.

The prepaid forex amount on the price list was the Carriage Insurance Paid (CIP) price equivalent to 40% of the total cost of the vehicle.

In addition, the appellant was responsible for the payment of rentals for the bonded warehouse, advertising and promotion expenses, clearing charges, and management fees, which expenses it claimed from its income.

At the same time, the owner of the motor vehicles incurred comparatively less costs and enjoyed more of the profits in a foreign tax jurisdiction beyond the reach of the respondent.

The respondent formed the opinion, that, the arrangement was intended to reduce the appellant's profits in Zimbabwe and transfer them to this other tax jurisdiction to the obvious detriment of the Zimbabwe fiscus.

In the result, the appellant invoked the provisions of section 24 of the Income Tax Act, and, in collaboration with the appellant, conducted a functional analysis of the transactions in the supply chain, from the purchase of the vehicles from the conglomerate by the intermediary to their disposal to the dealers by the appellant, and concluded that the transactions between the two were not conducted at arm's length.

On the basis of functional analysis, it apportioned and adjusted the income, expenses, and profits earned from this supply chain in the ratio of 61% to the appellant and 39% to the intermediary.

Even though these expenses were paid by the appellant, the respondent disallowed the portion attributed to the intermediary.

The Chief Investigations Officer testified, that, this was an international best practice adopted by revenue authorities to assess the true income earned by related parties from transactions carried out for mutual benefit that fail the arm's length test.

In its simplest form, a functional analysis determines what part of a transaction was undertaken by the various parties involved in that transaction.

In the present case, the parties were the manufacturer (conglomerate), the intermediary, the appellant, and the parent company.

The respondent categorised the functions under, functions performed; the attendant risks; and the assets used and apportioned percentages to the work performed by each player.

The respondent raised the functional analysis method around April-May 2013 on realising that the appellant was paying both management fees and a mark-up of between 7.5% and 10% on the conglomerate bought-out price to the intermediary.

On 24 June 2013, it supplied the appellant with the “Appellant's Functional Analysis” document…,.

The document was divided into six columns headed functions, and each of the names of the four parties involved in the taxable transaction was indicated. The last column was reserved for comments.

The functions covered, firstly, management and administrative services and the associated tasks of communication with customers, the handling of payment from buyer and to suppliers, provision of accounting and management services and maintaining customer negotiations, accounting and financial records and inventories.

The second function was in respect of marketing and customer liaison and the associated tasks for the development, preparation, approval, implementation and funding of marketing strategies and programs which incorporated negotiations with buyers, liaison with suppliers and dealers, and the preparation of pre-shipping exit customs documents and the payment of clearing, shipping, freight and importation expenses.

The risks were in respect of credit, exchange and business risk and covered the insurance of vehicles and the loss of inventory and warehousing.

The assets used covered warranties, skilled and technical employees, intellectual property rights, and vehicles and office accommodation.

At the request of the respondent, on 12 July 2013, the appellant allocated 100% to those tasks that were wholly undertaken by each party and inserted comments in the column provided for that purpose.

Again, on 14 August 2013, the appellant provided a more detailed percentage allocation against the other tasks.

In respect of the management and administrative function, the task of communicating the intention to buy was allocated 100% to the appellant.

The other tasks were allocated as follows:

(i) Payments from the buyer - appellant 95% and the intermediary 5%;

(ii) Payments to the conglomerate - the intermediary 100%;

(iii) Maintenance of accounting records, negotiation records with buyers and preparing financial reports - the appellant 100%;

(iv) Inventory control system - the appellant 50% and the intermediary 50%;

(v) Management support - the French holding company 100%; and

(vi) The financial support for funding and liaison with suppliers - the intermediary 100%.

Under the marketing and customer liaison function, the tasks were allocated as follows:

(i) Developing marketing strategies - the appellant 100%;

(ii) Funding - 96.5% to the appellant and the conglomerate 3.5%;

(iii) Implementation of marketing programmes, negotiation with buyers and liaison with the dealers - appellant 100%;

(iv) Payment of clearing charges and transport fees - appellant 85% and the intermediary 15%;

(v) Price negotiations with the supplier/conglomerate - appellant 60%, the intermediary 10%, and the French holding company 30%; and

(vi) Pre-shipping, customs exit documents, and freight to the place of importation in Zimbabwe - the intermediary 100%.

