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South Africa forces billionaire emigrant to pay exit tax

Monday, 22 June, 2015

Shuttleworth Constitutional Court case

The South African Finance Ministry has succeeded in charging emigrant businessman Mark Shuttleworth ZAR250 million (EUR18 million) for moving funds out of the country.

Shuttleworth left South Africa for the Isle of Man in 2001, taking a small proportion of his substantial fortune with him. The rest remained in South Africa in a block loan account. Eight years later he attempted to move a further ZAR2.5 billion offshore, but in the meantime, the South African Finance Ministry had issued a circular imposing exchange controls on the removal from the country of sums exceeding ZAR750,000. Shuttleworth duly applied to the Reserve Bank to exchange the funds. The bank imposed a 10 per cent exit charge on the transfer.

Shuttleworth challenged this levy in court. He claimed that it – and indeed the entire exchange rate control regime – was improperly enacted. South Africa's constitution specifies that the National Assembly must follow certain procedures when enacting a money bill, and Shuttleworth argued that these had not been followed. The exchange control regime had merely been announced to the Assembly in a ministerial statement.

In October 2014, the South African Supreme Court found in his favour and rescinded the charge. It ordered the Reserve Bank to repay him the ZAR250 million plus interest.

However, the Finance Ministry then appealed the matter to South Africa's Constitutional Court. It claimed that the levy imposed on Shuttleworth was not really a tax, but a regulatory mechanism imposed to deter capital flight.

The appeal was heard in March, and the Constitutional Court has now given judgment. It overruled the Supreme Court and reinstated the exit tax – or regulatory fee as it is now considered in law. However, the court acknowledged that the regulations were 'archaic', and invited the government to amend them.

Sources