Telkom is taking its fight with the South African Revenue
Service to the Constitutional Court, following an adverse judgment handed down
in the Supreme Court of Appeal earlier in March.

Telkom will apply for leave to appeal the judgment, it said
in a statement on Tuesday.

The dispute dates back to 2012. According to court
documents, the telecommunications giant, in its financial statements, claimed a
loan deduction of R3.96 billion was a foreign exchange loss instead of
recording the realisation of the loan as a foreign exchange gain after selling Telecommunications
Ltd (Multi-Links), a company it acquired between 2007 and 2009.

This meant that what would have been reflected as a taxable
income of R3.12 billion, with a resultant tax liability of R875 million, was reflected
as a tax loss of R106 billion, the court papers added.

The loan in question had been given by Telkom to Multi-Links over a period of time to
help make the company financially viable.  

On 25 March, the SCA ruled that the R3.9 billion loss in
foreign exchange and a R136 million incentive bonus were not tax deductible,
meaning R875 million worth of tax liability raised by the commissioner will
stand, and Telkom would be liable for commissioner’s legal fees.  

In a note to shareholders on Tuesday, Telkom said: “Shareholders
are advised that the appeal against the Tax Court judgement received on the
dispute between Telkom and South African Revenue Services (SARS) relating to
the tax treatment of the loss that arose in the 2012 financial year on the sale
of a foreign subsidiary, was heard by the Supreme Court of Appeal on 4 March
2020.

“The judgement was handed down on 25 March 2020 against
Telkom. We intend to apply to the Constitutional Court for leave to appeal the
judgement.”

It added that it had provided for the
“implications” of the matter – but that it owed the revenue service
R1 billion.

“Shareholders are reminded Telkom fully provided for
the implications of the matter, as it relates to both the 2012 and 2014 years
of assessment, in prior financial years and therefore this will be earnings
neutral.

“However, the cash flow implications of the outstanding
liability of approximately R1 billion, which includes the implications of the
judgement on the 2014 financial year, will be informed by a payment arrangement
to be agreed with SARS.”

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