A recent article authored by senior officials at National Treasury and the South African Revenue Service ("SARS") records that tax advisors who service large business have mounted an unqualified offensive against the legislative introduction of annual tax amendments. The Fisc regards the perceived complaints of retrospective legislation and instability in our tax law as ironic as it is their view that the instability has been driven by the same tax consultants who often take tax planning too far, causing the Fisc to respond with anti-avoidance measures.
The Fisc argues that tax concessions introduced are invariably utilised by tax advisors to enjoy unanticipated benefits in structuring their clients' affairs. Tax advisors reply that they plan within the written word of the law.
The relationship between big business & their advisors, and SARS has historically been an uneasy one, and understandably so. Since the first day that the first coin passed from the taxpayer to the tax collector, this has been the case. Income tax law is an artificial law and not a universal law, like "Thou shall not kill" and our courts have recognised in a long line of decided cases that a business is completely within its rights to organise its affairs within the law to legally minimise its taxes.
One of the primary requirements of the tax system for business in South Africa is certainty. One of the principle weapons available to SARS in its anti-avoidance legislation is uncertainty and there seems to be an increasingly disturbing trend by SARS to accuse tax advisors outright of dishonesty and fraud. On 20 March 2008 a media statement was issued by National Treasury using emotional language on a level that I have not previously seen. It refers to "the parties...playing a game of audit lottery backed by a purchased legal opinion". This is an astounding accusation against the legal profession.
The statement dealt with a particular section of the corporate roll-over rules namely section 45, which provides for inter-group transactions. The media statement targeted what SARS believes are "masquerades", "commercial facades", "illegitimate transactions", "simulations", "wishful thinking by tax advisors in the pursuit of lucrative fees", "border-line evasive elements", "artificial steps cloaked behind BEE or other commercially legitimate transactions". It appears that such an emotional and acrimonious response refers to sham or dishonest finance schemes, which our courts refer to as "in fraudem legis". Or does it?
The media statement states that such "masquerades" are first and foremost a direct violation of the general anti-avoidance rules ("GAAR"). Why should SARS look to GAAR if the financing transaction is a sham transaction, as GAAR can only apply to genuine transactions? Our courts will simply strike down a sham without resorting to any anti-avoidance rules. So is the media statement referring to genuine legitimate transactions structured within the framework of the law? The simple answer is that we do not know.
The statement announces that anti-avoidance legislation will be introduced in the future and will be effective from the date of the media statement, being 20 March 2008. This is akin to warning tax payers that with effect from some unknown date in the future, the speed limits on the highways will change from 120 km per hour to some lower, still to be announced speed limit. When it is eventually introduced, say in 8 months time, you may find that travelling at the then legal 120 km per hour was in fact illegal.
Perhaps the Fisc has realised during the six months of silence that drafting retroactive tax avoidance provisions that will pass Constitutional muster is not as easy as threatening to do so. And perhaps a more realistic approach will be adopted. But, in the meantime, the uncertainty caused by such media statements goes without saying.
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