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

0 1 0 0 9 3 5 6 6 2 0 3 July 2011Tax Shock, Horror newsletter by Costa Divaris Issue # 100 Database items: 9 356 Subscribers: 6 203.

Comrade General the rev Dr Prince François ‘Papa Doc’ Duvalier-Leckett, spokesperson in the Office of Costa Divaris:

‘Tax Shock, Horror—100th Issue’

—This newsletter was created in response to the monthly release by SARS of an ever-increasing number of official documents, measured in those days by the half-dozen. As I have previously related (92 TSH 2010), the idea for a newsletter came from SARS itself, which to this day, alas, has proved unable to create even

a mere list of what it itself adds to its own website, much less a regular newsletter. From the start, I saved the items I found, and once these started looking like a database, the Tax Shock, Horror Database was born. I found this to be so personally useful that it paid to extend it back in time as far as electronic record-

keeping allowed and to expand it laterally to cover near-tax fields relevant to the solution of tax problems. It continues to amaze me how few people there are in the field able to benefit from it, even at risible cost. I use it daily. From about 2007 questions from readers and attendees at our seminars set me off, uncon-

sciously at first, to use the newsletter as a means of learning the law, in public, and other than in the usual academic style. Perhaps a few readers have joined me in that experience. As a consequence, back issues themselves constitute a database of information on a wide range of legal issues. And, from the start, the

newsletter has existed to showcase the effective, concise and, it is to be hoped, readable professional writing encouraged by the Bsp Stylebook.

In this issue: Listing Notebook Cases Briefing Davey’s Locker Evidence corner Shortcut keys in Word Accessibility: You can subscribe, also free, to the Word version of this newsletter instead of the pdf version.

MONTHLY LISTING Latest Legislation & Legislative Material To Emerge Or To Be Found Since Issue # 99

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 R161 a month inclusive of VAT at 14%. With both the newsletter & database (currently 9 356 public-access documents, 2,28 GB), you save time & bandwidth.

This is perhaps the only newsletter in the world with its own stylebook, also available free at http://www.bspseminars.co.za/BspStylebook.pdf

SCA case 07 March 2002: First National Bank of Southern Africa v CSARS (343/2000) [2002]

ZASCA. This is an important decision on the source of interest earned, which, I con-fess, was entirely unknown to me until recently, when a very clued-up seminar at-tendee who knows the value of a database showed it to me—straight off her laptop. It corrects the conventional understanding of the famous but seldom-read Lever Bros case. To an extent, the topic is today covered by statute.*

Tax court case 25 March 2002: Case no VAT 91. On the basis of an alleged connection with its manufacturing operations, a manufacturer unsuccessfully tries to claim input tax on the supply to it of financial services.*

SCA case 27 March 2002: Samcor (Manufacturing) (Pty) Ltd v CSARS (265/2000) [2002] ZASCA 19. How fees & royalties payable affected the customs value of imported goods.*

SCA case 28 March 2002: Toyota South Africa Motors (Pty) Ltd v CSARS (495/2000) [2002] ZASCA 27. Whether rebates under an export promotion scheme were ‘paid by the State’ under s 10(1)(zA) of the Income Tax Act. Nope.*

Tax court case 10 May 2002: Case no 10797. A complicated case on the definition of a ‘connected person’ & the application of the income tax deduction offered by s 12C(4).*

Tax court case 14 May 2002: Case no 10915. Having sold their shares to their trusts at net asset value, the taxpayers tried to avoid donations tax by attempting a fake rectification. They failed. (A fine judgment by Kroon J.)*

SCA case 14 May 2002: CSARS v Scribante Construction (Pty) Ltd (026/2001) [2002] ZASCA 161. So many of the cases listed in this issue are unfamiliar to me that it is a relief to include this famous (some would say notorious) judgment, on interest paid on shareholders’ loans springing from dividend declarations, designed to frustrate an upcoming change in the tax law. It is perhaps on account of this case that Julian Ware is known often to say that you can claim interest on a dividend loan, as long as you can afford to pay rather than borrow the funds required.*

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

100 Tax Shock, Horror 2011—July—2

SCA case 20 May 2002: De Beers Marine (Pty) Ltd v CSARS (165/2001) [2002] ZASCA 45. The meaning of the word export in the Customs & Excise Act, plus a discussion of the Maritime Zones Act. Wonderful stuff, with one of my favourite judges, Nienaber JA, delivering the judgment, alas, against the taxpayer. Bunker fuel delivered to SA-based vessels on station off the coast of Namibia is not exported.*

SCA case 06 September 2002: Lewis Stores (Pty) Ltd v Minister of Finance and Another (368/2001) [2002] ZASCA 100. Were imported pots & pans plated with gold? Nope.*

SCA case 23 September 2002: CSARS v Delta Motor Corporation (Pty) Ltd (279/2001) [2002] ZASCA 114. What an interesting judgment, delivered by Howie JA! A royalty paid by the importer was found neither to constitute part of the price of goods nor to be oth-erwise dutiable under the Customs & Excise Act. This is a tricky issue.*

SCA case 26 September 2002: CSARS v Smith (563/2011) [2002] ZASCA 126. Wow! How could I possibly have been oblivious of this important judgment, delivered by Heher JA?