In regards to the risks function, the tasks were allocated as follows:

(i) Insurance risk from embarkation in the country of manufacture to sale in a bonded warehouse in Zimbabwe - intermediary 100%;

(ii) Credit and exchange rate risks - intermediary 100%; and

(iii) Business risk - appellant 50% and intermediary 50%.

And, in regards to the use of assets function, the tasks were allocated thus:

(i) Warranties - appellant 10% and the conglomerate 90%;

(ii) The use of intellectual property rights - the conglomerate 100%;

(iii) The use of technical skills - the appellant 25%, the intermediary 25%, the conglomerate 25%, and the French holding company 25%; and

(iv) The use of operational vehicles and rentals - appellant 100%.

On 21 November 2013, the respondent concluded the functional analysis by averaging the percentages inserted by the appellant with its own and allocated 61% to the appellant and 39% to the intermediary.

The vehicles sales gross profit of US$1,252,021 for 2009; US$3,110,196 for 2010; US$6,338,185=46 for 2011; and US$4,918,389=78 for 2012 were based on total gross sales figure that did not include the intermediary's invoices.

These gross profit figures were derived from the difference between the appellant's local sales and the landed costs comprised of the conglomerate's FOB costs and shipping costs, finance charges, and handling and clearing charges.

The Commissioner disregarded the gross profit recorded in the appellant's statement of comprehensive income of US$837,160 for 2009; US$2,327,853 for 2010; US$3,953,949 for 2011; and US$3,615,881 for 2012.

Counsel for the appellant correctly criticised the functional analysis methodology as an arbitrary, unscientific, and an opinion based on value judgment and not on a formula.

He accurately observed, that, the imputed gross profit was out of step with the comparable prices of similar vehicles offered in Zimbabwe by other brand competitors.

He correctly contented, that, the Chief Investigations Officer did not explain how his tabulated figures, and, especially, the vehicle sales gross profit figures, were computed and more importantly how he arrived at the 61:39 split.

In my view, even the more detailed functional analysis percentage apportionments provided by the appellant, on 14 August 2013, in annexure H of the Commissioner's case, failed to disclose how the 61:39 split was achieved.

Apparently, it was invoked on the weak basis of a purported concession to profit-sharing made by the appellant in a letter of 9 September 2011, which letter did not form part of the pleadings or evidence in this case.

The evidence at hand established, that, the appellant, at all times, disputed ever sharing any profits with the intermediary.

The real reason for ascribing profit sharing between them, as eventually disclosed by the Chief Investigations Officer, was that they each added a mark-up of 7.5% to their respective purchase prices.

The respondent thus formed the opinion, that, the parties shared profits equally and not the costs - which burden was borne by the appellant. The respondent found the position contrary to the arm's length principle.

Counsel for the appellant submitted, that, functional analysis was not part of our law notwithstanding that the respondent foistered it upon the appellant.

He further submitted, that, it was illogical and irrational and did not form part of the South African or OECD transfer pricing system.

In regards to transfer pricing, he argued, that, until the introduction of section 98A to the Income Tax Act by the Finance Act No.1 of 2014, on 1 January 2014, there were no statutory provisions dealing with this subject in our law.

The concept of transfer pricing, as explained by KEITH HUXMAN and PHILIP HAUPT, in Notes on South African Income Tax 24ed (2005) involves the manipulation of prices, income, and expenses by associated companies operating in different tax jurisdictions in order to reduce profits in a higher tax jurisdiction.

It is invariably measured by the arm's length principle.

It seems to me, that, transfer pricing could be dealt with under the general deduction formula in section 15(2)(a) of the Income Tax Act as was the case in South Africa when ITC 569 (1944) 13 SATC 447 was decided before the introduction of section 31 in Act 58 of 1962 and the subsequent publication of Note 7, which delineated transfer pricing transactions in that country.

While our law did not have a specific transfer pricing provision until 1 January 2014, it seems to me that the issue could be dealt with under the general deduction formula, or either section 24 or section 98 of the Income Tax Act if the requirements in those sections were met.

It is clear that the functional analysis methodology is not specifically provided for in our law.

Nor was transfer pricing specifically provided for in our law prior to 1 January 2014.

The respondent relied on the provisions of section 24 of the Income Tax Act to invoke the functional analysis methodology.

