In addition, in recital , the tribunal assumed that the settlement agreement was the price paid for the possibility of obtaining additional revenue from the sale of coal at US$40 instead of US$25 per tonne, i.e. a return of more than 60% compared to what would have been received in the event of the sale of the coal to AMCI. Gamble J considered that the question to be asked by the General Court was twofold: is the payment of contractual damages, as incurred by the group in the settlement of the right to arbitration, classified as a burden within the meaning of Article 11(a) of the Law? If so, did such expenditure have the effect of generating revenue for the taxpayer? On that basis, Gamble J dismissed the taxable person`s appeal, which failed to comply with the obligation to prove that he was entitled to rely on the general deduction of input VAT relied on. It is interesting to ask whether the court reached a different conclusion than Kangra Coal itself, unlike Kangra Group. Given the closer link between the expenditure and the revenue generated, there may have been an argument for the taxable person in this case, but other difficulties could also be encountered in demonstrating that the expenditure was of a revenue nature, given that the transaction agreement probably allowed the taxable person to increase its revenue capacity by selling coal at a higher price to other third-party customers. Transaction agreements in which compensation is paid in the event of loss or damage suffered may also provide that payment is fully and definitively settled. However, such a clause is included in the agreement in order to facilitate the agreement. Payment for the settlement is made to compensate the claimant for loss or damage suffered and no part of the payment is paid in return for the claimant who waives his or her right to take legal action. In this scenario, no VAT is payable by the recipient of the compensation.
With respect to potential hardship for taxpayers, the treatment provided for in Section 23(o) is probably worse than the capitalization treatment, given that Section 23(o) prevents any deduction The key is of course exactly what is considered a fine or penalty for illegal activities falling within the scope of Section 23(o). Most laws create appropriate criminal offences and penalties to enforce compliance with their rules. Let us cite some examples: if the settlement agreement or arbitration award in favour of the claimant on the above statements is silent (see also the labour court decision in AL SHA Trading Pty Ltd v Neil Harrison, the CCMA and the High Court Sheriff, Germiston, J235/15, which confirms this position that surcharges in favour of claimants are subject to legitimate tax deductions), It is then accepted that the amount is a gross tax and that it is subject to legal tax deductions in the hands of the applicant….