In the result I conclude that a taxpayer who relies on s 26(1) is (over and above proof that he is engaged in an activity in the nature of farming) only required to show that he pos-sesses at the relevant time a genuine intention to carry on farming operations profitably. All considerations which bear on that question including the prospect of making a profit will contribute to the answer, none of itself being decisive.*†

SCA case 26 November 2002: Hassim v CSARS (438/01) [2002] ZASCA 140. The meaning of the words any decision in s 86A of the Income Tax Act.*

SCA case 13 March 2003: Omnia Fertilizer Ltd v CSARS (103/2002) [2003] ZASCA 10. Amounts owed to creditors but not claimed by them treated as recoupments under s 8(4)(a) of the Income Tax Act. An unconvincing judgment, rendered irrelevant by almost si-multaneous developments in the tax law.*

SCA case 26 March 2003: A M Moola Group and Others v CSARS and Others (139/2002) [2003] ZASCA 18. A dispute over a trade agreement between SA & Malawi.*

SCA case 18 September 2003: Uitenhage Transitional Local Council v SARS (011/2003) [2003] ZASCA 76. What happens when a creditor & SARS fight over the same debtor’s car-cass. In this instance, at least, SARS lost out, big time.*

SCA case 18 September 2003: Lloyds of London, Certain Underwriters of v Harrison (24/2003) [2003] ZASCA. It’s not a good idea to claim from the insurers when your car has been imported illegally; not if that fact slipped your mind when you arranged the policy.

Tax court case 09 October 2006: Case no 11935. Was the taxpayer a ‘personal service company’ for PAYE purposes? Yup.*

Tax court case 13 December 2006: Case no 11711. Was an alleged agreement in restraint of trade genuine? Yes. (A fine judgment by Saldulker J.)*

Tax court case 06 June 2007: Case no 11623. Were the storage tanks, pipelines, pipe racks & pumps, valves & pressure gauges depreciated by the taxpayer ‘buildings or other structures of a permanent nature’? Nope.*

High Court case 12 February 2009: Faynaz Import and Export Enterprises CC v Commissioner of Customs and Excise and Others Case no 8642/2004. Goods missing from a bonded warehouse. The state had to pay damages, interest & costs.*

High Court case 03 July 2009: Smith Mining Equipment (Pty) Ltd v CSARS Case no 16254/08. A tariff-classification case under the Customs & Excise Act. Was the item under dispute a works truck or, as SARS flamboyantly alleged, a multi-purpose vehicle capable of be-ing registered for use on a public road? A mere works truck.*

High Court case 09 December 2009: Apollo Tobacco CC v CSARS Case no 41881/2006. SARS investi-gated this outfit, a rogue cigarette manufacturer, ‘possibly with the co-operation of Batsa’, under the Customs & Excise Act. The investigation appears possibly to have been characterized by ‘obstructive and one-sided behaviour by SARS officials’. The judgment reflects very poorly on SARS.*

Tax court case 11 May 2009: Case no 11486 was previously incorrectly recorded here as Case no 11488 (91 TSH 2010).*

SARB VDP 2010: I don’t know when this document—Memorandum on the objects of the VDP—was published, but this is the first time I have seen it.

SARB VDP 2010: Ditto for: Excon VDP—frequently asked questions. SARB guidelines 02 August 2010: Guidelines to authorized dealers on genuine new foreign direct

investments of up to R500 m per company per calendar year. New FAQs 30 September 2010: AS–GN–46-FAQ1 rev 2 Frequently asked questions—

administrative penalty management & penalty debt management.*† Updated unintelligible October 2010: SARS 2010 08 ITA 88 CSV Specification v 1.2.docx Process & CSV file

specification for agent appointments (ITA 88) 2010.*† Updated FAQs 05 October 2010: AS–EF–11–FAQ2 rev 1 Frequently asked questions—taxpayer cen-

tricity (client-approach functionality on eFiling).*†



High Court case 29 October 2010: Bafana Bafana and Others v CSARS and Others (59460/2009) [2010] ZAGPPHC 191. A spoliation application involving gambling machines seized under the Customs & Excise Act. The identities of the parties joined with SARS (as well as the Apollo Tobacco case) encourage me to say, yet again, that, all over the world, the laws most zealously enforced are those protecting vested interests.*

LAWSA 15 December 2010: LAWSA has lodged with SARS some trenchant comments on the draft Tax Administration Bill, 2010, most of which appear to have been ignored.

Provincial budgets March 2011: The National Treasury has added information on these pertaining to fiscal 2011 to its website, which includes a series going back to 2002. I have started (unwisely?) to include some of this stuff in the Tax Shock, Horror Database, not without some amusement at how the provinces see themselves. Yet amusement turned to fear when I came to Gauteng, whose Vision (I’ll spare you its Mission) is:

To be an activist, developmental and interventionist department, providing strategic and operational support to the Province towards the achievement of inclusive growth.