The correspondence between the parties, both before and after the objection, and, especially in the summary of evidence filed by the appellant in preparation of the appeal hearing, recognised the existence of the functional analysis concept.

In the objection letter, the appellant recognised functional analysis as an international practice.

And, in its summary of evidence, the appellant was ready to call evidence to show how functional analysis was prepared and the context in which it applied.

Indeed, in argument, counsel for the appellant referred to the pillars on which it stands as comprising the functions of the targeted parties in the chain of supply, the nature and type of assets or resources deployed used, and the risks assumed by each party in the supply chain.

These were applied by the respondent in the functional analysis it conducted in collaboration with the appellant.

To the extent that it is a recognised method of assessing taxable income earned, or deemed to have been earned by a taxpayer, I would, on the sparse evidence before me, hold that there is nothing in our law that would preclude the Commissioner from applying it in suitable cases.

Whether or not this was a suitable case to employ functional analysis, in determining the appellant's taxable income, depends on whether or not the provisions of section 24 of the Income Tax Act applied to the circumstances pertaining to the appellant.

I agree with counsel for the respondent, that, the genesis of the provisions section 24 of the Income Tax Act can be traced back to English Company Law.

Incorporated companies, whether related or independent had always been regarded as separate and distinct entities. In time, in order to answer the pressing questions raised by the conduct of related parties, and, especially holding companies and their subsidiaries, the English courts imported the concepts of assignment and agency into the relationship and this was quickly adopted by both the South African and Zimbabwean courts.

Expressions such as:

'an assignee of the holding companies': see Harold Holdsworth & Co (Wakefield) Ltd v Caddies (1955) 1 All ER 725 (HL)…, and DHN Food Distributors Ltd v London Borough of Tower Hamlets (1976) 3 All ER 462 (CA);

'an agent of the holding company…, conducting its business for it': see In Ritz Hotel Ltd v Charles of the Ritz Ltd v Anor 1988 (3) SA 290 (A)…,.; and

'one economic entities': see Moodie v Industrial & Pipe Employees Trust (Pvt) Ltd and Industrial and Pipe Ltd SC165-97…, and CC Sales Ltd v David Dyer & Dajen (Pvt) Ltd HH230-98 were used to remove the separate and distinct nature of these corporate entities.

While the facts of each case in which these expressions were used were different from the present case, the principles derived from these cases resulted in the legislative intervention crystallised in section 24 of the Income Tax Act that sought to treat the activities of subsidiaries that shared management, control, and capital, and that breached the arm's length principle, as “one economic entities.”

I do not think, that, the respondent's legal right to invoke the provisions of section 24 of the Income Tax Act, in making the adjustments to the appellant's tax liability arising from either the failure to declare all the income earned or claiming unjustified deductions, can be gainsaid.

The section stipulates that:

“24. Special provisions relating to determination of taxable income in accordance with double taxation agreements

The Commissioner may —

(a) If any person —

(i) Carrying on business in Zimbabwe, participates directly or indirectly in the management, control, or capital of a business carried on by some other person outside Zimbabwe; or

(ii) Carrying on business outside Zimbabwe, participates directly or indirectly in the management, control, or capital of a business carried on by some other person in Zimbabwe; or

(iii) Participates, directly or indirectly, in the management, control, or capital both of a business carried on in Zimbabwe by some other person and of a business carried on outside Zimbabwe by some other person; and

(b) If conditions are made or imposed between any of the persons mentioned in paragraph (a) in their business or financial relations, which, in the opinion of the Commissioner, differ from those which would be made between two persons dealing with each other at arm's length;
determine the taxable income of the person carrying on business in Zimbabwe as if such conditions had not been made or imposed but in accordance with the conditions, which, in the opinion of the Commissioner, might be expected to have been made or imposed between two persons dealing with each other at arm's length.”

The first point to note is the anomalous reference in the heading to double taxation agreements which is not embodied in the provisions of the section.

I agree with the submission by counsel for the appellant, that, by virtue of section 7(a) of the Interpretation Act [Chapter 1:01] the reference to double taxation agreements should be disregarded in construing the section.

Our common law principle is that he who alleges must prove.

