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* Not his real name. © 2014 C Divaris/The Electronic Publishing Corp CC

Postnet Suite 72 Private Bag X87 BRYANSTON 2021 Phone 011-234-2434 Fax 086-515-0955 [email protected]. To subscribe (free), e-mail ‘subscribe’ to [email protected]. By supplying your e-mail address, you agree to receive e-mail notifications of forthcoming seminars

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—An irreverent newsletter designed to keep you up to date—

s \uninstalled Office 2003 but 2007 still reinstalls every timef75

Senior security consultant: KeithE Kelly* Comrade General the rev Dr Prof Prince François ‘Papa Doc’ Duvalier-Leckett, spokesperson in the Office of Costa Divaris:

‘TSH Honour Roll: Mark Shuttleworth’ Not only did he take on City Hall and win but he addressed one of the greatest constitutional limitations of this country—access to the courts.

MONTHLY LISTING Latest Legislation & Legislative Material To Emerge Or To Be Found Since Issue # 138

This is a free publication devoted to unearthing what is going on in the SA tax field. If it isn’t here, it never happened. Unless otherwise indicated (‘§’), every document listed is cumulatively included in the Tax Shock, Horror Database, which is available

monthly, quarterly or even individually on DVD by post for R250 a month inclusive of VAT at 14%. This is perhaps the only newsletter in the world with its own stylebook (also free), by Costa Divaris & Duncan McAllister (2013 ed):

http://www.bspseminars.co.za/BspStylebook.pdf

GG 31241 22 July 2008: Tax treaty with the Federal Republic of Nigeria. For unknown reasons, not previously included in the Tax Shock, Horror Database.*

SARS backdated guide 19 July 2013: Guide for employers in respect of employees’ tax (2014 tax year) PAYE–GEN–01–G09 rev 10. This is currently on the SARS website, yet I have an eponymous publication on file in the TSHD dated 2 August 2013 & referenced as PAYE–GEN–01–G09 REV 10. Which is the official version, or are they identical?*

SARS updated guide 2014 (undated): A step-by-step guide to the employer reconciliation process EMP–GEN–02–G01 rev 3. Since this publication was first given a reference number, I have missed earlier revisions. Why does SARS not release all of its material in some sort of logical, transparent & reliable form? And why, Oh why, does it date not all of its documents?*

SARS updated guide 2014 (undated): A guide to managing your SARS employer account EMP–GEN–01–G03 rev 5.*

SARS updated guide 2014 (undated): Guide for completion & submission of employees tax certificates 2015 PAYE–AE–06–G08 rev 2.*

SARS updated guide 2014 (undated): Guide for creation of CSV for IRP 5 tax certificates 1999 to 2015 PAYE–AE–06–G05 rev 3.*

SARS updated guide 2014 (undated): Guide for validation rules applicable to reconciliation declarations 2015 PAYE–AE–06–G07 rev 1.*

SARS updated guide 2014 (undated): Guide for codes applicable to employees tax certificates 2015 PAYE–AE–06–G06 rev 3.*

On this stuff 2014 (undated): The evidence suggests that these publications emerged in October. Act 27 January 2014: Broad-Based Black Economic Empowerment Amendment Act 46 of

2013. I originally listed this as Act 55 of 2103. SARS updated guide 01 March 2014: Guide for employers in respect of allowances (2015 tax year) PAYE–GEN–

01–G03 rev 6. It comes with Motor vehicle rate per kilometre PAYE–GEN–01–G03–A01 rev 6 & Subsistence allowance—foreign travel PAYE–GEN–01–G03–A02 rev 6. This last is actually revision 7, but who’s counting? Despite their ostensible dates of publication, these & the related items that follow also seem to have appeared in October.*

SARS updated guide 01 March 2014: Guide for employers in respect of employees’ tax (2015 tax year) PAYE–GEN–01–G04 rev 12. *

KPMG 06 March 2014: The repeal of the place of effective management exemption in the definition of resident. An article, still on the KPMG website, based upon s 2(1)(w) of the Taxation Laws Amendment Act 22 of 2012. Unfortunately, as my latest Amendments to Amendments records, s 2(1)(w) was deleted ab initio by s 191(1)(a) of the Taxation Laws Amendment Act 31 of 2013, promulgated on 12 December 2013. A good illustration why amendments to amendments are a truly silly idea.§

Issue: 139 Tax Shock Horror Database items: 14 029— 3,56 GB Subscribers: 6 000 October 2014

mailto:[email protected]�


http://www.bspseminars.co.za/�

139 Tax Shock, Horror 2014—October—2


GN 426 GG 37692 29 May 2014: White Paper on national environmental management of the ocean: South Africa is a maritime nation with jurisdiction over one of the largest exclusive economic

zones in the world. Our ocean space is a resource rich and relatively pristine environment. The ocean represents a significant asset for current and future generations of South Africans. The use of various marine resources in our ocean space has increased over time and there remains significant potential for the unlocking of further economic development opportunities.…

SARS updated BRS August 2014: Business requirements specification: PAYE employer reconciliation SARS_PAYE_BRS –PAYE Employer Reconciliation_v13 1 0 0.doc. Illegally claimed to be ©.*

SARB release 02 September 2014: SARB investigation into African Bank. CHM directive 08 September 2014: Chief Master’s Directive 7 of 2014—inter vivos trusts—suffixes for

identification of offices of the Master of the High Court. High Court case 09 September 2014: CSARS v eTradex (Pty) Ltd and Others (12949/2013) [2014] ZAWCHC

142. A decision on an application for confirmation of a provisional preservation order under s 163(4) of the Tax Administration Act. See the Monthly Note book.*

GN 781 GG 37979 12 September 2014: Levy & interest payable on piped-gas industry, under s 2(7) of the Gas Regulator Levies Act.

Tax court case 29 September 2014: TC VAT 1015. A mine-sinking & underground mine-structure company, on the flaky ground of the legislature’s putative intention, unsuccessfully attempts to claim a deduction for ‘entertainment’ expenditure despite being disqualified by s 17(2)(a) of the Value-Added Tax Act. My bet is that it will appeal, & lose again.*

SARB speech 30 September 2014: SA monetary policy & the path to normalization. By Lesetja Kganyago (the next Guv).

Business Day 30 September 2014: Construction firms’ tax affairs worry SARS. And so they should.§ SARS brochure October 2014: Income tax return for trusts (ITR 12T). SCA case 01 October 2014: Investgold CC v Uys & another (686/2013) [2014] ZASCA 166. Dirk Uys

& his fiancé Mariesa Troskie, of Brooklyn SA, feature in this case as cheated buyers of gold coins. It is included here partly because Uys tried to avoid compliance with FICA & to conceal the transaction from SARS. Investgold soon thwarted those plans, although only to the extent of ensuring proper invoicing. Fate accomplished the rest, since an Investgold broker had clever plans of his own, for stealing most of the coins. Who owned them when they were stolen? See the Monthly Notebook.

SCA case 01 October 2014: Shuttleworth v South African Reserve Bank (864/2013) [2014] ZASCA 157. The SARB’s 10% levy on Mark Shuttleworth when he emigrated reversed, & the SARB made to repay R250 474 893,50 to him. Per Navsa ADP & Ponnan JA:

It is undisputed that regulation 10(1)(c) had not followed the procedure for taxation prescribed by s 9(4) of the Act [Currency and Exchanges Act]. Thus, even if the regulation can be construed as authorizing the raising of revenue, the problem is that it has not been approved in terms of s 9(4) of the Act. Section 9(4), it would seem, is animated by the ‘no taxation without representation principle’. A founding principle of Parliamentary democracy is that there should be no taxation without representation and that the executive branch of government should not itself be entitled to raise revenue but should rather be dependent on the taxing power of Parliament, which is democratically accountable to the country’s tax-paying citizenry.

Our Constitution is careful to ensure that the power of taxation is tightly controlled. Section 77(1) of the Constitution defines a ‘money bill’ as follows….

Section 73(2) states that only the Minister of Finance may introduce a money bill in the House of Assembly. According to sections 55(1)(b) and 68(1)(b) of the Constitution, the ordinary power of the National Assembly and the National Council of Provinces to initiate and prepare legislation does not extend to the initiation or preparation of money bills. And, s 73(3) prevents the introduction of money bills in the National Council of Provinces. All of these constitutional provisions thus render it unconstitutional for taxes or levies to be raised by delegated legislation which is not specifically authorized in a money bill enacted in accordance with the money bill provisions of the Constitution.

The levy raised revenue for the State. It brought ten per cent of the value of any capital in excess of R750 000 exported out of the country, into the National Revenue Fund. Whilst in force, it raised approximately R2,9 billion. The levy thus fell within the category of ‘taxes, levies or duties’ contemplated by sections 75 and 77 of the Constitution. The reference in regulation 10(1)(c) to the power of Treasury to impose conditions on the export of capital from the Republic cannot be construed to include the power to impose a tax or levy on such export of capital. It must follow that the imposition of the ten per cent levy was inconsistent with sections 75 and 77 of the Constitution and invalid and ultra vires regulation 10(1)(c).

It appears to be clear from the history of the matter, including the correspondence exchanged between the Reserve Bank and Shuttleworth that the former relied principally and enduringly on the speech delivered by the Minister in Parliament for the imposition of the ten per cent levy. The more recent reliance on regulation 10(1)(c) is, in our view, contrived and an ex post facto attempt to contextualize the levy within an enabling regulatory framework.

SARB release 01 October 2014: Shuttleworth judgment: The South African Reserve Bank (SARB) has noted the judgment by the Supreme Court of Appeal,

in which it dismissed Mr Mark Shuttleworth’s challenge of the entire South African exchange



control regulatory framework. The regulatory framework of exchange controls has been used to liberalize restrictions on currency flows, but at the same time to ensure that we have a framework for the prudential regulation of cross border flows. The Court further ordered that the levy charged for the movement of Mr Shuttleworth’s capital to the Isle of Man six years ago, be set aside. The levy was payable from February 2003 to November 2010. As part of the liberalization of exchange controls, the Finance Minister announced the removal of the exit levy applicable to the release of South African emigrants’ blocked assets in 2010. The SARB is reviewing the judgment and an appeal will be considered in consultation with the National Treasury.

BPR 180 01 October 2014: Improvements effected on land not owned by taxpayer. How weird. This is a Private Public Partnership under which the taxpayer constructs a building for a state department & then enjoys access to it so as to provide services under the PPP. But it holds no right of use or occupation of any land or building, as is required by the very opening words of s 12N(1), & so is turned down. Next time, read the law, man.*

SARS website 01 October 2014: Where SARS mobile units will be during October 2014.*§ SARS website 01 October 2014: Free SARS tax workshops during October to December 2014.*§ SARB speech 02 October 2014: At the dinner in honour of ambassadors & high commissioners to the

RSA. The Gov: In this complex milieu, South Africa’s economic performance is disappointing. Projected GDP

growth of 1,5 per cent this year will mark the fourth consecutive year of slowing growth. Global factors, in particular falling commodity prices and declining global liquidity, are contributing to our below par performance. Furthermore, lower demand for commodities from China and slow growth in Europe, our major trading partner, have affected our export performance. However, in the main, the reasons for our slow growth are domestic.