SARS VDP 14 March 2011: VDP FAQ combined—frequently asked questions on the voluntary disclosure programme.*†

Foreign Affairs May/June 2011: Susan C Schwab, an ex-US trade representative, says: To the extent that nations such as Brazil, China, India and South Africa have taken posi-tions against further market opening in the name of developing countries, they are actu-ally taking positions that go against the group’s interest. At Doha, these emerging economies have minimized their own difficult market-opening decisions by seeking maximum flexibility for developing countries. And they have found it easier to avoid confronting their own need for greater access to one another’s markets by focusing on what they can all agree on—namely, the market-opening obligations of de-veloped countries.§

MPC statement 12 May 2011: Statement of the monetary policy committee (5,5%, unchanged). SCA case 17 May 2011: Engelbrecht v The State (446/10) [2010] ZASCA 068. This is the Reeds

Motors matter (98 TSH 2011). The appeal, against 157 counts of fraud, was dis-missed. Although the sentence was confirmed, the sentences for the fraud & corrup-tion charges were ordered to run concurrently.*

BPR 104 23 May 2011: Intra-group transfer of shares, as a result of a restructuring under s 45 of the Income Tax Act.*

SARS survey June 2011: An undated notice from SARS extends the deadline for the ‘costs & bene-fits of tax compliance survey’ to 1 July 2011.†

Speech 01 June 2011: F W de Klerk, on: SA 2011—The balance between failure & success: I believe that we are approaching a pivotal point in our history where all South Africans of goodwill, regardless of their race, circumstances or political affiliation will have to rally around the constitutional rights, values and vision upon which our new non-racial democ-racy has been established. The country is balanced between success and failure. If the forces of history come down on the side of constitutional values we can all look forward to a positive future. However, if the balance tips against the constitution, the consequences for all South Africans could be very dire. The main force seeking to disturb the constitu-tional balance is the ANC’S National Democratic Revolution.

SARB VDP 03 June 2011: Excon VDP policy dealing with loop structures (including 74/26) struc-tures. This strikes me as being an extremely well-presented document.

The Economist 04 June 2011: Following upon the SA Summit, a blunt ad placed by Economist Con-ferences & The Economist, graced by the logo of the lead sponsor, Telkom, entitled: Complacency is not an option. Is corporate SA beginning to speak up?§

GN 340 GG 34357 09 June 2011: What a mission to track down a copy of this wretched document, the draft Local Government: Municipal Property Rates Amendment Bill. It does include a suspect definition:

‘residential property’ means property of which the primary use or permitted use is for residential purposes, excluding such property used to accommodate persons other than the owner for gain;

But I don’t see what is excluded being taxed as ‘business or commercial property’. To me, this Bill makes not much sense.

the doj&cd 11 June 2011: Chief Master’s Directive 4 of 2011 (don’t ask me what happened to the other three directives of 2011). Interest & administrative fees earned by execu-tors on s 28(1)(c) (of the Administration of Estates Act) investments of estate funds must be accounted for in the I&E account. The authority given for this directive is Horn’s Executor v The Master 1919 CPD 48 (§). While I cannot access that case re-port, in searching for information about it, I did find the best student’s thesis I have ever read, for UWC, by Latiefa Rahman, entitled: Defining the concept ‘fiduciary duty’ in the South African law of trusts.(§) Latiefa says that in Horn’s Executor it was



held that a person who stands in a fiduciary position must not engage in a transaction by which he would personally acquire an interest adverse to his duty, which rule, it was said, extends to an executor [footnotes removed].

(Along with almost the whole of the legal & accounting establishment at the time, this thesis is misdirected by an inability to distinguish what were rambling obiter dicta in the brilliant Parker decision. Then, in support of the academic view prevalent in some quarters, including UWC, it concludes that a trustee’s fiduciary duty springs from his office, rather than contract, on the flimsy basis of the Doyle decision.)

Tax court case 15 June 2011: Case no 12895. Oh boy! Do I admire this judge! Here are some of what Fabricius J said, in finding, within a week, against the taxpayer on a pre-retirement withdrawal from a municipal pension fund:

It is my respectful view that Schutz JA, in the context also of other well known decisions of the Appellate Division, and even in the context of the Constitution of the Republic of South Africa, has emphasized correctly that legislation must have its language respected. Legislation does not mean whatever we might wish it to mean, be it ‘ordinary’ legislation or even the Constitution itself. One can not subvert the words chosen by Parliament ei-ther in favour of the spirit of the law, or by referring to background policy considerations that were not reflected in the language of the particular statute itself. The legislative au-thority of the Government is vested in Parliament. Parliament exercises its authority mainly by enacting Acts. Acts are expressed in words. Interpretation concerns the mean-ing of words used by the legislature and is therefore useful to approach the task by refer-ring to the words used, and to leave extraneous considerations for later.… It is also abundantly clear that although it has been said that our law is an enthusiastic supporter of ‘purposive construction’, the purpose of a Statutory provision can provide a reliable pointer to the intention of the legislature but only, where there is an ambiguity.… …. As a result therefore I have no hesitation in declining the kind invitation to have re-gard to the mentioned parliamentary memorandum and to ‘interpret’ the relevant legisla-tive provisions as a result, and to read-in what is not contained therein. There is in the present context no ambiguity in the relevant paragraphs of the Act, and as a result I pre-fer to follow the ‘old-fashioned’ approach that concerns itself with the meaning of the words used in the absence of any ambiguity or absurdity. By saying that, I am not sug-gesting that the ‘modern’ approach is rejected , whatever it may mean, but I am saying that the ‘modern’ approach has almost in all cases been misapplied and its source been misinterpreted and taken out of context.