This is an appeal against four amended income tax assessments number 20211442 for the year ending 31 December 2009; 20211443 for the year ending 31 December 2010; 202211446 for the year ending 31 December 2011; and 20211448 for the year ending 31 December 2012 that were issued against the appellant by the respondent on 27 June 2014….,.

On 25 July 2014, the appellant objected to the amended assessments in terms of section 62 of the Income Tax Act [Chapter 23:06]. On 22 October 2014, all the objections were disallowed save for a few relating to penalties.

The appellant gave notice of its intention to appeal on 30 October 2014 and duly filed the present appeal on 18 December 2014....,.

While it is correct that this Court re-hears the matter; the case remains an appeal lodged by the taxpayer challenging the process undertaken by the Commissioner in adjusting his tax liability....,.

It seems to me that section 63 of the Income Tax Act is engaged once the challenge relates, inter alia, to any amount not liable to the tax.

There was argument between counsel on whether the appellant was the importer of the consignment stock or not.

Counsel for the appellant relied on the bills of entry for the contention that the appellant was the importer while counsel for the respondent argued that it was the consignee.

The Chief Investigations Officer testified on the existence of three types of bills of entry in our law:

(i) The first was the Bill of Entry into Zimbabwe;

(ii) The second was the Bill of Entry into a bonded warehouse; and

(iii) The third was a Bill of Entry for removal from bond for consumption in or for export out of Zimbabwe.

His testimony was confirmed by the definition of both Bill of Entry and Entry in section 2 of the Customs and Excise Act.

A Bill of Entry is defined “as a prescribed form on which an entry is made.”

Entry is defined thus:

“'entry' in relation to clearance of goods for importation, warehousing, removal from a warehouse or exportation, means the presentation in accordance with this Act of a correctly completed and signed declaration on a bill of entry in writing, and, where direct trader input facilities exist, includes the recording of the required information on the Customs computer system, using procedures approved by the Commissioner, or using a computerised procedure approved by the Commissioner, together with such bills of lading, invoices, price lists and other documents showing the purchase value of the goods together with the freight, insurance and other charges on the goods required to be declared by any provision of this Act;”

In regards to import and importer, the Customs and Excise Act states that:

“'import' means to bring goods or cause goods to be brought into Zimbabwe;

'importer' in relation to goods, includes any owner of or other person possessed of or beneficially interested in any goods at any time before entry of the same has been made and the requirements of this Act fulfilled;”

In an almost analogous case of AT International Ltd v Zimra 2015 (2) ZLR 143 (H)…, by reference to the definition of 'import' 'importer' and 'entry' of section 2 of the Customs and Excise Act, I held that a foreign registered company was the importer of goods that had been purchased in South Africa and consigned to a local company in Zimbabwe.

In the present case, the intermediary met the definition of importer.

Whether the appellant was “any other person possessed of or beneficially interested in the goods at any time before their entry had been made and the requirements of the Act fulfilled” is a question of fact to be decided on the basis of the available evidence and the relevant provisions found in Part III of the Customs and Excise Act.

The appellant did not possess, but was, in terms of the Distribution Agreement and the Tripartite Agreement, beneficially interested in the goods before their entry into Zimbabwe.

These vehicles were coming to Zimbabwe in terms of the Distribution Agreement at the instance of the appellant and for the business of the appellant.

Accordingly, I agree with counsel for the appellant, that, the appellant was the importer.

Both our common law and statutory law recognise the reservation of ownership.

In Rennie Grinaker Holdings (Pvt) Ltd v Sociedade Intercontinental de Compressors Hermeticos Sicom Ltda 1997 (1) ZLR 173 (SC)…, KORSAH JA approved and applied the dictum in Lendalease Finance (Pty) Ltd v Corporacion de Mercadeo Agricola & Ors 1976 (4) SA 464 (A)…, where CORBETT JA said:

“According to our law, unlike certain other legal systems, ownership cannot pass by virtue of the contract of sale alone: there must, in addition, be at least a proper delivery to the purchaser of the contract goods…,. Whether delivery alone will suffice depends in general upon the intention of the parties…,.; and, in this connection, important considerations are;

(a) Whether the contract contains conditions affecting the passing of ownership…,.; and

(b) Whether the sale is for cash or credit.”