…. The second immediate constraint on the economy has been electricity supply. Electricity

production has been flat for almost six years. While energy efficiency has enabled many firms and households to continue operating with less electricity, many sectors of the economy have had to curb production. Affected sectors include construction, mineral beneficiation and manufacturing. While South Africa has successfully brought about 160 MW of renewable energy into the grid, this boost is too small to make a difference to the aggregate capacity. The National Treasury estimates that electricity shortages have cost the economy about half a percentage point of growth a year, with this figure possibly being higher in 2014.

GN 756 GG 38032 03 October 2014: Section 12I tax allowance programme. African Oxygen Ltd cracks it.*

GN 757 GG 38032 03 October 2014: Section 12I blah, blah. Bakhresa SA (Pty) Ltd cracks it.* GN 758 GG 38032 03 October 2014: Section 12I blah, blah. Mpact Polymers (Pty) Ltd cracks it.* GN 759 GG 38032 03 October 2014: Section 12I ditto. Mpact Brits Plastic Containers (Pty) Ltd.* GN 838 GG 38032 03 October 2014: Guidelines pertaining to rebate of the duty on various rebate

provisions in terms of Schedule 3, 4 & 5 to the Customs & Excise Act. It was always thus; governmental assistance means governmental control, lots & lots of it:

Note: Permits in relation to rebate provisions subject to a permit condition should be applied for and received before the goods concerned are shipped.

GN R 748 GG 38033 03 October 2014: Regulations regarding control of the export of fresh fruits. Under the Agricultural Product Standards Act. The good news is that it’s OK to load the old Fortuner with naartjies for that quick ride up to Namibia, on a mission to destroy dune ecology. Also to supply victuals to ships, aircraft & trains.

GN 850 GG 38058 03 October 2014: Draft consumer goods & services sector code of conduct. Imposed under s 120(2)(a) of the Consumer Protection Act. (For once, I cannot check the cross-reference. Thanks to the postal strike, my Jutastat has not been updated, & so will not work until I access some advice on how to gippo the date on a PC.) The code will apply to retailers, suppliers, wholesalers, distributors, manufacturers, producers, importers, intermediaries, logistic & supply chain agents in the ‘consumer goods & services industry’, all of which, naturally, have to register for this purpose. I see no exemption for spaza shops but might have missed it in these thirty-three pages of rompslomp. Is the administration of this country completely insane? And wouldn’t you just know it? The damn thing is also a tax, complete with joining fees, annual levies & special levies! But who am I to quibble when our economy is entrusted to the great & true Dr Red Rob, who knows for sure—whereas I will never understand—that the code will:

Generate growth in the Industry by increasing the level of certainty for all Participants. It’s just what the likes of Raymond Ackerman & Whitey Basson are ceaselessly

searching for—the holy grail of retail. Why don’t they hire Dr Rob? Please. Draft rules 03 October 2014: Third batch of draft customs control rules—chapters 21, 23 & 25–31.

Only 173 pages. It should be a doddle to respond by 14 November 2014.* SARB release 06 October 2014: Appointment of Mr Lesetja Kganyago as Governor of the SARB. As from

9 November 2014. Even though deputy governor Daniel Mminele has been mentioned by name in this newsletter more often than his fellow-deputy, I reckon they are both a credit to the



bank, & that both were equally qualified for the job. SARS form 06 October 2014: New income tax return for trust now available. This is ITR 12T. I

downloaded a sample form while the opportunity to do so remains open, that is, before SARS securitizes it. It is twenty-two pages long, & will soon be a museum exhibit, that is, once the ANC catches on to what some whities in SARS are trying to do. The last attempt to improve the trust return, which electrified SA’s tax crooks, was strangled in its cradle after just a year. After all, people didn’t join the struggle to have their trusts taxed.*

SARS website 06 October 2014: Completing the income tax return for trust (ITR 12T). A very busy, interactive page, which I do not like, since I cannot easily archive it, & I like to keep track of what SARS says, for later reference.*§

SARS website 06 October 2014: The last-mentioned page includes a link to the Request for correction page (RFC), which you should use with extreme caution, since, according to case & statute law, you correct your own mistake in a return by way of an objection.*

SARS website 06 October 2014: Employment tax incentive (ETI) refund process.* Moneyweb 06 October 2014: Mark Shuttleworth recoups (and gives away) his millions. By Tony

Beamish: Shuttleworth wants to ‘ensure this decision becomes of benefit to everyone’. He told Moneyweb:

‘I will commit the funds returned to me to today by the SCA to a trust run by veteran and retired constitutional scholars, judges and lawyers, that will selectively fund cases on behalf of those unable to do so themselves, where the counterparty is the state. The mandate of this trust will extend beyond South African borders, to address constitutional rights for African citizens at large, on the grounds that our future in South Africa is in every way part of that great continent.’

He had better first obtain advice on the constraints operating upon an SA trust ad pias causas—also known as an object trust.

CIPC release 07 October 2014: New ways of working impact on so-called runners. What a pity that SARS is unable so easily to rid itself of what the Companies & Intellectual Property Commission calls ‘rent-seekers’:

The CIPC has created a paperless environment in its back office to limit the opportunities for rent seeking and arrangements to process documents faster for a fee.

It seems that the ‘voluntary union’ involved is considering protest action. Only in SA! Runners operating in the fiscal sphere reportedly charge millions for their services.

SARS website 07 October 2014: Coming soon—changes to the dispute forms & process: Taxpayers, who haven’t submitted their forms, Notice of Objection (NOO) or Notice of Appeal

(NOA), by 5 December 2014, will need to manually transfer the information to the updated NOO or NOA, which will be available in December 2014.*

As long as all changes are lawful. SARB speech 08 October 2014: At the SA Tomorrow Investor Conference, New York. Daniel Mminele. Updated SARS summary 08 October 2014: Summary of all customs mutual administrative assistance

agreements.* SARS BRS clarification 10 October 2014: Clarification document for: IT 3(b), IT 3(c) & IT 3(e). Applicable to the

published BRS: SARS_external_BRS_2013_IT3s_v1.0.0 with the date of 20 September 2013. Your guess is as good as mine, but, mind, it’s claimed to be ©! Either there is a group of insiders who understand these shocking mockeries of the tenets of communication or else much room at SARS for psychiatric counselling.*

City Press 12 October 2014: Zuma wanted charges dropped because corruption is a Western thing. By Charl & Carien du Plessis:

One of the reasons President Jacob Zuma believed criminal charges against him relating to the arms deal should be dropped was because corruption is only a crime in a ‘Western paradigm’. And even if it was a crime, Zuma’s lawyers apparently argued, it was a crime where there are ‘no victims’. These startling insights into Zuma’s 2009 written representations to the National Prosecuting Authority (NPA) are contained in a detailed NPA analysis document, which City Press has obtained.§

Sunday Times 13 October 2014: SARS bugged Zuma. The following needs to be entered into the record, in case of later need:

Lackay confirmed the existence of the National Research Group, but denied it was involved in covert intelligence gathering. ‘SARS has been aware of numerous attempts to tarnish its reputation by, among others, alleging the existence of an illegal covert unit—the NRG’, said Lackay. ‘SARS has never had a covert intelligence unit and has never bugged any telephones. SARS does not have and never had the capability to intercept communications or to conduct illegal covert operations.’

As I see things, SARS has of late managed quite well by itself to tarnish its reputation.§ SARS website 13 October 2014: Modernized 3rd party data platform. IT 3(b), IT 3(c), IT 3(e)—a new

source code has been included: New source code 4238—Taxable Local Dividends [eg real estate investment trust (REIT)] has

been included.* SARB release 14 October 2014: Update for Investors in SuraPure Drinks, NaxaInvest & NaxaPhase.



The Registrar of Banks appointed employees of Ernst & Young (EY) as temporary inspectors to conduct an investigation into the business activities conducted by SuraPure Drinks (Pty) Limited and/or SuraPure Drinks CC and/or NaxaInvest and/or NaxaPhase and/or Cornelius van der Merwe and/or Liesel Oosthuizen and/or any related person/s or entity/ies (‘SuraPure’). The investigation concluded that these entities/persons contravened the Banks Act, 1990 (Act no 94 of 1990) as [a]mended, by conducting the business of a bank whilst not being registered as such. A directive to repay investors was issued by the Registrar to SuraPure and KPMG Services (Pty) Limited (‘KPMG) was subsequently appointed as repayment administrators. KPMG is currently compiling a list of investors of SuraPure and has set-up a dedicated telephone line through which investors can submit their details. SuraPure investors can contact 0800 000 806

SARB release 14 October 2014: Monetary policy committee dates. For 2015. SARS release 14 October 2014: 200 kg crystal meth seized at OR Tambo International. Furry SARS

officials, Angel & Bastian, made this bust, detecting the drugs concealed in prop shafts from Benin. One of them is pictured in the release, executing his duties, with the typical deadly serious, self-conscious mien of a dog at work.*

fin24 14 October 2014: SARS head vows action on Zuma bugging report. The new Commish: ‘I take full responsibility to ensure that the matter gets the prominence it deserves, and it is

given high priority.’ ‘I have instructed senior managers that…where possible transgressions have taken place, to provide me with a full report of events, and the facts must be provided to me by the end of this week’, he said.§

Draft response 16 October 2014: Draft response document from National Treasury & SARS, as presented to SCOF. In fact, additional information has been added. On the tax bills.*

Treasury release 16 October 2014: Revised draft Taxation Laws Amendment Bill, 2014, revised draft Tax Administration Laws Amendment Bill, 2014, & response document:

With regard to the tax treatment of retirement fund contributions, Government has agreed to delay the implementation of laws which was originally set for 1 March 2015. For now, the delay will be for a year to allow for further consultations at NEDLAC. But should there be no agreement at NEDLAC by end-June 2015, the implementation date may be moved to 1 March 2017. This comes after the labour constituency at NEDLAC requested that the implementation of these laws - enacted last year - be postponed until further consultations between Government and NEDLAC on social security reform.

The third back-down on this thorny topic. If the feared Nats couldn’t pull it off, how might the dysfunctional ANC?*

Draft bill 16 October 2014: Revised draft Taxation Laws Amendment Bill, 2014.* Draft regulations 16 October 2014: Revised draft regulations on para 12D(5)(b) of the Seventh Schedule

to the Income Tax Act. On the fund member category factor.* Draft regulations 16 October 2014: Revised draft regulations on para 12D(5)(a) of the Seventh Schedule

to the Income Tax Act. On information to be contained in contribution certificates.* Draft bill 16 October 2014: Revised draft Tax Administration Laws Amendment Bill, 2014. With

revised draft Memorandum on the Objects of the Tax Administration Laws Amendment Bill, 2014.*

Proc 70 GG 38088 17 October 2014: Appointment of additional members to the commission of inquiry into remuneration & conditions of service in the public service & public entities listed in schedules 3A & 3C of the Public Finance Management Act, 1999.

GN 791 GG 38089 17 October 2014: Regulations relating to the payment of levy & fees with regard to compulsory specifications: amendments. Under the National Regulator For Compulsory Specifications Act, a taxing statute in my book.

GN 798 GG 38088 17 October 2014: Policy on the appointment of insolvency practitioners. Further refinements to this racist, sexist, fascist, interventionist & surely unconstitutional policy. Under the Nats, the Chinese were treated as honourary whites. Under this supposed law, they are deemed to have moved up a notch.

