The Commissioner for the South African Revenue Service v Reunert Ltd

Reunert Ltd held 40% of the shares in Nokia Siemens Networks South Africa (Pty) Ltd (NSN-SA), which historically paid substantial dividends. After a change in business model by the Nokia Siemens Networks Group (NSN Group) threatened this dividend stream, the parties concluded a Sales Promoter Agreement (SPA) in November 2007. Under the SPA, Reunert was appointed as a sales promoter and entitled to commission calculated as a percentage of NSN’s Southern African turnover (clause 4.1), expressly subject to clause 4.9. Clause 4.9 required that any commission payable be reduced by the ‘grossed-up’ value of dividends received by Reunert from NSN-SA, effectively creating a dividend top-up mechanism. SARS issued additional income tax assessments for the 2008 and 2009 tax years, including the full gross commission in Reunert’s income, contending that the gross commission accrued to Reunert irrespective of the dividend deductions. Reunert disputed liability, arguing that it only ever became entitled to the net commission after deduction of dividends, and that no unconditional right to the gross commission ever accrued.

The appeal was dismissed with costs, including the costs of two counsel.

The case is significant for South African tax law as it clarifies the concept of ‘accrual’ for income tax purposes where contractual rights are contingent and subject to adjustment. It reinforces the Endumeni principles of contractual interpretation in tax disputes and confirms that income only accrues when a taxpayer acquires an unconditional right to it. The judgment also underscores that dividends and contractual remuneration are legally distinct and cannot be conflated for tax purposes.