Again, section 17 of the Income Tax Act reads:

“17. Special provisions relating to hire-purchase or other agreements providing for postponement of passing of ownership of property

If any taxpayer has entered into any agreement with any other person in respect of any property the effect of which is that, in the case of movable property, the ownership shall pass, or, in the case of immovable property, transfer shall be effected from the taxpayer to that other person upon or after receipt by the taxpayer of the whole or a certain portion of the amount payable to the taxpayer under the agreement, the whole of that amount shall, for the purposes of this Act, be deemed to have accrued to the taxpayer on the date on which the agreement was entered into:”...,.

Rennie Grinaker Holdings (Pvt) Ltd v Sociedade Intercontinental de Compressors Hermeticos Sicom Ltda 1997 (1) ZLR 173 (SC) and Lendalease Finance (Pty) Ltd v Corporacion de Mercadeo Agricola & Ors 1976 (4) SA 464 (A) demonstrated, that, the reservation of ownership is a standard condition in contracts of sale governing international trade.

As was clearly pronounced in Commissioner for Inland Revenue v Conhage (Pty) Ltd (formerly Tycon (Pty) Ltd 1999 (4) SA 1149 (SCA)…,; 61 SATC 391 (SCA)…, the passing of ownership is not an essential element to a sale.

At the commencement of hearing, counsel for the appellant abandoned the appeal in respect of management fees.

Counsel for the appellant submitted, on the authority of Commissioner for Inland Revenue v Conhage (Pty) Ltd (formerly Tycon (Pty) Ltd 1999 (4) SA 1149 (SCA)…,; 61 SATC 391 (SCA)…, that, the onus was on the Commissioner to show, on a balance of probabilities, that the arrangements between the two related parties in question were not at arm's length.

I declined to follow the South African position in CRS (Pvt) Ltd v Zimbabwe Revenue Authority HH728-17…,.

For the reasons set out in that case, I remain of the view, that, the onus provisions of section 63 govern the interpretation of section 24 and the aligned provisions of section 98 of the Income Tax Act to the extent, that, the taxpayer challenges the tax liability attributed to it by the Commissioner.

In other words, I hold, that, the onus is on the taxpayer to show that the Commissioner was wrong in forming the opinion that the arrangements concluded between the taxpayer and a related party were not at arm's length rather than on the Commissioner to show that his opinion was correct.

This finding accords with the general thrust of our common law principle that he who alleges must prove.

In an appeal such as this one, it is the taxpayer who is challenging the correctness of the Commissioner's opinion by averring that it was wrong. It is not the Commissioner who has come to court for the confirmation of the correctness of his opinion.

The duty to establish the error in the opinion must surely lie on the party that impugns the correctness of such an opinion.

In the present matter, the party driving the challenge is the appellant and the onus must squarely fall on it.

That is the further reason why I hold, that, the onus is on the appellant to show that the opinion of the Commissioner that the arrangements between the appellant and the intermediary were not at arm's length.

This approach appears to be consonant with the sentiments of MORTON ACJ in Elite Wholesale (Rhodesia) (Pvt) Ltd v Commissioner of Taxes, Southern Rhodesia (1955) 20 SATC 33 (SR)…,.; 1955 (1) SA 350 (SR)…, where he said:

“In my view, the appellant has discharged the onus upon him, for, in the evidence before us, I find no feature connected with any of the transactions which would justify the exercise of the Commissioner's powers under section 28(1).”

Section 28(1) read:

“Whenever the Commissioner is satisfied that any transaction, or operation, has been entered into or carried out for the purpose of avoiding liability for the payment of any tax imposed by this Act, or reducing the amount of any such tax, any liability for any such tax and the amount thereof may be determined as if the transaction or operation had not been entered or carried out.”

In any event, what triggered the appeal in the present matter was that an amount was assessed to tax; which amount the appellant avers was not liable to tax because it was wrongly created.

While it is correct that this Court rehears the matter; the case remains an appeal lodged by the taxpayer challenging the process undertaken by the Commissioner in adjusting his tax liability.

The point missed in Commissioner for Inland Revenue v Conhage (Pty) Ltd (formerly Tycon (Pty) Ltd 1999 (4) SA 1149 (SCA)…,; 61 SATC 391 (SCA), so it seems to me, is that section 63 of the Income Tax Act, is engaged once the challenge relates, inter alia, to any amount not liable to the tax.

