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MTI liquidators in response to Sars’s R931m claim: We owe you nothing

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Days after the South African Revenue Service (Sars) asked the Cape High Court to appoint its own co-liquidator to oversee the winding up of Mirror Trading International (MTI), liquidators of the failed crypto scheme fired back with a missile of their own, telling Sars: We owe you nothing.

In a statement issued on Monday, MTI liquidators said after receiving a creditor claim of R931 million from Sars, they returned fire by submitting tax returns declaring zero tax liability.

“This is the first step by the liquidators to start the objection process against the claim submitted by Sars and excellent news to those who lost money after being scammed,” says the statement from the liquidators.

Close to a billion …

In July 2022, Sars lodged a R931 million claim against MTI at a meeting of creditors.

This amount was based on an assessment of income tax and penalties owing, with Sars claiming the liquidators – and prior to that, MTI management – did not file tax returns, as was their duty.

Explaining why MTI owes Sars nothing, the liquidators say bitcoin (BTC) deposited by several hundred thousand participants in the scheme was used as collateral for trading contracts for difference (CFDs), a type of derivative contract that tracks price movements in underlying assets, such as forex pairs. These CFD price movements are usually amplified with leverage.

Of the 1 846 BTC deposited on the FX Choice broker platform used by MTI between August 2019 and October 2020, about 566 were lost due to trading.

The 566 BTC loss was equivalent to R94 million at the time, a fact that was not considered by Sars in its assessment, but was included by the liquidators as a deduction in the MTI tax returns.

Under normal circumstances the liquidators could apply to the master of the high court to expunge a claim that was found to be invalid, but in this case the process is delineated in the Tax Administration Act.

“Where Sars has issued assessments based on estimates like they did in MTI, the liquidators must first submit their tax returns before the objection process can begin,” say the liquidators.

Read:
Sars claims R931m in tax and penalties from Mirror Trading International
MTI investors staring at a dwindling pot after latest court order
D-day for crypto assets has arrived, as FSCA targets scams

Expanding on the reason for the R0 tax liability to Sars, the liquidators say that when MTI imploded in December 2020: “It became clear that its underlying business model was designed and implemented to perpetrate theft and fraud by enticing the public to invest their bitcoin in an illegal Ponzi-type/pyramid investment scheme. Various other expenses and deductions were not considered by Sars, which the liquidators deducted. The result of the tax returns submitted by the liquidators is that MTI suffered an accumulated tax loss of R110 million over the applicable years of assessment.”

“The result is that MTI has no tax liability towards Sars.”

Another reason for the R0 tax liability submission is that many of the so-called winners – those investors who withdrew more BTC than they invested – have started paying back their winnings to the MTI estate, whether in cash or BTC.

This being the case, there may be income tax due for the 2020 and 2021 years of assessment.

The liquidators have already managed to recover 1 281 bitcoin from FX Choice in Belize and sell it on in SA for an average of R850 000 per bitcoin (it currently trades at R377 000). Just before and after the liquidation of MTI, the average BTC price was between R300 000 and R400 000.

“Therefore, one can expect that the bitcoin sale at a price above may still trigger a tax liability,” say the liquidators.

Read:

Since being placed in liquidation in December 2020, members’ claims of about R1.3 billion have been submitted against the insolvent estate.

These claims have not yet been admitted since the liquidators are awaiting the outcome of two pending applications in the Cape High Court, which will, among other things, determine how members’ claims are to be treated.

Where to claim

“Many more claims by investors waiting for the court proceedings’ outcome are expected to be lodged against the estate,” says the liquidators’ statement.

The liquidators, together with digital forensic investigators and auditors, created the MTI Administrative Report System (MARS) to help investors track down information about BTC transferred to MTI and subsequently withdrawn.

MARS can be accessed through the two designated websites of the liquidators, or an email can be sent to [email protected].

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