Exactly! The palookas who most resort to the ‘purposive approach’ do so precisely because they want legislation to mean whatever they want it to mean (72 TSH 2009). Nor do they appear to appreciate that you can find references to it over a 100 years ago. For a great judgment such as this, I salute also the SARS legal team.*

New bill 17 June 2011: This is the previously non-downloadable State Liability Amendment Bill, 2011 [B 2A—2011] (99 TSH 2011), showing the portfolio committee amendments made to the Bill during its passage through Parliament.

Tax Admin Bill 23 June 2011: In an eighty-page schedule, the Tax Administration Bill, 2011 (99 TSH 2011) does not merely make administrative amendments; it includes substantive changes to the law. For example, the concept of a ‘representative employer’ for PAYE purposes has been radically changed. None of these changes is elucidated by any explanatory memorandum, & the tabular presentation unwisely employed makes it difficult to read, much less understand the amended provisions. With as much as one-third of the Income Tax Act being changed, everyone’s knowledge of the tax law is being bombed back into the Dark Ages. Great plan, chaps.*

Tax Admin Bill 23 June 2011: Whether by sheer coincidence or improbable design, this bill covers so many issues addressed in past issues of this newsletter that I am compelled to deny, by voorbaat, any involvement in its production.*

GN 529 GG 34390 24 June 2011: The dimension of, design for, & compilation of the 2010 crown size coin to commemorate the SARB’s 90th anniversary, under the SARB Act.

ATR update 29 June 2011: An updated no rulings list for purposes of advance tax rulings.* Treasury release 29 June 2011: Statement by the MOF on the appointment of Christine Lagarde as MD

of the IMF. Congratulations smothered in the pewling demands of the government of a pipsqueak country—the arse-end of the BRICS—with delusions of grandeur. This statement is condescending & offensive. Want power? It’s the economy, stupid.

Treasury speech 29 June 2011: Deputy MOF on providing infrastructure for inclusive growth at the G 20 conference. Here, yet again, is reinforcement of the myth of SA’s post-crisis ‘counter-cyclical’ spending:

For our part in South Africa as in many other parts of the world, we have set ourselves a three year fiscal consolidation path following substantial fiscal stimulus, driven by a de-



termined key emphasis on employment creation and investment in infrastructure and skills.

GN 430 GG 34411 30 June 2011: Publication of airport charges under the Airports Company Act. These are levied, inclusive of VAT, on the ‘operator’ of an aircraft.

SARS release 30 June 2011: Launch of the 2011 tax season. Here is a development driving most professionals mad:

SARS may require taxpayers who have recently changed their banking details, or want to change their banking details, to visit a SARS branch in person to provide proof of identity and proof of banking details in line with the requirements of the Financial Intelligence Centre Act (FICA). This also applies to taxpayers who want to change their banking details via eFiling.*

SARB notice 30 June 2011: On official gold & foreign exchange reserves. SARB speech 30 June 2011: By the Deputy President, Kgalema Motlanthe, on the 90th anniver-

sary of the SARB. A list of many of the unsolved problems facing SA. SARB speech 30 June 2011: Governor’s address at 91st OGM. I like the transparent way the Guv

does her job, & hers are just about the only bureaucratic speeches I would ever ac-tually read. Here she lays into pesky nonresident shareholder Michael Duerr.

SARB release 30 June 2011: Launch of 90th anniversary commemorative R5 circulation coin. Treasury speech 30 June 2011: Deputy MOF at the launch of the African Sovereign Debt Management

Centre in SA. dailyview 30 June 2011: Brian Kantor (Investec):

In other words, current consumers are now financing more than half of the very large capital expenditure being incurred by Eskom to meet future demands for electricity (for which future consumers will be expected to pay an appropriate price). Next year, after a further 25% increase in its regulated tariff, the revenues and cash flows and the contribu-tion of internal funding can be expected to increase by similar large proportions and amounts.§

He reckons that rates ought to remain at their current level, adjusted for inflation. What’s new July 2011: This page on the SARS website failed to respond to the avalanche of ma-

terial released on changing banking details & the tax season for individuals.* GN 420 GG 34394 01 July 2011: When you abandon free-market-pricing, for example, by capping the

retail price of LP gas, you don’t simply fix prices arbitrarily, like (when they weren’t massacring the population) they presumably did in Stalinist Russia. You use science & the great wisdom of bureaucracy. In proof of which is a notice from Nersa of a discussion document on a possible switch from World Gas Intelligence to Eurostat ‘as an alternative data source’ for this arcane process.

GN 439 GG 34427 01 July 2011: Amendment of Civil Aviation Passenger Safety Charge Regulations, 2010 under the Civil Aviation Act. As previously proposed (98 TSH 2011), a R18 (R12) charge is levied for each departing passenger from an SA airport, as from 1 August 2011. The charge is raised upon passengers.