The onus therefore lies on the taxpayer to show, that, the Commissioner's opinion, or satisfaction, as the case may be, that the appellant infringed section 24 or section 98 of the Income Tax Act, was wrong.

In my view, the Commissioner does not bear the onus of establishing that his opinion was correct. All that is required of him is to set out, in the determination to the letter of objection, the basis for his opinion or satisfaction, and, as PONNAN JA indicated in Commissioner for the South African Revenue Services v Pretoria East Motors (Pty) Ltd [2014] 3 All SA 266 (SCA)…, this is derived from the averments made by the taxpayer during the investigation.

The Commissioner does not create any evidence, but bases his opinion or satisfaction on the information availed to him by the taxpayer.

The essential requirements envisaged by section 24 of the Income Tax Act are that:

1. Any person -

(a) Who carries on business in Zimbabwe, takes part, directly or indirectly, in the management, control or capital of a business of another person outside Zimbabwe; or

(b) Who carries on business outside Zimbabwe, takes part, directly or indirectly, in the management, control, or capital of a business of another in Zimbabwe; or

(c) Takes part, directly or indirectly, in the management, control, or capital of both a business operating in Zimbabwe by another person and a business operating outside Zimbabwe by another person; and

2. The business or financial conditions governing their interactions are, in the opinion of the Commissioner, inimical to those of two persons dealing with each other at arm's length;

3. Then, the Commissioner shall determine the taxable income of the person carrying on business in Zimbabwe by ignoring the conditions concluded by the parties and invoking the conditions which, in his opinion, would have been concluded by two parties acting at arm's length.

In accordance with the concluding words of section 24 of the Income Tax Act, these requirements are invoked against the person who carries on business in Zimbabwe.

The section was designed to deal effectively with business transactions between a taxpayer and another person that fail the arm's length test.

The transactions must fall within the ambit of the provisions of section 24 of the Income Tax Act before the Commissioner can determine the income tax liability of the taxpayer by ignoring the terms and conditions agreed to by the parties that are not at arm's length and supplanting them with the conditions the Commissioner believes would reasonably have been imposed between persons transacting with each other at arm's length.

In the language MORTON ACJ in Elite Wholesale (Rhodesia) (Pvt) Ltd v Commissioner of Taxes, Southern Rhodesia (1955) 20 SATC 33 (SR)…,.; 1955 (1) SA 350 (SR)…, the Commissioner takes the “sale into the taxpayer's accounts.”

It was common ground that the appellant was a person who carried on business in Zimbabwe in each of the four tax years in question.

It was also agreed that the intermediary carried on business outside Zimbabwe but it was in dispute whether or not it carried on business in Zimbabwe.

It was also agreed that the French holding company partook, directly or indirectly, in the management, control, and capital of both the appellant and the intermediary.

There was no evidence adduced to show that any of these three related parties participated, directly or indirectly, in the management, control, or capital of the conglomerate which manufactured and supplied the vehicles to the intermediary for the account of the appellant.

However, the Distribution Agreement permitted the conglomerate to participate in the management of the appellant.

The meaning of the phrase “business of another outside Zimbabwe” was the subject of considerable dispute between counsel.

Counsel for the appellant contended, that, the words referred to a business that was located outside Zimbabwe. He argued that the intermediary's business was located outside Zimbabwe and the appellant, who was located in Zimbabwe, therefore did not take part in the management, control, or capital of the intermediary.

Counsel for the respondent contended, that, the words equally applied to a business person located outside Zimbabwe but whose business was located either in Zimbabwe or outside Zimbabwe.

He contended, that, the intermediary operated a business in Zimbabwe that was managed by the appellant. He therefore argued that the relationship between the appellant and the intermediary fell into the ambit of this requirement.

The pleadings, the documentary exhibits, and the oral evidence of the appellant's Managing Director, which were not contradicted by any evidence led on behalf of the respondent, established that the appellant was not involved in the management, control, or capital of any business located in a foreign country.

It was not a shareholder in such a company nor did it manage or control, by itself or by proxy, any such company.

While it was a related company to the intermediary, it did not take part in the management, control, and capital of the intermediary.

The appellant did not participate in the management, control, or capital of the French holding company or the conglomerate.

The question of whether the appellant managed the bonded warehouse on behalf of the intermediary is determined by the answer to the question of who the importer of the consignment stock was.