GN 890 GG 38106 17 October 2014: Publication of explanatory summary of the Tax Administration Laws Amendment Bill, 2014.*

Updated SARS guide 17 October 2014: Guide on income tax & the individual (2013/14).* City Press 19 October 2014: South Africans must ‘wake up’—Zuma: If I am wrong, come and tell me which country did as we did. Once we were free we said our

major focus is to address the plight of the poor. In no country in the world have you seen government giving people houses free of charge because they are poor.

Yet another explanation for Nkandla? SARS website 20 October 2014: Schedule for e@syfile™ Employer help in SARS branches.*§ SCA case 21 October 2014: Porritt & another v The NDPP & others (978/13) [2014] ZASCA 168.

Messrs Porritt & Bennett have been contesting various charges, including under the Income Tax Act, since 2004. The ‘others’ included the Commissioner & the MOF. An unsuccessful attempt to have two advocates acting for the state removed from a criminal trial under s 106(1)(h) of the Criminal Procedure Act. Per Tshiqi JA (footnotes suppressed):



SARS has a statutory duty and obligation to enforce the tax laws of the country on behalf of the government for the benefit of the citizens of South Africa. In order to achieve that objective, it is required to ‘secure the efficient and effective and widest possible, enforcement’ of the various pieces of legislation concerned. To the extent that SARS has any direct interest in any prosecution, its interest is no more than that of the NPA. It is an interest enforced on behalf of and for the benefit of the public. There are sufficient structural guarantees in place in the South African justice system to ensure that an accused’s right to a fair trial is protected, irrespective of whether the prosecutor concerned is an employee of the NPA or an outside counsel funded by SARS, or any other entity. It follows that the mere fact that Coetzee was funded by SARS and linked to it through his previous role detailed above does not provide a basis to conclude that the appellants would not get a fair trial. As was said in Killian, unfairness does not flow axiomatically from a prosecutor’s having a dual role.*

ZAeconomist.com 21 October 2014: A blow for Mark Shuttleworth—but not for freedom: SA has ample experience of the unintended influence of exchange controls as well as the wealth

creating opportunities, with few social benefits, it can provide financially nimble and lawless types gaming the system. As we also know only too well, exchange controls encourage the export of dividend or allowance receiving children sent abroad. It also encourages the emigration of skilled high income and high tax paying individuals who would be frustrated by their inability to diversify their wealth from the risks associated with working and living in SA.

In the US, crazy tax laws keep US wealth offshore. Here, excon ensures the same end.§ Business Day 21 October 2014: SARS closes in on trusts’ exploitation of system. In a pig’s eye.§ MTBP statement 22 October 2014: 2014 Medium-term budget policy statement speech by the MOF. I

don’t buy a word of it. The ministry lacks the clout to deliver any positive outcome. MTBP statement 22 October 2014: As usual, I keep only selected chapters. Read on. MTBP statement 22 October 2014: Chapter 1—Sustaining investment & safeguarding the public finances.

The previous, aspirational spending target of 31% of GDP has gone down the toilet. Revenue is now unashamedly set at 30% on the three-year horizon, together with the hope that spending by then will be only 32,5%. Remember the ANC’s original 25% target?

MTBP statement 22 October 2014: Chapter 3—Fiscal policy. Whaddya know? The 3% budget deficit target remains fixed on the horizon—always three (3), unreachable years away.

MTBP statement 22 October 2014: Technical annexure. This is the real heart-stopper. There I was, fondly believing that national government debt stands at a comfortable 40% of GDP. That was in 2013/14, &, I see only now, only after set-off of the cash balances of the National Revenue Fund. An odd way to measure debt, but, no doubt, internationally impeccable. The actual debt grossed out at 45,9%. The comparable figure expected three years out is 49,8%. That’s national government only. What might the gross figure be, once provincial & municipal governments & SOEs are added? Interest payments are expected to hold at 10% of expenditure, but with poor ratings, rand depreciation &, perhaps, the ending of global ultra-low & even negative rates, can such a benign prediction stand?

MTBP errata 22 October 2014: Errata: Medium-term budget policy statement. Bill 22 October 2014: Taxation Laws Amendment Bill, 2014 [B 13—2014]. Only 64 pages.* Explanatory memo 22 October 2014: Explanatory Memorandum on the Taxation Laws Amendment Bill,

2012 [B 13—2014] [WP–’14]. Ninety-seven pages. Bill 22 October 2014: Rates & Monetary Amounts & Amendment of Revenue Laws Bill,

2014 [B 12–2014] * Bill 22 October 2014: Tax Administration Laws Amendment Bill, 2014 [B 14—2014]. Only

thirty-three pages. With Memorandum on the objects of the Tax Administration Laws Amendment Bill, 2014.*

Proc 72 GG 38126 24 October 2014: Commencement of the Broad-Based Black Economic Empowerment Amendment Act 46 of 2013. On this day. The granddaddy of taxing legislation.

GCIS release 24 October 2014: Ministry of Communications on decision of Western Cape High Court: The decision of the Western Cape High court today, the 24th of October 2014, on the matter

which was brought by the Democratic Alliance against the SABC and the Minister of Communications vindicated the position of the Minister to the effect that the Public Protector’s findings, remedial action and recommendations are not final and binding.

High Court case 24 October 2014: Democratic Alliance v South African Broadcasting Corporation Limited and Others (12497/2014) [2014] ZAWCHC 161. Per Schippers J:

For these reasons I have come to the conclusion that the findings of the Public Protector are not binding and enforceable. However, when an organ of state rejects those findings or the remedial action, that decision itself must not be irrational.§

GN 824 GG 38109 24 October 2014: Section 12I tax allowance programme. African Oxygen Ltd is OK.* GN 919 GG 38119 24 October 2014: Publication of explanatory summary of Auditing Profession

Amendment Bill. On candidate auditors. SARS website 24 October 2014: Excise modernization phase 3 roll-out: Phase 3 of Excise Modernization was done over the weekend of 31 October 2014. These

changes continue to build on the aim to provide clients with the tools to manage their accounts and returns independently.*



SARB release 27 October 2014: SARB/FSB review of authorized dealer foreign exchange trading operations:

The SARB and the FSB have taken note and consulted with regulators in a number of countries that have been investigating banking institutions over various improper practices. More recently, supervisory authorities in certain international jurisdictions have been conducting reviews focusing on foreign exchange trading operations to determine whether there is/has been any misconduct, collusion, sharing of confidential information and/or manipulation of foreign exchange benchmarks.

James Cross, former senior deputy governor, leads the task team. SARS website 27 October 2014: Where SARS mobile units will be during November 2014.*§ SARS website 27 October 2014: The 2015 employer interim reconciliation. Due by 31 October.* Updated SARS summary 27 October 2014: Summary of all treaties for the avoidance of double taxation.* Updated SARS summary 27 October 2014: Summary of all tax information exchange agreements.* Updated SARS summary 27 October 2014: Summary of all multilateral mutual administrative assistance

conventions/agreements.* Updated SARS summary 27 October 2014: Summary of all multilateral mutual administrative assistance

conventions/agreements.* SARS website 27 October 2014: SA FATCA intergovernmental agreement: This intergovernmental agreement (IGA) between the USA and the RSA has been signed on 9 June

2014 in Pretoria, and has been ratified in South Africa. However, it still needs to be published in the Government Gazette. *§

Updated SARS summary 27 October 2014: Summary of all value-added tax mutual assistance agreements.* SARS summary 27 October 2014: Summary of all treaties for customs one-stop border post

agreements.* SARB speech 28 October 2014: To the SA Chapter of ACI—the Financial Markets Association. Daniel

Mminele. SARS guide 28 October 2014: Dispute resolution guide: guide on the rules promulgated in terms of

s 103 of the Tax Administration Act. This is going to come as a surprise to many SARS officials. Rules? What rules? It is too large to comment upon off the cuff but I promise to be its most assiduous student in the land, as the occasion arises.*

SARB speech 29 October 2014: At the launch of the financial stability review. Lesetja Kganyago. Treasury release 30 October 2014: Joint statement by US Secretary of Treasury Jacob Lew & Finance

Minister Nhlanhla Nene: …. Secretary Lew welcomed Minister Nene’s mid-term budget policy statement and encouraged

further implementation of the priorities highlighted in the National Development Plan, such as investment in critical infrastructure, labour market reforms to support inclusive growth and job creation, and steps to strengthen governance of state-owned enterprises. They discussed measures needed to further deepen the bilateral trade and investment relationship, including the importance of a transparent, rules-based investment environment.

Treasury release 30 October 2014: R&I downgrades SA’s credit ratings, outlook stable. In response, the usual retreat to magical thinking, investing all hope in a meeting or, as in this instance, a piece of paper:

Government is of the view that the recently tabled Medium Term Budget Policy Statement (MTBPS) by the Minister of Finance comprehensively addresses the major concerns raised by investors in the current economic environment. The cost reduction and revenue supporting initiatives announced in the MTBPS are testament to Government’s commitment to making the bold decisions that are needed to keep South Africa on a sustainable fiscal path.

SARB speech 30 October 2014: Fourteen years of inflation targeting in SA & the challenge of a changing mandate. The (outgoing) Guv:

Has inflation targeting been a success in South Africa? It is hard to say in the absence of the counterfactual, but there are a number of indicators that suggest it has been a positive experience. One way of looking at it is to compare the pre- and post-inflation targeting period outcomes. While this approach gives us some indications, the causal relationships may be unclear, and the different periods were subject to different shocks which may distort the picture. Nevertheless, the data does show that inflation targeting has been consistent with an average inflation rate lower than in the previous decade, and accompanied by lower volatility and lower nominal and real interest rates. Similarly, growth outcomes have been more favourable, which undercuts the argument that is sometimes made that inflation targeting is inimical to growth.

…. Unfortunately, although the animosity towards inflation targeting has declined significantly,

almost 15 years after the implementation of the framework, and despite our communication initiatives, the views of some segments of society have not changed much. For example, following the 25 basis point increase in the repo rate in July, the Cosatu response was one of ‘bitter disappointment’, laying the blame for low growth at the door of ‘conservative monetary and fiscal policies’, despite a slightly negative real policy rate and a fiscal deficit of 4,5 per cent of GDP.

GN 827 GG 38128 31 October 2014: Proposed amendment of alternative dispute resolution regulations



under the Electronic Communications & Transactions Act. SARS guide 31 October 2014: Alternative dispute resolution: quick guide. By my lights, a pretty

useless effort. At least no trees were harmed during its production.* SARS guide 31 October 2014: Alternative dispute resolution: what to do if you dispute your

assessment.* * Found or to be found on the SARS website. Concurrently on the SARS ‘What’s new’ page. § Not included in Tax Shock, Horror Database.

LOST & FOUND TSH Database This month 91 items were added to the Tax Shock, Horror Database. Land subdivision Since 16 September 1998, the President has failed to proclaim the Subdivision of

Agricultural Land Act Repeal Act 64 of 1998. C&E consultants Since 1 January 2002, the CSARS has failed under s 99A of the Customs & Excise Act to

gazette requirements for the registration of consultants to principals. Missing High Court 12 June 2013: Meadowglen Homeowners Association and Others v City of Tshwane case report Metropolitan Municipality and Another (31565/2012) [2013] ZAGPPHC 157. Help!

MONTHLY NOTEBOOK

A pleasurable tax board that wasn’t What a pleasure to travel to the SARS Bloemfontein branch and interact with the charming, intelligent officials residing there!