GN 531 GG 34393 01 July 2011: Income Tax 2011: Notice to furnish returns for the 2011 tax year.* Bank details 01 July 2011 (?):There is a page on the SARS website entitled: Change my bank

details. If you can find it, it’s good for a laugh.*† New form 01 July 2011 (?): CRA 01—Confirmation of entity residential address.*† Updated form 01 July 2011 (?): CRA 01—Confirmation of entity residential address.*† Correspondence 01 July 2011 (?): AS–GN-L30 Request for change of bank details. A power of attorney

will be useless. Only a personal appearance will suffice.*† New FAQs 01 July 2011: AS–GN–29-FAQ2 rev 1 Frequently asked questions—change of banking

details. So I missed rev 0?*† Updated policy 01 July 2011: AS–PAYE–28 rev 1 Change of banking details—PAYE. I must have

missed this rev 0 as well.*† Updated policy 01 July 2011: AS–VAT–15 rev 3 Change of banking details of registered VAT vendors.

I have seen rev 0 of this item. But rev 1 & 2 must have passed me by.*† Updated policy 01 July 2011: AS–IT–83 rev 1 Change of banking details for individuals. Again, where

is rev 0?*† Updated policy 01 July 2011: AS–IT–85 rev 1 Change of banking details—company & trust—income

tax. Rev 0? (Wouldn’t one document have sufficed for all of this crap?)*† Updated FAQs 01 July 2011: Frequently asked questions—request for return, completion & sub-

mission of income tax returns—eFiling.*† Tax season 2011 01 July 2011: Mining schedule & tax consumption. Insurance companies—additional

information to be submitted & attached to IT 14. Travel logbook ver 2. Tax rate tables 2006–2011. Source codes 2011. Payment rules leaflet. Banking details—how to change your banking details. How to eFile your provisional tax return. How to com-plete the IT 14 return. How to complete the return of income: trust (IT 12TR). How to



eFile your tax return (ITR 12). How to complete your individual tax return (ITR 12).*† eFiling sociopathy 01 July 2011: Taxpayer centricity (client-approach functionality on eFiling) ver 9[1].*† SARB release 01 July 2011: Appointment of nonexecutive directors to the SARB board: F E Groepe

reappointed & Dr M Gantsho appointed. Mail&Guardian 01 July 2011: We have the National Homebuilders Registration Council, supposedly

to protect buyers of new homes. It interferes in all sorts of ways in the economy, es-pecially by pushing up building costs (a tax). Five-sixths of RDP houses are said to be at ‘high risk’ (98 TSH 2011) (another tax). And now contracts worth R100 m are said to be under investigation by the SIU.

The Economist 02 July 2011: Suddenly meritocratic, ANC worthies were bitter in their disappointment that Our Trev didn’t make the IMF cut, while a European did (the superbly qualified Christine Lagarde). Here is what the local press failed to tell us:

Emerging markets made much of their desire to see a non-European take the job but conspicuously failed to rally around her only rival, Mexico’s Agustin Carstens.§

Saturday Star 02 July 2011: Dave King wine farm attached.§ GN 546 GG 34430 04 July 2011: Correction notice: The dimension of, design for, & compilation of the

2010 crown size coin to commemorate the SARB’s 90th anniversary, under the SARB Act, 1989. This is marked ‘Secret’, so, please, do keep it to yourself.

Draft rules 04 July 2011: Draft rules on accredited client status. Comments are due by 15 July 2011. It’s tough that the relevant document is missing from the SARS website.†

New act 05 July 2011: Local Government: Municipal Systems Amendment Act 7 of 2011. The Nats passed plenty of laws that were never enforced, & the ANC has followed suit. The difference is that so many of the ANC’s immediately-destined-for-the-junk-heap laws are so fine-sounding. How I should love to live in the land pictured in our stat-ute book! There, for example, only qualified municipal managers may be appointed (a new s 54A), & under them must stand equally qualified managers accountable to their municipal managers (s 56). Accountable! How did ITAC allow the importation of such a foreign word? Nor may these municipal paragons hold political office (s 56A). Staff members dismissed for (close your children’s ears) misconduct cannot be re-hired within a prescribed period (s 57A).

Treasury speech 06 July 2011: Deputy MOF at a Sugar Industry Trust Fund for Education function. (Preliminary investigation suggests that this is probably an actual trust.)

RMB Economics 06 July 2011: And now for the truth about SA’s ‘counter-cyclical’ response to the global recession, from Ettienne le Roux (Rand Merchant Bank):

The government’s fiscal response to the recession contained a sharp increase in non-discretionary spending (salaries, social welfare and unemployment insurance), but virtu-ally no increase in discretionary spending. At an annual rate of R139 b, total real public-sector fixed investment today is essentially unchanged from the level that prevailed going into the 2008/09 recession. As long as deep-rooted institutional problems continue con-straining public sector investment, we are left with the private sector to fill the void.§

GN 458 GG 34444 07 July 2011: Publication of explanatory summary of the Judges’ Remuneration & Conditions of Employment Amendment Bill, 2011.

Updated guide 07 July 2011: Tax guide for micro business 2011/12.* GN 455 GG 34439 08 July 2011: Correction notice—imposition of levies on medical schemes issued

under s 2(a) of the Council for Medical Schemes Levies Act (97 TSH 2011). New bill 08 July 2011: Judges’ Remuneration & Conditions of Employment Bill, 2011 [B 12—

2011]. By substituting s 8 of its principal act, this bill purports to align that act with s 176(1) of the Constitution, by laying down a minimum period of active service for the Chief Justice & the President of the SCA. Hmmm. Constitutional law is difficult.