The appellant maintained, that, it managed the bonded warehouse as the importer of the consignment stock, for its own account.

There was argument between counsel on whether the appellant was the importer of the consignment stock or not.

Counsel for the appellant relied on the bills of entry for the contention that the appellant was the importer while counsel for the respondent argued that it was the consignee.

The Chief Investigations Officer testified on the existence of three types of bills of entry in our law:

(i) The first was the Bill of Entry into Zimbabwe;

(ii) The second was the Bill of Entry into a bonded warehouse; and

(iii) The third was a Bill of Entry for removal from bond for consumption in or for export out of Zimbabwe.

His testimony was confirmed by the definition of both Bill of Entry and Entry in section 2 of the Customs and Excise Act.

A Bill of Entry is defined “as a prescribed form on which an entry is made.”

Entry is defined thus:

“'entry' in relation to clearance of goods for importation, warehousing, removal from a warehouse or exportation, means the presentation in accordance with this Act of a correctly completed and signed declaration on a bill of entry in writing, and, where direct trader input facilities exist, includes the recording of the required information on the Customs computer system, using procedures approved by the Commissioner, or using a computerised procedure approved by the Commissioner, together with such bills of lading, invoices, price lists and other documents showing the purchase value of the goods together with the freight, insurance and other charges on the goods required to be declared by any provision of this Act;”

In regards to import and importer, the Customs and Excise Act states that:

“'import' means to bring goods or cause goods to be brought into Zimbabwe;

'importer' in relation to goods, includes any owner of or other person possessed of or beneficially interested in any goods at any time before entry of the same has been made and the requirements of this Act fulfilled;”

In an almost analogous case of AT International Ltd v Zimra 2015 (2) ZLR 143 (H)…, by reference to the definition of 'import' 'importer' and 'entry' of section 2 of the Customs and Excise Act, I held that a foreign registered company was the importer of goods that had been purchased in South Africa and consigned to a local company in Zimbabwe.

In the present case, the intermediary met the definition of importer.

Whether the appellant was “any other person possessed of or beneficially interested in the goods at any time before their entry had been made and the requirements of the Act fulfilled” is a question of fact to be decided on the basis of the available evidence and the relevant provisions found in Part III of the Customs and Excise Act.

The appellant did not possess, but was, in terms of the Distribution Agreement and the Tripartite Agreement, beneficially interested in the goods before their entry into Zimbabwe.

These vehicles were coming to Zimbabwe in terms of the Distribution Agreement at the instance of the appellant and for the business of the appellant.

Accordingly, I agree with counsel for the appellant, that, the appellant was the importer.

As the importer, the appellant carried the obligation to warehouse the vehicles. It was in the business of selling vehicles. The appellant was contractually bound by the Distribution Agreement not only to purchase and sell a prescribed minimum number of vehicles but also to grow the business and enhance its market share.

These objectives could only be achieved, among other ways, by promoting and advertising the brand.

Both our common law and statutory law recognise the reservation of ownership.

In Rennie Grinaker Holdings (Pvt) Ltd v Sociedade Intercontinental de Compressors Hermeticos Sicom Ltda 1997 (1) ZLR 173 (SC)…, KORSAH JA approved and applied the dictum in Lendalease Finance (Pty) Ltd v Corporacion de Mercadeo Agricola & Ors 1976 (4) SA 464 (A)…, where CORBETT JA said:

“According to our law, unlike certain other legal systems, ownership cannot pass by virtue of the contract of sale alone: there must, in addition, be at least a proper delivery to the purchaser of the contract goods…,. Whether delivery alone will suffice depends in general upon the intention of the parties…,.; and, in this connection, important considerations are;

(a) Whether the contract contains conditions affecting the passing of ownership…,.; and

(b) Whether the sale is for cash or credit.”

Again, section 17 of the Income Tax Act reads:

“17. Special provisions relating to hire-purchase or other agreements providing for postponement of passing of ownership of property

If any taxpayer has entered into any agreement with any other person in respect of any property the effect of which is that, in the case of movable property, the ownership shall pass, or, in the case of immovable property, transfer shall be effected from the taxpayer to that other person upon or after receipt by the taxpayer of the whole or a certain portion of the amount payable to the taxpayer under the agreement, the whole of that amount shall, for the purposes of this Act, be deemed to have accrued to the taxpayer on the date on which the agreement was entered into:”

In any event, as was clearly pronounced in Commissioner for Inland Revenue v Conhage (Pty) Ltd (formerly Tycon (Pty) Ltd 1999 (4) SA 1149 (SCA)…,; 61 SATC 391 (SCA)…, the passing of ownership is not an essential element to a sale.