The occasion also marked my very first exposure to a pukka, verifiable ‘senior SARS official’. How do I know? Because, having given advance warning that I was not to be trifled with on this score, I was shown an elaborate document designating senior SARS officials by way of the offices they hold. Exactly the approach that SARS long ago intimated as being the one it would adopt. So, then. why is the SARS head office dragging its feet in giving me, for publication, the official stance on how senior SARS officials are to be identified by due-process fanatics like me?

As for the matter at hand, everyone was so disappointed to discover, at the eleventh hour, that there would be no contest, I had to promise a return

match. But the reason the taxpayer had no choice but to concede was instructive.

My late partner, Dr Aubrey Silke, always used to say that full disclosure comprises giving SARS enough information to ask the right questions. The demise of assessors and computerization compel a different approach today, and my modern take of full disclosure is that it calls for accurate responses to the questions or demands made—and absolutely nothing else.

In this particular matter, the taxpayer failed accurately to copy information from its financial statements over to the corporate income tax return. Had the return called for submission of the AFS themselves, disclosure might have been perfected (although a discrepancy would have remained). But, without the AFS, the return was grossly misleading.

Data messages & SARS (1)—status For a long time, I have been promising myself some quality time with the Electronic Communications and Transactions Act. In order to understand it, you need to be aware of what it does and what it does not cover. I focus here more on data messages, as opposed to electronic transactions (s 4(1)).

General Put to one side altogether, for example, agreements for the alienation of immovable property, long-term leases, wills and bills of exchange. These are not covered by the act, while several provisions are excluded from application to the Wills Act, the Alienation of Land Act and the Bills of Exchange Act. (Section 4(3), (4).)

Accept the reality that the act does not override any statutory or common law applying to, recognizing or accommodating data messages (s 3)). In other words, it is entirely acceptable for, say, the Tax Administration Act to deal entirely independently with data messages. In fact, that act might go further, and expressly authorize, prohibit or regulate the use of data messages, and specify requirements for information to be posted or displayed in a specified

manner, or for information or a document to be transmitted by a specified method (s 4(5)).

Accept also the further reality that the act does not even stop you or me, acting altogether without the benefit of any statutory authority, from establishing our own requirements governing the manner in which we will accept data messages (s 4(2)(b)). In principle, therefore, the same courtesy is extended to SARS—but there is a catch, so read on.

Legal status Data messages are perfectly capable of enjoying legal force and effect (s 11(1)). Moreover, just as with an ordinary contract, information may be incorporated by reference in a data message (s 11(2)). The threshold to be achieved by incorporation by reference in a private communication is set, essentially, by (a) the conspicuousness of the reference, and (b) the accessibility of the information so incorporated (s 11(3)).

In case you are worried about the concept—actually, the courts call it a doctrine—of incorporation by reference, it is illustrated by the common-law rule that a will may not incorporate anything by reference but



must be complete in itself (Moses v Abinader 1951 (4) SA 537 (A); confirmed in Kohlberg v Burnett NO and Others 1986 (3) SA 12 (A)).

This definition might also help:

Incorporation by reference, as the name implies, occurs when one document supplements its terms by embodying the terms of another.… (Industrial

Development Corporation of SA (Pty) Ltd v Silver 2003 (1) SA 365 (SCA), per Scott JA.)

Apart from the four exceptions already mentioned, any requirement in law that a document or information be in writing is satisfied by a data message, as long as it is accessible in a manner usable for subsequent reference (s 12).

Data messages & SARS (2)—originals & copies Originals What an earth is an original of a data message? The Electronic Communications and Transactions Act doesn’t really say but what it does do is allow information contained in a data message to be regarded as being presented or retained in its original form for purposes of any law.

The simpler requirement is that the information concerned be capable of being displayed or produced to the person to whom it is to be presented (s 14(1)(b)). The more complex requirement is that the integrity of the information, from the time when it was first generated in its final form as a data message or otherwise, pass assessment (s 14(1)(a)).

This odd idea of integrity-assessment comprises a three-step consideration of the integrity of information, with integrity bearing its ordinary meaning (s 14(2)):

Has the information remained complete and unaltered? Added endorsements are allowed, as is a change arising in the normal course of communication, storage and display. (This sounds to me like an allowance for changes in metadata, but I could be wrong.)

How is its integrity, in the light of the purpose for which it was generated?

How is its integrity, having regard to all other relevant circumstances?

In other words, an integrous (I find it such a pleasure that this is a real word, otherwise I would have had to invent it) data message, capable of being displayed or otherwise presented, is deemed to be an original store of information.

Rules of evidence What about the rules of evidence applying in legal proceedings? Data messages are in principle admissible (s 15(1)(a)).

The next bit I do not understand well: if a data message does not represent evidence in its original form, it is nevertheless admissible, as long as it is the best evidence that the person adducing it could reasonably be expected to obtain (s 15(1)(b)).

I suppose that there is only one way to interpret s 15(1)—it applies when a data message fails its s 14 integrity-assessment.

In any event, data messages must be given due evidential weight (s 15(2)).

Next comes another assessment procedure—how to assess the evidential weight of a data message (s 15(3)):

How reliable was the manner in which it was generated, stored or communicated?

How reliable was the manner in which its integrity was maintained? (Oops! The draftsperson forgot to define integrity in the context of s 15.)

In what manner was its originator identified? What is the impact of any other relevant factor?

Business data messages Now come some highly significant rules applying to data messages made by a person in the ordinary course of business (s 15(4)). These apply as well to a copy or printout of or an extract from such data messages, all of which are required to be certified to be correct by an officer in the service of the person that made the messages.

At this stage, please concentrate, since you will need to know these rules when a SARS official tries to game the system while abusing the law in pursuit of selfish institutional or even personal aims:

If you personally made the message and you personally make it available, no certification is required. (That’s how I read it.)

But if, say, a company made the message and an employee, representative or agent (that’s how I read officer in the company’s service—referred to here as an employee) copies or prints it or makes an extract from it, that employee simply certifies the copy, printout or extract to be correct.

The employee would merely confirm formally that the copy, printout or extract is true, accurate or genuine. It would amount, I imagine, to the employee’s effectively attesting, for example, that the data message was accessed and then copied, printed or used as the source of an extract. No commissioner of oaths or notary public is involved. Now comes the interesting bit: On the mere production of the data message or certified copy, printout or extract in any civil, criminal, administrative or disciplinary proceedings under any law, the rules of a self-regulatory organization or any other law or the common law, it constitutes information admissible in evidence against any person and rebuttable proof of the facts contained in the record, copy, printout or extract.

When SARS asks you to certify copies Can SARS require you to certify copies of data messages it requires, for example, by way of a request for ‘relevant material’ under s 46 of the Tax Administration Act? I can find nothing in that act granting it such a power. Rather than responding by



telling it to get lost, or worse, you might prefer to ask it, on the basis of the principle of legality, to supply you with the authority for its request.

Under the Electronic Communications and Transactions Act, you, as an individual, are not required to certify copies of data messages, and your personal presentation of such messages would satisfy a court of law as admissible evidence. And, if a

company were to certify copies in the manner I have described, the copies would similarly satisfy a court.

Consequently, it would be outrageous if SARS were to go one step further and ask you or a company to produce copies certified by a commissioner of oaths. As it so often purports to do, it would be expecting from you a higher standard of proof than would be required by a court!

Data messages & SARS (3)—the more formal rules Retention Next in the Electronic Communications and Transactions Act come rules for satisfying the requirement of any law governing the retention of information. You may retain it in the form of a data message if (s 16(1)):

The information contained in the data message is accessible so as to be usable for subsequent reference.

The data message is in the format in which it was generated, sent or received, or in a format that can be demonstrated to represent accurately the information generated, sent or received.

The origin and destination of the data message and the date and time it was sent or received can be determined.

Information enabling the message to be sent or received is irrelevant under this head (s 16(2)).

What I find interesting about this requirement is its focus on the information contained in a data message. Say you are retaining copies of tax invoices, whether your own or those of your suppliers, and these are produced entirely electronically. The way I see it, there is no need to maintain the full format of the original document, inclusive, for example, of your corporate logo and sales message, as long as the informational content of the original message is preserved. After all, it would be insane to expect an electronic system to mimic exactly all the features of a physical system, otherwise we would go back to killing trees.

Producing a document or information This set of rules may be overridden by a ‘public body’ specifying its electronic requirements in the Government Gazette under s 28 (s 17(1)). The implication is that other rules set by the act may not be so overridden, despite the supposed freedom of parties to specify how they will accept data messages (s 4(2)(b)). On this basis, SARS, as a public body, is iron-bound by the rules mentioned so far.

So, subject to the Gazette rider, what do you do when a law requires you to produce a document or information? You are allowed to produce, by means of a data message, an electronic form of the document or information, as long as (s 17(1)):

Considering all the relevant circumstances at the time the data message was sent, the method of generating the electronic form of the document provided a reliable means of assuring the

maintenance of the integrity of the information contained in the document.

At the time the data message was sent, it was reasonable to expect that the information it contained would be readily accessible so as to be usable for subsequent reference.

Strangely, a different effective definition of integrity applies for this purpose (s 17(2)). The integrity of the information contained in a document is maintained if the information has remained complete and unaltered, except for the addition of an endorsement; or an immaterial change, arising in the normal course of communication, storage or display.

Notarization, acknowledgment & certification This is the part where a notary or commissioner of oaths will be involved.

How do you satisfy a law requiring a signature, statement or document to be notarized, acknowledged, verified or made under oath? The person authorized to perform such acts, that is the commissioner of oaths or notary, attaches, incorporates or logically associates his ‘advanced electronic signature’ with the electronic signature or data message (s 18(1)).

How do you satisfy a law requiring or permitting you to provide a certified copy of a document existing in electronic form? By providing a print-out certified to be a true reproduction of the document or information (s 18(2)). Clearly, much more is required than under the certification of a business data message by an employee, agent or representative (s 15(4)), since the language of the two provisions differs. A certified copy looks to me like one that has been carefully compared by a commissioner of oaths with its electronic original (137 TSH 2014).

And how do you satisfy a law requiring or permitting you to provide a certified copy of a document existing in a physical form? By providing an electronic copy certified to be a true copy of the document and a confirmation of the certification by the use of an advanced electronic signature (s 18(3)). Again, a commissioner of oaths is the certifier.

Multiple copies, language, seals When a law requires multiple copies of a document to be submitted to a single addressee at the same time, it is sufficient to send a single data message capable of being reproduced by the addressee (s 19(1)).

Nouns and verbs used in a law

must be interpreted so as to include or permit such



form, format or action in relation to a data message unless otherwise provided for in this Act.

Illustrative terms supplied in this context are ‘document’, ‘record’, ‘file, ‘submit, ‘lodge’, ‘deliver’, ‘issue’, ‘publish’, ‘write in’, ‘print’ and words or expressions of similar effect. (Section 19(2).)

How do you respond to a law requiring a seal to be affixed to a document without prescribing the method or form by which the document may be sealed by electronic means? All you do is indicate in the document that it is required to be under seal, and include the advanced electronic signature of the

person by whom it is required to be sealed (s 19(3)).

Registered or certified post Here’s something I have never noticed before but would nevertheless still not try. Say a law requires or permits you to send a document or information by registered or certified post or some similar service. In order to achieve the electronic equivalent, you are expected to send an electronic copy of the document or information to the Post Office, which then registers it and sends it to the electronic address you have provided (s 19(4)). Yes, and if wishes had wings, pigs would fly.