Treasury release 08 July 2011: R&I affirms SA’s rating at ‘A– with stable outlook’: The rating agency has also indicated that government is unlikely to face major challenges in achieving fiscal deficit reduction, and capital inflows remain solid even as the global fi-nancial environment undergoes major adjustments. R&I have also welcomed the introduc-tion of government fiscal guidelines to maintain fiscal discipline.

Business Day 08 July 2011: Power consumers indirectly pay ANC’s election costs, by Paul Hoffman (Institute for Accountability in Southern Africa). A horrific thesis.

Speech by President 08 July 2011: Zuma: Keynote address at the 2011 Access to Justice Conference, Wits Justice Project:

While acknowledging the strides we have made, it is our well-considered view that there is a need to distinguish the areas of responsibility between the judiciary and the elected branches of government, especially with regards to government policy formulation. The Executive, as elected officials, has the sole discretion to decide policies for Govern-ment.… This means that once government has decided on the appropriate policies, the judiciary cannot, when striking down legislation or parts thereof on the basis of illegality,



raise that as an opportunity to change the policies as determined by the Executive area of government. There is no doubt that the principle of separation of powers must reign supreme to enable the efficiency and integrity of the various arms of the State in execut-ing their mandates. Encroachment of one arm on the terrain of another should be frowned upon by others, and there must be no bias in this regard. In as much as we seek to respect the powers and role conferred by our constitution on the legislature and the ju-diciary, we expect the same from these very important institutions of our democratic dis-pensation. The Executive must be allowed to conduct its administration and policy mak-ing work as freely as it possibly can. The powers conferred on the courts cannot be supe-rior to the powers resulting from the political and consequently administrative mandate resulting from popular democratic elections. Political disputes resulting from the exercise of powers that have been constitutionally conferred on the ruling party through a popular vote must not be subverted, simply because those who disagree with the ruling party po-litically, and who cannot win the popular vote during elections, feel other arms of the State are avenues to help them co-govern the country. This interferes with the independ-ence of the judiciary. Political battles must be fought on political platforms.§

SARS release 09 July 2011: Suspect arrested over illicit trade in rhino horn under s 80(1) of the Customs & Excise Act. This sounds very bad. He was allegedly using falsely ob-tained hunting permits, & worked for the same import/export company as Punpitak Chunchom, recently prosecuted for the illegal possession of lion claws & teeth.*†

Business Times 10 July 2010: Gas producers lobby against price cap. The price of LPG is capped (89 TSH 2010). There is a shortage. See any connection? In winter, perhaps not.

GN 577 GG 34454 11 July 2011: Extension of the period for public comment on the draft approval of Municipal Taxes Regulations under the Municipal Fiscal Powers & Functions Act.

SARS notice 11 July 2011: To conveyancers on: Important changes to transfer duty process.† The Times 11 July 2011: And in every other newspaper in the land; perhaps even in This Day,

sorry, New Age. Full-page SARS ads on Eish, without the Klipdrift, or whatever. Business Report 11 July 2011: Companies deregistered in CIPC chaos. Out of the Cipro pan & into the

CIPC fire. Is there a high suicide rate in government, or are they all on tranquilizers? Beeld 11 July 2011: Dr Philip Lloyd (CPUT) on: Hydraulic fracturing is the solution. Sake24 11 July 2011: Mike Schüssler (Economists.co.za) on: Economic reality gives the lie

to political promises. Expect direct taxes to go up, he says, by way of fuel levies, sin taxes, licence fees, carbon taxes, tolls, services fees for passports & the like, & many others. It is time, he urges, for economists to show why so many political promises are impossible of fulfillment.

iol news 11 July 2011: [Shawn] Mpisane to challenge search & seizure warrant.§ Monday Morning 11 July 2011: First Trust (Brian Westbury): Outlook Liberal economists have argued that recoveries from financial crises are always slow. But

this covers up the fact that government always grows in a crisis—no matter which party is in power. And it is this growth in government that slows the recovery, not the crisis that preceded it.

Updated form 12 July 2011: Form E: Request for a tax deduction directive—post-retirement & death annuity commutations.†

Beeld 12 July 2011: Julius Malema allegedly pays cash for a R78 000 stay in a luxury re-sort near the Kruger Park. At least he didn’t lose the cash on an aircraft.

Beeld 12 July 2011: Mahendren Munsamy of Sandton, as representative of Gas 2 Liquids, fined R40 000 for vehicles travelling into SA without any payment of duty on their die-sel fuel. Under a plea agreement, he agreed to pay almost R5,5 m to SARS for im-port duty, interest & penalties. Three customs officials are allegedly also involved, on account of bribes paid & received. Mr Munsamy, a medical doctor, reportedly admitted guilt on 104 charges under the Customs & Excise Act.

Business Day 12 July 2011. King is in breach of interdict, says NPA. A riposte to an open letter sent by Dave King to Willie Hofmeyer (Head, AFU), calling on him to resign.

