Below, please find issue 60 of ENSafrica's tax in brief, a snapshot of the latest tax developments in South Africa.

case law

  • The High Court of South Africa (Gauteng Division, Pretoria) | ABSA Bank Limited and Another v CSARS (2019/21825) (11 March 2021)
    • Absa Bank Ltd and its wholly owned subsidiary United Towers (Pty) Ltd (the "applicants") sought to have two decisions of the Commissioner for the South African Revenue Service ("SARS"), reviewed and set aside.
    • SARS had issued to each of the applicants notice in terms of section 80J of the Income Tax Act, 1962 ("ITA"), believing that the general anti-avoidance regime ("GAAR") provisions may apply to a transaction.
    • Each of the applicants addressed a request to SARS in terms of section 9 of the Tax Administration Act, 2011 (the "TAA"), requesting that the relevant section 80J notice be withdrawn on various grounds.
    • SARS failed to comply with such request and instead determined a tax liability for the applicants, per section 80J(3)(c) of the ITA (the "first decision").
    • SARS subsequently issued letters of assessment to each of the applicants in respect of a tax liability imposed on the applicants, in terms of section 80B in respect of the alleged arrangement (the "second decision").
    • The court considered, inter alia:
      • section 9 of the TAA.
      • section 105 of the TAA.
      • section 80J of the ITA
      • whether a refusal to withdraw a section 80J notice is reviewable, and if so, on what jurisprudential basis.
      • whether the Applicant was a party to an "impermissible arrangement" as contemplated by GAAR.
      • whether the applicant procured a "tax benefit" as contemplated by GAAR.
    • The court held that the decision to refuse to withdraw the section 80J notices and the issue of the letters of assessment is reviewable and accordingly, the decision was set aside.
    • Find a copy of this judgment here.
  • The High Court of South Africa (Gauteng Local Division, Johannesburg) | Nyhonyha and Others v Venter N.O and Others (35508/20)
    • The applicants sought to have the winding-up order placed on Regiments Capital (Pty) Ltd set aside on the basis that it is factually solvent. Reliance was based on Regiment concluding a restructuring or unbundling transaction with other applicants.
    • SARS, as a potential creditor, opposed the relief sought on the basis that it is still auditing the company and had as yet an undetermined liability. In addition, SARS intended to audit the unbundling transaction.
    • The court considered, inter alia:
      • section 354 of the Companies Act, 2008
      • whether Regiments Capital (Pty) Ltd was solvent and should be taken out of final winding up.
    • The court held that the winding up of Regiments is set aside and gave SARS 15 calendar days to issue its assessments and to preserve assets to pay SARS and other listed creditors.
    • Find a copy of this judgment here.
  • The Tax Court of South Africa, Gauteng I ABC Trust v CSARS IT 24918 (18 March 2021)
    • The appellant taxpayer, the ABC Trust, appealed the decision of SARS to disallow the taxpayer's objection against the additional assessments raised by SARS in respect of its 2014 to 2016 years of assessment, in terms of which SARS assessed the taxpayer for capital gains tax ("CGT"), understatement penalties and interest.
    • During the 2014 to 2016 years of assessment, the taxpayer, a vested beneficiary of various vesting trusts, became entitled to distributions pursuant to the various vesting trusts disposing of certain capital assets. The taxpayer, in turn, distributed to its beneficiaries the amounts vested in the taxpayer in the same year of assessment in which the vesting in the taxpayer and the taxpayer's entitlement thereto arose.
    • The taxpayer submitted that no capital gain arose in its hands as it did not receive or accrue the amounts in respect of the distributions made by the various vesting trusts to the taxpayer and that the taxpayer's beneficiaries received or accrued the relevant amounts in respect of the distributions.
    • Pursuant to additional assessments issued by SARS in respect of the taxpayer's 2014 to 2016 years of assessment, SARS assessed the taxpayer for CGT in respect of the distributions made by the various vesting trusts to the taxpayer.
    • The court considered, inter alia:
      • whether the disposal of the appeal only requires the application of law to the agreed facts with reference to sections 118(3) and 118(4) of the TAA.
      • the words "any amount" in section 25B of the ITA.
      • the determination of the liability for tax in respect of capital gains with reference to the Eighth Schedule to the Act and other applicable law in light of section 26B of the ITA.
      • whether paragraph 80(1) or 80(2) of the Eighth Schedule applied to the distributions made to the taxpayer by the various vesting trusts.
      • The interaction between section 7(1) and section 25B of the ITA.
      • Armstrong v Commissioner for Inland Revenue 1938 AD and Secretary for Inland Revenue v Rosen 1971 (1) SA 172 (A).
    • The court held that, based on the Rosen case which established that the "conduit principle" is of general application in our system of taxation, such principle is equally applicable to the capital gains at issue in the appeal. The court therefore upheld the taxpayer's appeal and accordingly set aside the additional assessments raised by SARS in respect of the taxpayer's 2014 to 2016 years of assessment.
    • Find a copy of this judgment here.

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