Data messages & SARS (4)—powers of public bodies What is a ‘public body’ (s 1)? It is, in the first place, any department of state or administration in national, provincial or municipal government. It is also any other functionary or institution when exercising a power or performing a duty under the Constitution or a provincial constitution or exercising a power or performing a function under legislation.

The definition is significant because public bodies enjoy important powers unders ss 27 and 28. Being powers rather than duties, these are granted (rather than being imposed), upon the discretionary basis that a particular public body may—and therefore may choose not to—exercise ether power or both of them. But, I say, and this is a critical point, if a public body wishes to act in a manner described in s 27, it is compelled to follow due process, as set out in s 28, which requires publication in the Government Gazette.

In their wet dreams, some SARS officials appear to take the word may, when it appears in legislation, as affording unlimited discretion upon officials acting under the particular statute concerned. In the present context, for example, that perverse and plainly wrong attitude would allow SARS to prescribe rules governing data messages while choosing, as it fancies, whether or not to publish in the Gazette.

What a public body may do Section 27 addresses the situation in which a public body, in acting under some law, accepts the filing of documents, requires documents to be created or retained, issues permits, licences or approvals or provides for a manner of payment. Then, regardless of the actual terms of the particular law, it may:

Accept the filing, creation or retention of documents in the form of data messages.

Issue permits, licences or approvals in the form of data messages.

Make or receive payment in electronic form or by electronic means.

What a public body must do Section 28(1) applies when a public body performs a function of accepting, requiring, accepting, making or receiving in a physical form as described in s 27 but wishes to allow electronic communications or transactions. Then, as I read the law, it must publish a

notice in the Government Gazette specifying its electronic requirements. These may comprise:

The manner and format in which the data messages must be filed, created, retained or issued.

The type of electronic signature required, if any. The manner and format in which an electronic

signature must be attached to, incorporated in or otherwise associated with a data message.

The identity of or criteria that must be met by any ‘authentication service provider’ used by the person filing the data message or that the authentication service provider must be a preferred authentication service provider.

The appropriate control processes and procedures to ensure adequate integrity, security and confidentiality of data messages or payments.

Any other requirements for data messages or payments.

For the moment, the Post Office is the only preferred authentication service provider (s 28(2)).

What is required for compulsory electronics? Can a public body, such as SARS, insist that communications or transactions engaged in with it by members of the public be in electronic form?

In my view, it cannot do anything of the sort under the Electronic Communications and Transactions Act, and may do so only if specifically authorized under a particular statute. I base this view on the following two provisions:

Interpretation 3. This Act must not be interpreted so as to exclude

any statutory law or the common law from being applied to, recognizing or accommodating electronic transactions, data messages or any other matter provided for in this Act.

Sphere of application 4. (1) …. (2) This Act must not be construed as—

(a) requiring any person to generate, communicate, produce, process, send, receive, record, retain, store or display any information, document or signature by or in electronic form….



My worst ADR that wasn’t This trip involved a 600 km journey, there and back, to Polokwane by car, with damaging exposure to the sun on the long, hot return journey. The run-up to the proceedings had been chaotic, but, finally, the date and time were fixed. Even so, I should have known that something was seriously wrong.

Imagine my bafflement when my party of three was led into a tiny, filthy office, with four chairs, one broken, piled high with boxes of stationery and equipment. To liberate one of the chairs, we had, with difficult, to shift the only desk in the room, damaging it (so add any cost to my next tax bill). We were lined up on one side of the tiny desk, while the seeming occupant of the office went about her business, some of which, it slowly became apparent, had to do with the imminent proceedings.

Was it to prepare all for the facilitator? But we hadn’t been asked whether we wanted a facilitator (I didn’t). Never mind, it was too late to make a fuss. Wait for the facilitator…but where would the SARS

officials sit? Then the telephone was laboriously moved to a

central position on the desk, and it slowly dawned on me that I had travelled all that way to participate in something I simply and absolutely cannot abide—a conference call! And, while we were talking, the office’s real occupant made repeated entries and exits.

Without any notice whatsoever, the shitface SARS official or facilitator had made three people travel from three different, distant points for the privilege of using a telephone in Polokwane to speak to him in Pretoria, which is twenty minutes from my home.

Worse was to follow, much worse. I was invited to open the proceedings, centring the taxpayer’s defence, as it were, on subsection (2) of a particular provision. On the other side of the line there was dumbfounded silence. SARS had prepared its case on subsection (1), and, to comprehend subsection (2), it would have to ‘speak to a lawyer’.

Data messages & SARS (5)—the tax acts have their say, or not Should you search, say, the Income Tax Act for any reference to electronic communications or transactions, you will come up empty-handed. What about the Value-Added Tax Act?

Section 2(2)(i) allows for electronic instructions to be given to a financial institution.

Section 28(1)(iii) allows for electronically registered vendors to submit and pay for returns electronically.

Altogether gone are the previous requirements about converting physical records to an electronic format.

The Tax Administration Act Today, the proper place to look for matters electronic is in the Tax Administration Act. What follow are specific references to such matters:

The definition of ‘document’ in s 1 allows for both physical and electronic forms of a document. The definition thus acknowledges the existence of the Electronic Communications and Transactions Act.

Section 23(e) envisages an electronic address used for communication with SARS. Again, the act is impliedly recognized here.

Section 30(1)(b) allows the Commissioner to prescribe an electronic form in which s 29 records, books of account and documents may be kept. But he may prescribe that form only in a ‘public notice’, that is, in the Government Gazette. If he makes no such prescription, he enjoys no say on the issue. Thus is the rule of the act governing public bodies honoured.

In the normal course, s 97(4) allows SARS to destroy the record of an assessment in an electronic format after a five-year period. (A dumb idea, if ever I heard one.)

Section 162(2) says that SARS may prescribe an electronic form of payment. This seems to afford it the power to insist upon electronic payment. (A crazy idea in a country such as ours.)

Section 237(b) caters for the abuse of someone else’s electronic or digital signature.

Section 251(d) and s 252(d) allow for delivery by SARS to a person’s last-known electronic address (e-mail address or fax number).

Section 255(1) allows the Commissioner to prescribe rules for the submission of returns in electronic format, for retaining records electronically, for electronic and digital signatures and for electronic record-retention by SARS. But, again, he has to do so by way of Gazette notice. And, again, the rule of the Electronic Communications and Transactions Act governing public bodies is thus honoured.

Section 255(2) allows SARS to accept an electronic or a digital signature, if a signature is required. This constitutes yet another recognition of the Electronic Communications and Transactions Act.

Section 255(3) goes to the authority of an electronic or a digital signature.

The two substantive electronic powers listed here, under ss 30(1) and 255(1), specifically honour the requirement of the Electronic Communications and Transactions Act for publication in the Gazette. And, very clearly, anything else electronic SARS might wish to do has similarly to be accomplished by way of a notice in the Government Gazette.

Hidden powers? Yet when you search not for the string “electronic’ but the string “record” you come across these hits:

Section 25(1)(a): returns must be submitted in the



prescribed form and manner. Section 26(2): third-party returns must be

submitted in the prescribed form and manner. Section 27(2): other returns must be submitted in

the prescribed form and manner.

These instances remind me of a similar, often equally bothersome power, in Chapter 9, on dispute resolution, where s 103(3) states that:

(3) The Commissioner may prescribe the form of a document required to be completed and delivered under the ‘rules’.

May these and similar provisions be interpreted as giving SARS unlimited powers to prescribe the

compulsory use of electronic returns? Two things makes any such approach problematical:

First, the Tax Administration Act suffers from a glaring failure to define how anything is meant to be prescribed.

Secondly, I reckon that these briefly sketched powers are insufficient to overcome the weight and force of the Electronic Communications and Transactions Act.

In my view, then, without publication in the Gazette of detailed electronic requirements for the submission of returns and dispute-resolution forms, such as ADR and NO forms, any such approach would be unconstitutional.

Data messages & SARS (6)—the Gazette notices In order to understand the interaction of the Electronic Communications and Transactions Act and the ‘tax Acts’, it thus becomes critical to examine just what is to be found in relevant Gazette notices.

According to me, the following Gazette notices are clearly eligible to be considered as being currently of force under the Tax Administration Act, many earlier versions having been rendered obsolete by the advent of the act and the huge amendments it effected to the other ‘tax Acts’. Not all of them deal specifically with electronic issues but all have to do with returns and payments:

GN 787 GG 35733 of 1 October 2012—electronic form of record-keeping in terms of s 30(1)(b) of the Tax Administration Act. The Commissioner has here acted in the manner specifically required of him under s 30(1)(b).

GN 260 GG 36346 of 5 April 2013—returns of information to be submitted by third parties in terms of s 26 of the Tax Administration Act. Here the Commissioner purports to insist upon electronic communication. Because he enjoys the power under s 26(2) and has properly exercised it by notice in the Gazette, I reckon that his third-party demands are lawful, even if the initiative itself is doomed to ignominious failure.

GN 420 GG 36565 of 14 June 2013— returns of information to be submitted by third parties in terms of s 26 of the Tax Administration Act. Ditto.

GN 764 GG 36921 of 21 October 2013—method of payment prescribed in terms of s 162(2) of the Tax Administration Act for taxes assessed in terms of the Income Tax Act, payments of value-added tax in terms of the Value-Added tax Act and payments of employees’ tax in terms of Schedule 4 of the Income Tax Act. Affects payments by cheque only. Because the Commissioner enjoys the power under s 162(2) and has properly exercised it by notice in the Gazette, I reckon that these demands, too, are lawful. Replaced; read on.

GN 415 GG 37690 of 30 May 2014—method of payment of tax prescribed in terms of s 162(2) of the Tax Administration Act. Replaces GN 764 on payments by cheque. Equally lawful.

GN 508 GG 37778 of 27 June 2014—duty to keep the records, books of account or documents in terms of s 29 and in the form in terms of s 30 of the Tax Administration Act. Applies only to reporting financial institutions under the US FATCA initiative. For the same reasons, equally lawful.

GN 509 GG 37778 of 27 June 2014—returns to be submitted by third parties in terms of s 26 of the Tax Administration Act. Also to do with FATCA and equally lawful.

GN 550 GG 37819 of 11 July 2013—dispute-resolution ‘rules’. Contains much concerning electronic communication but fails in my opinion properly to authorize SARS’s insistence that electronic forms be used in some circumstances, to the exclusion of physical forms.

GN 644 GG 37940 of 25 August 2014—rules for electronic communication prescribed under s 255(1) of the Tax Administration Act. Again, the Commissioner has here acted in the manner specifically required of him under s 255(1).

By chance, I also had a look at GN 506 GG 37767 of 25 June 2014, the notice under s 66(1) of the Income Tax Act to furnish annual returns for the 2014 year of assessment. This purports to compel companies to submit returns electronically via the SARS eFiling platform.

The additional authority for the notice cited is s 25 of the Tax Administration Act, which enables SARS to prescribe the form and manner by which returns are to be submitted, but this does not suffice to enable SARS to specify compulsory electronic requirements.

Even s 255(1)(a), authorizing the Commissioner to stipulate by public notice procedures for the submission of returns in electronic format, does not authorize him to debar companies from submitting physical returns.