It does not seem to me, that, the reservation ownership is synonymous with the operation by the appellant in the management, control, or capital of the business carried on by the intermediary outside Zimbabwe.

I accordingly find that the appellant did not manage any business of the intermediary in Zimbabwe.

However, in my view, section 24(a)(i) of the Income Tax Act locates the business outside and not inside Zimbabwe.

I therefore agree with counsel for the appellant, that, the appellant did not participate, directly or indirectly, in the business of the intermediary outside Zimbabwe.

In regards to this requirement, the person who operated a business outside Zimbabwe was the intermediary. The person who operated a business in Zimbabwe was the appellant.

The financial statements of the appellant showed that it paid management fees to the intermediary in respect of administrative, stock control, and management in the sum of US$130,000 in 2009; US$140,000 in 2010; US$256,629 in 2011; US$140,000 in 2012.

The scope of such management fees was covered in the agreement of 2 March 2009.

The appellant failed to establish the activities conducted on its behalf by the intermediary. It strenuously asserted, in correspondence of 19 May 2013 and even in the objection of 25 July 2014, that it received bona fide management services from the intermediary.

However, on 14 November 2014, the appellant made a half-hearted concession that it had erroneously paid management fees to the intermediary.

At the commencement of hearing, counsel for the appellant abandoned the appeal in respect of management fees.

I do not find, on the facts, that, the intermediary participated in the management or control or capital of the appellant.

I find that when the intermediary received orders from the appellant, and placed them with the conglomerate, it was managing its own business under the directing mind of its Board of Directors. The appellant did not play any role in this process.

Accordingly, the provisions of sub-paragraph (ii) of paragraph (a) of section 24 of the Income Tax Act was not met.

The French holding company, and not the appellant or the intermediary, participated directly or indirectly in the management, control, or capital of the appellant who operated in Zimbabwe and the intermediary who operated outside Zimbabwe.

Accordingly, I also find, that, the provisions of that subparagraph were not met.

It is not necessary for me to consider the requirements of paragraph (b) of section 24 of the Income Tax Act as these are conjunctive with either of the sub-paragraphs in paragraph (a) of section 24 of the Income Tax Act.

I do it for the sake of completeness.

The persons identified as “any of the persons” mentioned in paragraph (a) to which paragraph (b) applies were the appellant and the intermediary.

In regards to the conditions that were made or imposed between the intermediary and the appellant, both counsel for the respondent, in paragraph 10.4 and 10.5, and counsel for the appellant, in paragraph 31 of their respective written heads, agreed that the business or financial conditions related to the reservation of ownership and its consequential costs of advertising and promotion, rent, clearing charges, and management fees.

These were exclusively met by the appellant.

Counsel for the respondent submitted, that, it was the duty of the intermediary, as owner and importer, to meet the warehouse, marketing, promotion, and advertising costs on the one hand, and the clearing costs, as required by the definition of importer in section 2 of the Customs and Excise Act, on the other.

His submission collapses in the face of my finding that the same definition of importer also covered the appellant.

It would appear to me, that, the legal duty to pay these charges and imposts fell on the appellant.

Counsel for the respondent further contended, in paragraph 10.1 of his written heads, that, there was no real need for interposing the intermediary in place of the parent company in the purchase of the motor vehicles.

It does not seem to me, that, it was within the power of the Commissioner to dictate to taxpayers who their contracting parties should be....,.

In addition, our law does not discourage middlemen from interposing for profit in any lawful commercial activity of their choice as did the intermediary.

In any event, the reasons stated by the appellant for interposing the intermediary, spelt out in its letter of 26 October 2007 in support of the value ruling, were not impeached.

Our Supreme Court, in Zimbabwe Revenue Authority v Murowa Diamonds (Pvt) Ltd 2009 (2) ZLR 213 (SC)…, requires courts to discard the literal textual construction in favour of the purposive contextual interpretation where the application of the former leads to an absurdity or repugnancy or inconsistency with the rest of the statute.