GN 480 GG 34456 13 July 2011: Noticed all the local & foreign companies suddenly promising to invest in SA? These are the vultures circling the policy-desert, looking for giveaway car-casses, slaughtered by the current bunch of fascist gamekeepers, in supposed support of the fauna. Here is the minister of trade & industry, approving a project of National Ceramic Industries SA (Pty) Ltd under s 12I of the Income Tax Act.*

GN 481 GG 34456 13 July 2011: Here the minister approves the project of Omnia Group (Pty) Ltd.* GN 482 GG 34456 13 July 2011: He approves that of Rainbow Nation Renewable Fuels Ltd.* GN 483 GG 34456 13 July 2011: He approves the project of SA Calcium Carbide (Pty) Ltd.* GN 484 GG 34456 13 July 2011: He approves one out of two projects of Sephaku Cement (Pty) Ltd.* Treasury speech 13 July 2011: MOF at the 10th anniversary of SASI & the launch of Savings Month

2011. And, coming soon, the anniversaries of Mother Love & Apple Pie.



GN R 580 GG 34458 15 July 2011: Amendment of the regulations relating to the Attorney’s Fidelity Fund under the Attorneys Act.

Mail&Guardian 15 July 2011: Judge Nigel Willis (never one to hide his light under a bushel) objects to the Judges’ Remuneration & Conditions of Employment Amendment Bill, 2011.

Sunday Times 17 July 2011: State out to kill goose that lays the golden eggs. Jabu Mabuza (CEO, Tsogo Sun group) on regulatory, tax & other changes hurting the gaming industry.

GN R 584 GG 34468 18 July 2011: When will it be your business’s turn? Regulations relating to a trans-parent pricing system for medicines & scheduled substances (information to be supplied by pharmacist), issued under the Medicines & Related Substances Act. In-formation is called from individual pharmacists covering a wide range of their activi-ties, for the purposes of the annual review of the dispensing fee.

New guide 18 July 2011: ITR 12 Comprehensive guide 2011.* NT workshops 18 July 2011: In setting up its two-day TLAB workshop, the Treasury sends out an

email (not to me, of course) listing each & every recipient’s email address. But for its significant omission, this list might well constitute a Who’s Who of the tax field.§

Beeld 18 July 2011: Clouds supposedly gathering over Willie Hofmeyer (Head, AFU), in-cluding the putative agreement allegedly concluded with Dave King.

The Citizen 18 July 2011: SARS: we may audit Malema. Adrian Lackay (SARS) is reported as say-ing that claims that Julius Malema is living beyond his means are regarded as ‘sus-picious activity reports’ that SARS is required to investigate by law. Really?§

the doj&cd 19 July 2011: Co-operation agreement between Legal Aid South Africa & the de-partment of justice & constitutional development, office of the Chief Master of the High Court, signed on 27 July 2010. Assistance in the administration of deceased estates in which there are minor heirs qualifying under the Legal Aid Guide.

Treasury speech 19 July 2011: MOF at the launch of the code for responsible investments in SA

(CRISA). More fiddling while Rome burns. Business Day 19 July 2011: Dave King, on the letters page, about how carefully & thoughtfully he

went about laying criminal charges against Willie Hofmeyer & why Adv Hofmeyer ought to resign.

Daily wankers 20 July 2011: It’s back! The SARS update notification system. In honour of tradition or piece-work, the same item is listed repeatedly (ten times) on this notification.§

Beeld 20 July 2011: Gareth Ackerman (CM Pick n Pay) on: Government policy makes life hard for farmers. In 1994, he says, there were 120 000 commercial farmers. Today there are between 37 000 & 40 000, & we have begun to import food. By 2002 a mere 673 farmers produced a third of gross agricultural output.

Sake24 20 July 2011: Why CIPC, successor to Cipro, is in such a bloody mess, according to those responsible.

Sake24 20 July 2011: The deputy minister in the department of co-operative government & traditional affairs tries to explain the Local Government: Municipal Property Rates Amendment Bill, promising that it will be amended.

BPR 105 21 July 2011: Tax implications for a resident relating to a single-premium whole-life policy issued by an offshore insurer. This will cause a stir. I doubt whether it is law-ful, since it ignores the separate legal identities of the insurer & insured.*

MPC statement 21 July 2011: Statement of the monetary policy committee (5,5%, unchanged). The SARB is sticking to its GDP growth-projections of 3,7% for 2011 & 3,9% for 2012, & expects an average of 4,4% for 2013.

The Times 21 July 2011: NPA defends Hofmeyer. Plus some mudslinging back at Dave King. SARS tsatske 22 July 2011: Submission of supporting documents to SARS. SARS won’t accept the

delivery by email of supporting documents that it requires. Its refusal by this means, I say, constitutes a violation of the Electronic Communications & Transactions Act.*†

Treasury release 22 July 2011: Extension of the public consultation period for the discussion paper on a review framework for cross-border direct investment into SA. Almost anything would be preferable to another embarrassing Wal-Mart fiasco.