This is a critical point, since some electronic returns, I believe, are designed in such a way as to prevent taxpayers from enjoying their full rights under the law, for example, by claiming deductions against foreign dividend income.

In my view, SARS is here acting unlawfully, and must rectify its actions by publishing the requisite notice.



From the case law: ownership in a cash sale Are payment and physical delivery sufficient to transfer ownership and make a sale complete?

This was the issue considered by Bosielo JA in Investgold CC v Uys & another (686/2013) [2014] ZASCA 166 (1 October 2014) (see the Monthly Listing).

Since patrimonial events of this type are associated with chargeable events under our tax laws, they are of intense interest. And if you believe you mastered this particular conundrum while still an undergraduate student, how is it that it landed up before the SCA?

What makes the following (extensive) extract from the judgment (footnotes suppressed) even more relevant to the concerns of this newsletter is the (small) role played by the concept of an employer’s vicarious liability:

A contract of purchase and sale, emptio vendito is described as a contract whereby one person promises to deliver a thing to another and the latter in return promises to pay a price therefor. The obligation of the seller is to give the purchaser undisturbed possession (vacua possessio) of the merx coupled with a guarantee against eviction to the purchaser.

In a cash sale where payment has taken place, ownership will be transferred on delivery. It is trite that the intention to transfer and receive ownership (animus transferandi dominii and animus accipiendi dominii) is proved in various ways and can be inferred from the circumstances. In this regard, Watermeyer JA stated: Ownership of movable property does not in our law

pass by the making of a contract. It passes when delivery of possession is given accompanied by an intention on the part of the transferor to transfer ownership and on the part of the transferee to receive it. If it is delivered in pursuance of a contract of sale, the ownership may pass at the time of delivery or it may not.

In Cornelissen NO v Universal Caravan Sales (Pty) Ltd, the majority held that: The words ‘sold and delivered’ do not necessarily

connote that ownership in the goods has passed to the purchaser, for it is trite law that mere physical delivery of property, unaccompanied by an intention to transfer ownership, does not give the recipient dominium.

It is axiomatic that the vexed legal question whether there has been delivery accompanied by an intention to pass dominium depends upon the intention of the parties and the facts of each case.

This question resolves itself into two issues. The first is to determine who to look to as being in a position to form an intention to transfer ownership on behalf of Investgold. The second is to determine the intention of Investgold at the time. As mentioned, the court below held that the brokers were the guiding minds of Investgold. I do not agree. The sole role of the brokers at the time the coins were delivered was to counter-sign the delivery notes once Uys and the brokers had established that the correct coins had been delivered. Beyond that, the brokers played no part in the delivery of the coins. The guiding mind of Investgold was that

of the general manager Erasmus in setting up the system to be implemented for cash sales and deliveries in particular. This system was set up so as to pass ownership. The evidence shows conclusively that the coins were delivered to Uys by Davids on 26 January 2011 with the intention to pass ownership. Uys in turn accepted ownership of the coins with the intention of becoming the owner.

As regards the second question, it seems to me that the intention of Investgold was that transfer of ownership would take place when the system for delivery had been implemented and completed. This system was set up in order to ensure that delivery took place in accordance with an accepted quotation (order) and that documentary proof of this delivery was obtained. It is therefore my view that, in the present matter, because effect was given to the system for delivery and the process was followed to completion, the intention to pass ownership was proved. In any event, if the ‘guiding mind’ must be determined at the time of a particular delivery, it could not have been those of Hugo or Jardine but that of Davids whose job was to select coins in accordance with the order, deliver them to Uys and ensure that delivery was documented by way of his signature and those of the broker or brokers who had been responsible for the sale.

Even if it can be argued that the mind of Hugo must be looked to, it is inconceivable that, knowing as he did that he could not steal coins in the possession of Investgold, he held a mental reservation concerning transfer of ownership when delivery took place for the sole reason that he wanted to steal from Investgold rather than from Uys and Troskie. He was intent on stealing the coins at some future date. The only persons he could successfully persuade to adopt his scheme were Uys and Troskie. No inference can be drawn that he did not intend them to become owners because he did not want to steal from them.

It follows that the court below erred in finding that ownership of the coins had not passed to Uys and Troskie. It further erred in finding that, despite physical delivery having been effected, the coins were at all times under the control of Hugo. If this were in fact so, Hugo would not have needed to ask Uys whether he wished to deposit the coins for safekeeping. He may have thought, with justification that Uys was under his influence to place the coins where he could steal them but he was not in control of the coins. Investgold accordingly discharged the onus to prove the transfer of ownership of the coins to Uys and Troskie. In doing so Investgold discharged its obligations under the cash sales. As such, the claim for specific performance ought to have failed.

Uys and Troskie relied on two alternative claims. The first one was based on the fact that after becoming aware that Hugo and Jardine had ordered the coins in their names, Investgold intentionally or negligently omitted to advise them of this fact which resulted in them failing to take steps to protect their interests, and allowing Hugo to steal their coins. The second one is



based on an alleged misrepresentation by Hugo and Jardine which led to Uys storing his coins at Knox Vaults after they led him to believe that they would be safe whereas they were not safe as Hugo subsequently stole them from the safe. The learned judge did not deal with the two alternative claims. Save to state that they persisted with the two alternative claims, counsel

for Uys and Troskie did not make any submissions in support of the two claims. As regards the first of these, the law recognizes no such legal duty. As regards the second, the theft by Hugo has nothing to do with carrying out his employment with Investgold. No vicarious liability for his actions thus arises. It suffices to state that the two alternative claims have no merit.

Arguably the dumbest tax board of all time To complete the current trilogy of disputes, here is a matter that was actually heard—if, in the context, that is the correct term. The scene is set at Megawatt Park. I knew from the get-go that chaos would prevail, having to open by voluntarily conceding three, procedurally fatal, deficiencies in due process, simply to keep the show on the road. One of these was the absence of any ‘senior SARS official’, despite the best efforts of the official present to persuade me otherwise, especially with his conspicuously up-and-front SARS ID badge (quite neat, actually).

There was to be a further breach, which I refused to brook, under which SARS attempted to introduce the evidence of a witness as part of its closing argument.

SARS accepted that the taxpayer was a sole trader or independent contractor, and that he received no travelling allowance. Yet it purported to apply not a section of the Income Tax Act to the taxpayer but an interpretation note!

This was Interpretation Note 14 (Issue 3) on

Allowances, advances and reimbursement, which is based on s 8(1) of the Income Tax Act. To my astonishment, SARS repeatedly read from the interpretation note, as if citing a statute.

In vain did I protest that the string “interpretation note” appears nowhere in our sixteen tax Acts, and that the title of the note in question, ‘Allowances, advances and reimbursements’ alone was sufficient to rule out its application to a matter from which it was admitted that allowances, advances and reimbursements were entirely excluded.

The gravamen of the SARS argument was that, like some sacred text, the interpretation note might be mined for universal truths, its heading and stated statutory application notwithstanding. Consequently, the paragraph it contains referring to logbooks was of universal application, even to the matter under dispute, a claim for the deduction of travelling expenses under s 11(a)!

Gobsmackingly, the chairperson agreed.

Data messages & SARS (7)—record-keeping, originals & copies The requirement of s 30(1)(a) of the Tax Administration Act and thus the requirement of each and every other ‘tax Act’ is that records be kept, in an orderly fashion and in a safe place, in their original form.

The way I read this requirement, you are obliged to keep original physical documents, even if your IT systems require you to convert all physical documents into electronic records, and even if all your counterparties supply you with both physical and electronic records. Even more obvious would be the need to keep originals when you are in the process of converting to an entirely electronic form of engaging with your counterparties.

Your proper course, should you want to do away with the physical documents, is to ask the permission of a senior SARS official—provided that SARS is by that time able to tell you who amongst its staff enjoys that status—to jettison the physical versions in favour of electronic renditions under s 30(1)(c) read with s 30(2).

Under s 234(e), it is potentially a criminal offence not to adhere to the rules governing the retention of records as required under this Act. Just what that phrase means is open to interpretation, especially when s 15(1)(b) of the Electronic Communications and Transactions Act provides that, if a data message does not represent evidence in its original form, it is nevertheless admissible as evidence before a court of law, as long as it is the best evidence that the person adducing it could reasonably be expected to obtain.

I reckon that, especially in an electronic age, a court is not going to be fussed by your conversion of physical documents to an electronic form, and especially not if you undertake the task in a professionally competent manner.

Does GN 787 GG 35733 of 1 October 2012 include anything on this topic? Indeed it does, in fact, seemingly overriding the need to consult a perhaps unreachable senior SARS official.

It applies solely to the duty to keep records imposed by s 29(1):

Duty to keep records 29. (1) A person must keep the records, books of

account or documents that— (a) enable the person to observe the requirements of a

tax Act; (b) are specifically required under a tax Act or by the

Commissioner by public notice; and (c) enable SARS to be satisfied that the person has

observed these requirements.

Here is how rule 1.1 of the Schedule to GN 787 defines ‘electronic records’ (talk about mixing up definitional and substantive provisions!):

‘[E]lectronic records’ means ‘records’ that are kept or stored in electronic form on a computer or on another electronic storage device and are either originally created in an electronic form or are converted from any non-electronic form into an electronic form; and



Electronic records are required to be kept in an ‘acceptable electronic form’:

3.2. An ‘acceptable electronic form’ is a form in which— (a) the integrity of the electronic record satisfies the

standard contained in section 14 of the Electronic Communications and Transactions Act;

(b) the person required to keep 'records' are able to, within a reasonable period when required by SARS—

(i) provide SARS with an electronic copy of the ‘records’ in a format that SARS is able to readily access, read and correctly analyse;

(ii) send the ‘records’ to SARS in an electronic form that is readily accessible by SARS; or

(iii) provide SARS with a paper copy of the ‘records’; and

(c) the ‘records’ kept in an electronic form may be accessed by SARS for the purpose of performing a function referred to in section 3 of the Act.

From the case law: ex parte preservation orders (SARS stitch-up) What follows is an extract from the judgment of Rogers J in CSARS v eTradex (Pty) Ltd and Others (12949/2013) [2014] ZAWCHC 142, given under the Tax Administration Act (see the Monthly Listing). It reins in the harsh behaviour of SARS:

Before concluding, I make the following observations. Firstly, although s 163 permits SARS to bring a provisional preservation application ex parte, it would be contrary to basic principles of fairness and constitutional values to read the section as providing that the application may be brought ex parte in the absence of circumstances justifying a departure from ordinary procedure (cf Knox D’Arcy supra at 379F–I). Where the application is brought on grounds which would sustain a conventional anti-dissipation order at common law, an ex parte order may often be warranted (though not necessarily in the case, for example, the taxpayer whose only material assets comprise immovable property). In other circumstances, there might be little or no reason justifying an absence of notice to the taxpayer.

Second, even where ex parte proceedings are warranted, it by no means follows that the provisional order should contain all the terms which SARS wishes to form part of the final order. For example, although s 163 permits a provisional order to incorporate the appointment of a curator bonis, it will often be the case that such appointment is not reasonably required to secure the interim position pending the return day. The appointment of a curator bonis is a considerable intrusion into the rights of the taxpayer. Furthermore, once a curator is appointed, the question of his or her expenses immediately arises.

