Are CIPC annual fee calculations unlawful?
22 Sep 2016
On 5 September 2016 the Companies and Intellectual Property Commission (the CIPC) issued a media statement (the Media Statement) stating that over 15 listed companies have been under disclosing or not disclosing their proper annual turnover values and, consequently, have not been paying the correct annual return fees to the CIPC. This, according to the CIPC is an offence in terms of the Act and is punishable by a fine or imprisonment or both.
Section 33(1)(a) of the Companies Act, 2008 (the Act) requires all companies to file an annual return in the prescribed form along with the prescribed fee.
The fee referred to in section 33 of the Act is prescribed in Table CR 2B (Annexure A to the Regulations). In terms of this Annexure the fee for filing an annual return varies according to the company “turnover” and the time of the filing. This begs the question as to how the “turnover” of a company should be calculated for purposes of determining its filing fee. This question becomes particularly relevant when calculating the “turnover” of a “holding company” as a “holding company” normally does not trade and usually has little or no turnover.
It appears from the Media Statement that the CIPC is of the opinion that the annual return filing fee in respect of a “holding company” is calculated based on the gross consolidated turnover of that company and its subsidiaries. The CIPC is ostensibly relying on the Companies Regulations, 2011 (the Regulations) for this interpretation. This view is backed up by Practice Note 1 of 2016 (the Practice Note), published by the CIPC in May 2016.
Both the Practice Note and the Media Statement state that Regulation 164(4) sets out what constitutes turnover for a company and a holding company and the method required to calculate turnover for the purpose of determining the correct annual return fee to be paid to the CIPC.
Regulation 164(4) states that the annual turnover of a “holding company” is the consolidated gross revenue of that company and each of its subsidiaries from income in, into or from the Republic arising from transactions or events such as the sale of goods, as recorded on the company’s most recent annual financial statements.
It is however clear from the wording of Regulation 164 that the Regulation applies in a completely different context and does not apply to the calculation of turnover for purposes of determining a “holding company’s” annual return filing fee.
Regulation 164 refers particularly to Section 175 of the Act (“administrative fines”), which requires the calculation of the turnover of a company in a completely different context, which context cannot be ignored. The context of Section 175 is one in which the “holding company” has contravened a provision of the Act and a subsequent compliance notice and needs to be punished by way of a fine which must be calculated based on that company’s turnover. Section 175 of the Act, however, presents a significant problem in relation to “holding companies”, as a company may not be fined more than 10% of its turnover for the period of the contravention in terms of Section 175(1)(b), whilst “holding companies” normally have little or no turnover. This means that “holding companies” could technically not be fined in terms of Section 175 was it not for Regulation 164(4). It therefore makes sense, in that particular context, for the turnover of the subsidiaries of a “holding company” to be taken into account for purposes of calculating the fine payable by a “holding company” and therefore it makes sense that the Regulation 164 caters for this.
However, in the context of determining the annual return filing fee payable by a “holding company” it makes very little sense to take the turnover of its subsidiaries into account, as each of those subsidiaries have to submit their own annual returns and, accordingly, would each have to pay their own annual return filing fees based on their respective annual turnovers. Accordingly, if the “holding company” of those subsidiaries also have to pay an annual return filing fee based on the turnover values of its subsidiaries, this would constitute a duplication of payments by that particular group of companies. In fact, considering the sliding scale in terms of which the annual return filing fee is determined under table CR 2B, the annual return filing fee payable by a “holding company” goes beyond mere duplication of payments also made by its subsidiaries, but actually exceeds the payments made by the subsidiaries.
It is clear from the manner in which Regulation 164 was drafted (read with the other provisions of the Act and Regulations which deal with annual returns and filing fees), that Regulation 164 applies exclusively to the calculation of turnover for the purpose of calculating “administrative fines” in terms of Section 175 of the Act. This is clear in that the Regulation contains numerous cross-references to Section 175, whilst it contains no reference to Section 33 of the Act, nor to Table CR 2B or Regulation 30 in which filing fees are dealt with. Had the drafters contemplated that Regulation 164 should apply to the calculation of filing fees, including cross-references to Section 33 of the Act, Table CR 2B or Regulation 30 would have been the obvious and easy thing to do. Accordingly, there can be no reasonable inference, based on the wording of the relevant provisions of the Act and Regulations, that the provisions of Regulation 164 applies to the calculation of annual turnover for purposes of determining a “holding company’s” annual return filing fee.
Accordingly, a “holding company” should not be treated differently in relation to the determination of its annual return filing fee than any other company and in our view you are not entitled to base a “holding company’s” annual return filing fee on the consolidated turnover of that company’s subsidiaries. A “holding company’s” annual return filing fee should be based on its annual turnover only. In light of this, companies receiving notices from the CIPC should not blindly pay the alleged deficit but should obtain legal advice as to whether they are in fact required to pay.(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)