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
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
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
"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
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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