For example, in the present case, without notice to the respondents, Nel was appointed as their curator with the right immediately to take control of their assets and to cause shareholdings to be transferred into his name. The respondents, without having been heard, were ordered inter alia to deliver their books and records to him, to act in accordance with his instructions and were obliged to subject themselves to interviews and to furnish the curator with details of all their assets and how they were acquired. All their assets were forthwith to vest in him. If SARS had otherwise been entitled to a preservation order and if ex parte proceedings were warranted, I cannot think there was justification for a curator to be appointed as part of the provisional order. Ex parte relief should be confined to that which is reasonably required to secure

SARS’ position pending the return day (cf Knox D’Arcy supra at 379J–380B).

Third, SARS should not, in my view, frame preservation orders on a one-size-fits-all basis. The order sought in the present case was on the same terms as a similar application I heard some months ago. Those terms apparently accord with orders sought by and granted to SARS in several matters in Gauteng. It is unnecessary to comment on the propriety and competence of each of these ‘standard’ terms. I merely say that the relief should be tailored to the circumstances of the case.

Fourth, s 163 is a procedure for preserving assets. It is not an execution mechanism. Once tax has been assessed or is otherwise due and payable, the pay-now-fight-later regime applies unless a senior SARS official otherwise directs (s 164). SARS may, if the taxpayer fails to pay on due date, obtain civil judgment in terms of s 172 of the TAA. SARS is not required to give notice of the application for civil judgment if the giving of such notice would prejudice the collection of tax (s 172(3)). SARS may thereupon levy execution in the ordinary way against assets belonging to the taxpayer. SARS can also institute sequestration or liquidation proceedings (s 177–178) and is in certain circumstances accorded rights of recovery against third parties (ss 179–184).

Section 163 finds its primary application where the amount of tax has not yet been ascertained (ie where SARS cannot execute in the ordinary way). This being so, I do not think it appropriate that a preservation order should (as here) contain, as a standard provision, a power on the part of the curator to realise assets in satisfaction of the taxpayer’s tax liability. I do not overlook that s 163(7) empowers a court which grants a preservation order to make ancillary orders regarding how the assets must be dealt with, including ‘the realising of assets in satisfaction of the tax debt’. However, I do not understand how, in general, it is justifiable, at a time when the tax liability is unknown and contentious, to empower a curator to set about selling assets and appropriating monies towards an alleged tax debt. The order should rather make provision for SARS to approach the court at a later stage (once the tax has been properly determined) for the granting of authority to the curator to realize the preserved assets in satisfaction of the tax debt. In other words, a court is unlikely to be able to make an informed and fair decision on this question at the time the application is initially granted and confirmed.

Feature Supplement to 139 Tax Shock Horror 2014

Cases

October 2014

Winners & Losers In That Other Beautiful Game Current & Past SATC Case Reports

by Julian Ware © 2014 J Ware ([email protected])

Attribution of trust income— in duplum rule CSARS v Woulidge

Supreme Court of Appeal (2001)—63 SATC 483 (judgment delivered by Froneman AJA; Hefer ACJ, Harms JA, Oliver JA & Mthiyane JA concurring): The taxpayer set up a trust for each of his minor children and disposed of his shares in companies into them. These were transferred at market value but, since the trusts had no financial resources, he left the purchase price outstanding upon loan account. Under a loan agreement, he was entitled to charge interest but chose not to do so. His failure to charge interest upon the loans represented a continuing donation (benefit), and, since the children were the income and capital beneficiaries under the trusts, taxable income generated by the trusts, from the proceeds of a subsequent disposal of the shares, were deemed to be his under s 7(3) of the Income Tax Act. The in duplum rule does not apply to a notional interest calculation. Thus, for the purposes of attribution, notional interest can exceed outstanding capital and s 7(3) does not cease to apply solely because notional interest is equal to or exceeds capital. The principle applies equally to s 7(5).

Rescinding of judgment— VAT Singh v CSARS

Durban and Coast Local Division (2001)—63 SATC 490 (judgment delivered by Galgut AJP): The taxpayer sought an order setting aside a judgment (a certified statement filed by the Commissioner having the effect of a civil judgment) entered against him under the Value-Added Tax Act, as it then read. Since VAT is a ‘self-assessment’ tax, it is not incumbent upon SARS to notify taxpayers of an assessment raised against them before it files a certified statement with an appropriate court. This crazy notion was overruled on appeal to the SCA (2011 TSH 96), although the SCA judgment may be criticized in other respects.

Tax avoidance— abnormality Taxpayer v CSARS

ITC 1712 (Gauteng Special Court) (2000)—63 SATC 499 (judgment delivered by Cloete J): Was a front-end-loaded tank container lease abnormal under s 103(1) (GAAR), as it then read? Based upon evidence before the court, the taxpayer was able to show that, owing to industrial financial security risks, it was normal for financiers to insist upon lease repayment terms that were loaded upfront. Since SARS failed to discharge the onus resting upon it to prove abnormality, it was unnecessary for the court to consider the taxpayer’s purpose for entering into the transaction.

Income tax— signing of returns Taxpayer v CSARS

ITC 1713 (Gauteng Special Court) (2001)—63 SATC 503 (judgment delivered by Flemming DJP): The signing of an income tax return under s 66 of the Income Tax Act, as it then read, is not required to serve the interests of the taxpayer. An unsigned return furnished to SARS by a taxpayer or his representative does not bar SARS from raising an assessment upon the taxpayer. This ought also to be position under the Tax Administration Act.

Tax avoidance— abnormality Taxpayers v CSARS

ITC 1714 (Gauteng Special Court) (1996)—63 SATC 507 (judgment delivered by Joffe J): Under a scheme, the taxpayers disposed of their active business partnership interests into ‘their’ respective family trusts set up by them for this purpose. Neither of the partners were beneficiaries under the trusts but their respective spouses, minor children and further trusts were. SARS was successful in its abnormality attack under s 103(1), as it then read.

T S H


Briefing

October 2014 Small business funding entities

by Michael Stein © 2014 M L Stein ([email protected])

The Taxation Laws Amendment Bill, 2014, which made its appearance late in October (see the Monthly Listing), proposes the creation in the Income Tax Act of a new creature, namely, the ‘small business funding entity’ (SBFE). I introduce this entity here, on the assumption that the provisions dealing with it in the bill will be passed unchanged, with effect as from 1 March 2015.

An SBFE is defined in s 1(1) as ‘any entity , approved by the Commissioner in terms of section 30C’.

A new s 10(1)(cQ) provides an exemption from normal tax for a SBFE. It exempts the receipts and accruals of an SBFE approved by the Commissioner under s 30C, to the extent that these are derived otherwise than from a business undertaking or trading activity.

An inevitable exception, allows receipts and accruals from a business undertaking or trading activity that is integral and directly related to the sole or principal object of the SBFE, carried out or conducted on a basis substantially the whole of which is directed towards the recovery of cost and not resulting in unfair competition with taxable entities. The undertaking or activity must, in addition, be of an occasional nature and undertaken substantially with assistance on a voluntary basis, without compensation. And it must be approved by the minister of finance by notice in the Gazette, having regard to the following factors:

The scope and benevolent nature of the undertaking or activity.

The direct connection and interrelationship of the undertaking or activity with the sole or principal object of the SBFE.

The profitability of the undertaking or activity. The level of economic distortion that may be

caused by the tax exempt status of the SBFE carrying out the undertaking or activity.

Receipts and accruals from other undertakings or activities, which would otherwise not be allowed, are then made permissible, to the extent that they do not

exceed the greater of

5% of the SBFE’s total receipts and accruals during the relevant year, and

R200 000.

Section 30C contains the requirements for recognition by the Commissioner of an SBFE. It lists several requirements to be met in its constitution. Some of the other requirements for an entity to qualify follow:

It must be a trust or an association of persons incorporated, formed or established in the Republic.

Its sole or principal object must be the provision of funding for small, medium and micro-sized enterprises.

Such funding must be for the benefit of, or widely accessible to, small, medium and micro-sized enterprises and must be provided on a non-profit basis and with an altruistic or philanthropic intent, not intended to directly or indirectly promote the economic self-interest of any fiduciary or employee of the entity, otherwise than by way of reasonable remuneration.

Paragraph 63B has been added to the Eighth Schedule to the act so as to enable an approved SBFE to disregard a capital gain or capital loss on the disposal of an asset if the applicable requirements are met. First, it must not have used the asset in carrying on a business undertaking or trading activity. Or substantially the whole of its use must have been directed at a purpose other than the carrying on of a business undertaking or trading activity, or directed at the carrying on of a business undertaking or trading activity permitted by s 10(1)(cQ)(ii)(aa), (bb) or (cc). These are the activities detailed above.

An amendment to the definition of a ‘provisional taxpayer’ in the Fourth Schedule excludes an SBFE from being a provisional taxpayer.

t sh Erratum: In 138 TSH 2014, I dealt with the deferral of the taxation of

capital gains on the disposal and replacement of some assets. One of the requirements for the application of this concession is that the replacement assets constitute assets ‘contemplated in [s 9(2)(k)]’ of the Income Tax Act. I am grateful to Duncan McAllister for pointing

out that I erroneously described the assets referred to in s 9(2)(k) as

immovable property and assets attributable to a permanent establishment in South Africa. In fact, these are assets referred to in s 9(2)(j). As Duncan points out, ‘s 9(2)(k) deals with movable assets. Section 9(2)(j) deals with immovable property’.



Davey’s Locker

October 2014 Retirement tax reforms On hold

by Tony Davey © 2014 A H Davey ([email protected] www.tonydavey.com)

In a media statement of 16 October 2014 (see the Monthly Listing), the National Treasury announced that the long awaited amendments to retirement funds (138 TSH 2014) will no longer become effective as from 1 March 2015. The relevant paragraph of the media statement reads as follows:

With regard to the tax treatment of retirement fund contributions, Government has agreed to delay the implementation of laws which was originally set for 1 March 2015. For now, the delay will be for a year to allow for further consultations at NEDLAC. But should there be no agreement at NEDLAC by end-June 2015, the implementation date may be moved to 1 March 2017. This comes after the labour constituency at NEDLAC requested that the implementation of these laws—enacted last year—be postponed until further consultations between Government and NEDLAC on social security reform.

The main effect of this postponement are that:

The 27.5% of taxable income tax-deductible contributions for members remains at 15% of nonretirement funding income for retirement annuities, and 7.5% of remuneration for pension funds.

Provident fund benefits remain fully commutable.

The tax treatment of lump-sum benefits from retirement funds upon withdrawal or retirement under the prescribed tables remains unchanged, in any event not having been effected by the proposed amendments.

Also so unaffected is the existing exemption from estate duty under s 3(2)(i) of the Estate Duty Act of lump-sum benefits and annuities from retirement funds.

I have in fact noticed an increasing trend to convert estate-dutiable investments (including bank deposits, collective investment schemes, endowment policies, equities) into single-premium retirement annuities, which are exempt from estate duty.

Although this course of action triggers a liability for the CGT, there will be no future CGT, nor estate duty upon death.

T S H


Shortcut Keys in Word by Duncan S McAllister ©2014

October 2014

Fractions in Word 2010 Word automatically creates a fraction after you type 1/2, 1/4 and 3/4 by means of its AutoCorrect function. But it does not create fractions for all combinations of numbers separated by a slash. I recently had to create a fraction for 1/3 and noticed that Word did not convert it to a fraction.

