Effective place of business, board meetings and minutes
The residency of a company is a cardinal component in establishing its tax obligations in South Africa.
According to Shahid Sulaiman and Daniél Hofmeyr a juristic person is regarded as being resident in South Africa under the Income Tax Act 58 of 1962 (the Act) if such juristic person is:
- incorporated in South Africa; or
- has its place of effective management (the POEM) in South Africa.
The first element of incorporation in South Africa is quite logical and self-explanatory and it is clear unless a company has expatriated to a different country – even then there will be a paper trail. To determine the meaning of “effective management” there are case law and SARS has issued interpretation notes.
In Oceanic Trust Co. Ltd N.O. and the Commissioner for the South African Revenue Service, the High Court rejected the application for a declaratory order on the basis that the applicant was not able to provide SARS with sufficient evidence to prove its claim that key management decisions were made in Mauritius. The High Court accepted the reliance by the applicant on the test applied in the UK case, Smallwood, and amongst other tests that the POEM will ordinarily be the place where the most senior group of persons (such as the board of directors) makes its decisions, and where the actions to be taken by the entity as a whole are determined.
Thus, the place where the board meets is one of the determining factors of the POEM, depending on the role the board has in key management and taking key commercial decisions. The physical location of a board meeting may not be the place where key commercial decisions are in substance made, when considering the advances of technology and video conferencing tools used in business today. Considerations of who joined the conference and who was physically present should be factored in along with the location of such board meetings to determine the POEM of an entity.
Hence, when it comes to the minutes of the board meetings it is important to note where the board meeting is held regardless if members attend electronically as proof of the company’s view of the place where the meeting was held.
By: Ronelle Kleyn
Director, Chartered Secretary, Attorney, Urban Farmer and Mom