Guptas seek to shift billions
Timing raises new questions over treaty with Gulf tax haven
The Gupta family sought advice on how to move tens of billions of rands to the United Arab Emirates, revealing the enormous size of their empire.
The timing of the inquiries suggests they wanted to ensure they benefited from a new treaty between South Africa and the Middle Eastern tax haven without being heavily penalised by local authorities.
A former National Treasury chief director said there were "serious" questions over why South Africa had signed the treaty. He said official Treasury policy was not to have money shifted to low- or zero-tax havens.
The Guptas and President Jacob Zuma's son Duduzane stand to benefit greatly from the treaty as it means massive tax breaks if they move money from South Africa.
The treaty, which was signed in December 2015, became effective in March this year.
In the months leading up to the treaty becoming effective, the family approached several top law firms for advice on how to go about moving the money. This intensified after local bank accounts belonging to the family, their businesses and other associates were shut down.
Refusal by the firms, including ENSAfrica, Webber Wentzel and Hogan Lovells, to help saw the family approach UK and US law firms.
Sources with knowledge of the approaches told the Sunday Times the brief was on how an "anonymous but prominent South African family and their associates" could be assisted to move money from the country.
The global law firms were also approached for advice on how to counter former finance minister Pravin Gordhan's court case over why he should not assist them in having the banks reopen their accounts.
Gupta family lawyer Gert van der Merwe confirmed his clients had approached South African law firms for "commercial advice".
"I sat in on some meetings with ENSAfrica and Hogan Lovells. The advice, for example, was on possible commercial transactions. I'm involved in litigation and don't handle commercial matters."
He confirmed the Guptas also turned to UK and US law firms, "in particular for advice on the Gordhan matter".
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He said: "I would be surprised if they didn't go to international firms for other forms of assistance."
He said he believed the refusal by South Africa's law firms to assist the Guptas was based on commercial pressure on the firms by both shareholders and "other clients".
Both ENSAfrica and Webber Wentzel said they could not disclose who they acted for, or who they were approached to act for. Both firms confirmed that the Guptas and their companies were not their clients.
Hogan Lovells failed to respond to questions.
Although industry experts said the treaty went against international best practices and South Africa's obligations to global financial co-operation agreements, the Presidency insists it is of mutual benefit to both countries.
The treaty stops the South African Revenue Service from taxing high net worth individuals on their global incomes and assets should they become UAE residents simply by obtaining a three-year residency permit.
While it allows SARS to claim a one-off 18% exit tax on South Africans' local assets and income when they leave the country, SARS loses all taxing rights thereafter.
Tax experts said the global wealth of the Guptas and their associates - many of whom also live in South Africa - ran into tens of billions of rands. Last year's Sunday Times Rich List listed Atul Gupta as South Africa's seventh-wealthiest person, with a South African fortune of R7.6-billion.
The treaty has been labelled "unusual" by tax specialists due to tax benefits being obtained simply by acquiring a Dubai residency visa. Several of the Guptas are residents in the UAE. Duduzane Zuma, who owns a Dubai flat, obtained his three-year UAE residency permit in October 2015.
Leaked Gupta e-mails show Tony Gupta helped negotiate the purchase of a Dubai villa in July 2015, reportedly for the president. It is not possible to acquire property in Dubai without first obtaining a UAE residency permit.
Last month the Sunday Times reported on draft letters that Tony Gupta circulated to Sahara CEO Ashu Chawla and then Duduzane, which appeared drafted for Zuma's signature and which bear his name.
Zuma has denied he plans to leave South Africa.
His spokesman, Bongani Ngqulunga, said yesterday that the treaty with the UAE was signed in November 2015 by then finance minister Nhlanhla Nene, but needed to be ratified by both countries' parliaments before it became effective. "Negotiations on the agreement started in 2006," he said.
He said the main aim of bilateral agreements for the avoidance of double taxation and prevention of fiscal evasion was to promote investment and economic growth.
"There are more than 200 South African companies that operate in the UAE," he said.
However, a government tax specialist with intimate knowledge of the UAE treaty - but who is not authorised to speak to the media - said it went against international norms and standards. "It provides full tax benefits to Dubai residents even though Dubai is a tax haven. Anyone with a three-year residence permit is automatically a tax resident of Dubai under their laws.
"Even if such a person is also tax resident in South Africa, the treaty's tie-breaker test deems the person to be a Dubai resident if their 'centre of vital interests' [such as homes or families] is in Dubai. South Africa is then prevented by the treaty from taxing such a person on a global basis," the specialist said. "On the face of it, it looks normal but, coupled with Dubai laws, it gives unusual benefits."
Keith Engel, CEO of the South African Institute of Tax Professionals and a former Treasury chief director who helped set government policy on tax treaties, said there were "serious" questions over why South Africa had signed the treaty.
Official Treasury policy was not to have money shifted to low- or zero-tax havens.
"Government currently takes a tough stance against multinationals artificially shifting incomes. Yet we have gone and signed this treaty with Dubai," Engel said.