It turns out that there are multiple ways of achieving this task. One method involves using Word’s equation editor, which is apparently not installed during a typical Word installation. I found that the equation editor was not accessible to my screen-reader but, according to one website, one must first bring up Insert Object (ALT, I, O) and then scroll down to Microsoft Equation 3.0 and then tab to OK. That was as far as I was able to proceed, so I will move on and leave that option to the sighted world, except to note that it does apparently create a fraction containing a diagonal line.

The second method involves using an equation field to create a fraction, but it contains a horizontal line between the numerator and denominator, which was not suitable for my purpose. To create a fraction using this method, type CTRL + F9. This action will insert a pair of field brackets. Next, with the cursor placed within the field brackets, type EQ\F(a,b) in

which a is the numerator and b the denominator. Press shift + F9 to reveal the fraction. It is not readable by a screen reader.

The third and simplest method involves using superscript and subscript. To create a one-third fraction type 1 followed by a division slash (ALT + 8725 on the numpad) followed by 3. Next, highlight the ‘1’ and press CTRL + shift + =. This action will convert the ‘1’ into a superscript 1. Next, highlight the ‘3’ and press CTRL + =. This action will turn the ‘3’ into a subscript 3. Press CTRL + spacebar to return to normal font. The result will appear as 1∕3. This method is not as graphically pleasing as the symbol fractions produced by Word. Nevertheless it is screen-reader friendly.

Finally, the fractions in the table below can be created by pressing ALT plus the specified number on the numpad. Unfortunately my Jaws screen-reader would not read out the fraction symbols produced by these shortcut keys other than the first three entries without first adding them to the custom dictionary, so, if you place accessibility above aesthetics, consider staying with the superscript/subscript method.

t sh

Fraction Symbol Shortcut 1/2 ½ ALT + 0189 1/4 ¼ ALT + 0188 3/4 ¾ ALT + 0190 1/3 ⅓ ALT + 8531 2/3 ⅔ ALT + 8532 1/5 ⅕ ALT + 8533 2/5 ⅖ ALT + 8534 3/5 ⅗ ALT + 8535 4/5 ⅘ ALT + 8536 1/6 ⅙ ALT + 8537 5/6 ⅚ ALT + 8538 1/8 ⅛ ALT + 8539 3/8 ⅜ ALT + 8540 5/8 ⅝ ALT + 8541 7/8 ⅞ ALT + 8542


October 2014

Evidence Corner—evidence could make a welcome change to tax cases

How far must a judge go in protecting an accused’s right to legal representation?

by Andrew Paizes © 2014 A Paizes ([email protected])

This question, which was considered by the Supreme Court of Appeal in S v Ramaite [2014] ZASCA 144 (unreported, SCA case no 958/13, 26 September 2014), drew a divided response.

Ramaite was a rape case in which an appeal against a conviction was based on an allegation that the regional court magistrate had failed properly to inform the appellant of his right to legal representation before the commencement of the trial and had, further, in respect of the unrepresented and clearly unsophisticated appellant, failed properly to explain to him his right to cross-examination and to assist him when it became clear that he did not know how to cross-examine the witnesses.

When the right to legal representation was first explained to the appellant, he said that he did want legal assistance. When the trial commenced, however, he appeared to have changed his mind, but there was no indication why or how he might have waived his right. The trial magistrate did not conduct any inquiry in this regard, and he neither informed the appellant what the consequences might be of proceeding unrepresented nor encouraged him to obtain the services of a legal representative before pleading to the charge.

He was told, after he had

pleaded, that he could face a sentence of life imprisonment, since this was the prescribed minimum sentence in cases of rape.

The majority (per Schoeman AJA) held, however, that this warning was inadequate, since it was given ‘as a matter of fact, …not with a view to encourage him to obtain legal representation owing to the seriousness of the charge’, but solely to comply with the specific duty to inform an unrepresented accused that he faced a minimum sentence. The right to legal assistance, said Schoeman AJA, had to be explained before the commencement of the trial (that is, before pleading) so as to satisfy the constitutional imperative set out in s 35(3)(f) and (g) of the Constitution.

Nor could it be said, according to the majority, that the appellant had waived his right to representation, since a waiver could take place only in the ‘full knowledge’ of what he was doing (at [12]). No reliance may be placed, in this respect, on the mere say-so of the prosecutor, and there was nothing in the record or in an affidavit made by the trial magistrate to reflect that the appellant in fact had full knowledge of the right and wished to waive it.

The magistrate had, moreover, failed to encourage the appellant to make use of legal representation.

In view of all these

considerations, he had committed a material irregularity. However, to see if the trial had been rendered unfair by this irregularity, it had to appear that the appellant had been prejudiced by it. To this end, it was necessary to consider how the trial was conducted in the absence of legal representation.

This exercise led the court to consider the second and third objections. Although the magistrate had explained to the appellant the purpose and function of cross-examination, it soon became clear to him that the appellant did not have any idea how to cross-examine witnesses. He also had no understanding of the need to put his version to the complainant. He asked a few desultory questions, and the magistrate’s intervention on his behalf was ineffective and did not spur him on to a more effective line of questioning.

In addition, the magistrate failed to protect the appellant against a line of cross-examination that focussed on his reasons for failing to dispute the complainant’s evidence on key issues. This omission, said the majority, was unfair, and the appellant’s failure to cross-examine should not have been held against him, given that he was unrepresented and clearly very unsophisticated.

Legal representation would, said Schoeman AJA, clearly have made a difference to the appellant. Cross-

October 2014


examination would have been far more searching, and there was also the appellant’s consent to the admission into evidence of the medical report, which contained facts unlikely to be within his own knowledge, without the doctor himself testifying on the condition of the complainant.

These factors led the majority to conclude that the appellant had not had a fair trial.

Willis JA, however, disagreed. He could not agree that the magistrate should have inquired why the appellant had changed his mind; nor that he should have been encouraged to seek legal representation. By informing the appellant that he faced a minimum sentence he had done ‘precisely’

what he was ‘meant to do’ (at [48]), and had not failed in his duty at all.

Moreover, said Willis JA, there was nothing to indicate that legal representation would have made a significant difference to the appellant’s case. His poor cross-examination was not the fault of the administration of justice. Even if he had had the benefit of a lawyer, ‘his version, being a denial, could not have been materially different’ (at [57]). The complainant’s version, although very terse, was unequivocal on the question of penetration: she had stated simply that the appellant had ‘inserted his penis into [her] vagina’, and, said Willis JA (at [52]), there was ‘not much else one can

say about the rudimentary mechanics of the consummate sexual act between a male and a female’.

Willis JA did concede that the appellant’s rights could have been explained to him ‘more frequently and more forcefully’ but he added that it had to be kept in mind that lawyers could not concoct a version and could only present a client’s case in the best possible way. In this case, he maintained (at [67], ‘even if the appellant had enjoyed the services of one of the finest advocates in the world, he would have been convicted’. In his view, then, there had been no unfair trial.

t sh

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The Practice Manager

October 2014 by Eric Milner

© 2014 E Milner ([email protected]) The evolution of the tax profession and the cost of regulation Keeping your knowledge base current in the informa-tion age is no mean feat. Since the year 2000 there have been fifty tax statues passed by Parliament, comprising 2 803 pages of tax legislation (I have counted only the pages in English). This is only legisla-tion and excludes regulations, proclamations, discus-sion documents, bills, explanatory memoranda, court cases and SARS publications. Much of the legislation is complex and must be read in conjunction with other legislation, making the process slow and laborious.

If you then add other legislation governing tax prac-titioners, for example, the Companies Act and regula-tions (429 pages) and the Consumer Protection Act and regulations (190 pages), to name just two, the list of demands on the time of the professional is end-less.

A very brief ‘back of the envelope’ calculation indi-cates that more than 655 acts have been passed since the beginning of the year 2000. Sweeping changes have been made to both the tax law and the law relating to commerce and society in general.

At the same time the government has sought to regulate every possible sphere of corporate life. Ex-amples of this tendency are FAIS, FICA and the regula-tion of tax practitioners, all of which impose registra-tion obligations as well as adherence to prescribed rules and regulations.

To operate a professional-services business now can require numerous registrations with regulatory bodies on the part of both the business and the peo-ple who work in it. In addition, membership of various statutory and non-statutory governing bodies has now become mandatory. These bodies have their own codes of conduct and ethics as well as rules of mem-bership. Many of these bodies require that a required number of hours of continuing professional develop-ment (CPD) be undertaken by their members annually. Predictably, annual membership fees are also levied.

Adding to the ever expanding list of essential knowledge are voluntary codes, which have achieved quasi-legal status, such as the King Code of Govern-ance and the UNGC.

What may be said about these developments? First, doing business in South Africa has become sig-nificantly more complicated. Like many first-world countries, we have moved into an era in which twelve years of education (matric) is no longer sufficient. To paraphrase Thomas Piketty, in his book Capital, ma-tric has now become the equivalent of standard 5 and

an undergraduate degree has become the equivalent of a matric.

Secondly, no expert (including a tax practitioner) can master all aspects of the law. Specialization will inevitably become the order of the day.

Thirdly, the cost of doing business has become ex-ponentially more expensive, thanks to the amount of regulation imposed on practitioners as well as the cost of membership of all the regulatory bodies, the cost of dealing with government, including SARS, owing to ever-increasing bureaucracy, and the amount of time and money required to be spent on keeping a practitioner’s knowledge-base current.

The result is that expert advice is going to become indispensable and very expensive. Barriers of entry to the profession as well as the increased costs of doing business will inevitably lead to a constraint on the number of service-providers, resulting in a reduced pool of competitors.

The situation is not going to be helped by the failure of the South African educational system to provide a quality foundation for a knowledge-based economy. A recent survey among South African youth found that the most sought-after jobs are government jobs, as opposed to jobs in the private sector. This outcome is unsurprising, when governmental jobs provide a safe environment, with no responsibility, liability or per-formance-anxiety, while being remunerated at a rate above that available in the private sector. The private sector, unsurprisingly, proved to be a less popular career choice.

While a reduced pool of competitors may appear to be desirable, there are a number of factors suggest-ing otherwise. In particular, much of the increase in fees charged by the profession will not accrue to the profession but will be captured by other parties, for example, regulatory bodies, insurance companies and educational institutions. The cost of acquiring compe-tent staff will increase at the same time as rising fees make it more difficult to attract new clients. And the ever-increasing cost of doing business with SARS will sap profit from the profession.

This scenario is clearly not limited to the tax profes-sion. A three-year-old with a hammer approaches every obstacle with a singular solution in mind, which is to hit the obstacle with the hammer. The govern-ment has adopted the same approach to business. Any problem is viewed as an opportunity for more legislation and regulation. The absurdity of this ap-

October 2014


proach has been amply proven by the abortive re-quirement for business to submit information manu-als to the Human Rights Commission, the require-ment for all businesses to register with municipalities, and finally the requirement that all swimming pools be registered and inspected by a municipality, to name just a few examples. Perhaps the time is now ripe for a sober review of the business environment. No doubt a minimum amount of regulation is required

and desirable. Over-regulation, on the other hand, is counterproductive and unaffordable.

This is what the Davis Tax Committee should be looking at. Instead of paying taxpayers to submit tax returns (and rising tax rates to pay for the payment to taxpayers), the DTC should be looking at ways to make tax law simpler and tax compliance less expensive.

T S H

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