SARS speech 25 July 2011: By the cipher whose image adorns the SARS website, at the first gen-eral assembly of the African Tax Administration Forum, of which he is CM, in Mauri-tius. The assembly’s topic? Tax fraud, evasion & avoidance.*†

SARS speech 25 July 2011: From the same source, a very short speech, almost as long as its title: Drawing distinctions between tax havens & genuine attempts to offer tax incentives or attracting foreign investment to stimulate national economic development. Appar-ently, how you enter Heaven rather than a haven is to sign up to TIEAs under the Global Forum on Transparency & Exchange of Information for Tax Purposes. Then, I am sure, you can dish out other people’s money to your heart’s content, although to no discernable purpose. For the first time, I feel some sympathy for tax havens.*†

Sake24 25 July 2011: Dr Roelof Botha (PWC) on: The state & unions hamper mining’s pro-



gress. The real value of SA’s mining production, he says, has remained unchanged since 1998, even falling in 2005, while production prices for metals & minerals over the past twelve years have increased by 275%, & some mining products have more than trebled in price. He reminds readers of the former DG who recently admitted de-liberately holding back the award of manganese mining rights for seven years, in an attempt to promote BEE. He worries that, given burdensome state intervention & un-ion claims, SA will never be able to benefit from any future commodity boom.

SARS scam alert 27 July 2011: There is a page on the SARS website devoted to scams & phishing attacks. This alert (§) warns against telephonic requests for your banking details.*

The Times 27 July 2011: Fraudster gets eight years. Paul Feyen sentenced to eight years, sub-ject to the prospect of thereafter being deported to Belgium, for another, four-year spell in jail. He & his six close corporations reportedly took SARS for several millions, although SARS appears substantially to have limited its loss.

Business Report 27 July 2011: SA drops down FDI table with 70% slide in inflows. The information relates to 2010, & comes from the World Investment Report of 2011 of Unctad. In the African stakes, SA fell from fourth to tenth.

High Court case 28 July 2011: CSARS v Fastmould Specialist CC Case no A642/2010. An appeal against the rescission of a VAT & PAYE judgment obtained by the Commissioner against the taxpayer. SARS did not raise an assessment before obtaining the judg-ment. I am scared to read any further, especially when what comes next is a citation of the wretched Metcash case, & the judge thinks that ‘the machinery of the VAT and the Income Tax Act are similar’, indicating that he has never read Metcash properly. There, Kriegler J in fact said:

The first significant point to note is that VAT, quite unlike income tax, does not give rise to a liability only once an assessment has been made.

What perhaps makes this case special, as far as VAT (but not PAYE) is concerned, is that the vendor submitted VAT returns without making payment. On the PAYE issue, in my view, the Cape bench erred.*

Treasury release 28 July 2011: Release of the micro-insurance policy document. The Times 28 July 2011: Top judge flip flops. Ngcobo CJ reverses his decision to accept an

extension of his term of office. Such a respected judge. Such a shame. Still, the Zuma flame has doubtless destroyed many a moth.

GN R 617 GG 34498 29 July 2011: Amendment of the rules (DAR/91) under ss 64E & 120 of the Customs & Excise Act (accreditation).*

Concourt case 29 July 2011: Justice Alliance of South Africa v President of Republic of South Africa and Others etc [2011] ZACC 23. The President of the Republic, quoting s 8(a) of the Judges’ Remuneration & Conditions of Employment Act, requested the Chief Justice to continue in active service until 2016. It represented the first time s 8(a) was used by the President. The Chief Justice accepted, & the President effected the exten-sion of his office. This is how s 176(1) of the Constitution reads:

(1) A Constitutional Court judge holds office for a non-renewable term of 12 years, or until he or she attains the age of 70, whichever occurs first, except where an Act of Parliament extends the term of office of a Constitutional Court judge.

And this is how s 8(a) of the Judges’ Remuneration & Conditions of Employment Act reads (before its currently proposed amendment; see above):

(a) A Chief Justice who becomes eligible for discharge from active service in terms of section 3(1)(a) or 4(1) or (2), may, at the request of the President, from the date on which he or she becomes so eligible for discharge from active service, continue to perform ac-tive service as Chief Justice of South Africa for a period determined by the President, which shall not extend beyond the date on which such Chief Justice attains the age of 75 years.

How would you decide the issue? It is extremely difficult law. The Constitutional Court decided that s 8(a) represented a delegation of power by Parliament to the President. Next, it concluded that the delegation was impermissible under s 176(1), since it involved no act of Parliament. (Parliament’s understanding of s 176(1), whatever it might have been, is not binding on the court.) In fact, it shifted power from Parliament to the Executive. Then it held that s 8(a) violates the principle of ju-dicial independence, essentially by bypassing the Constitution’s delegation to Par-liament. Furthermore, s 176(1), in its reference to ‘a Constitutional Court judge’, did not permit the Chief Justice to be singled out. Thus the provision is invalid.

Business Day 29 July 2011: Tax changes take toll on dividend income funds. My stomach turns. I see that the perps peddling these things are said to be the Absa Dividend Income Fund, the Prudential Dividend Income Fund (79 TSH 2009; 80 TSH 2009; 82 TSH 2010), the Sanlam Alternative Income Fund & the Standard Income Dividend Fund.




Saturday Star 30 July 2011: Chief justice term: ANC hits out at Zuma critics. The Presidency claims that s 8 of the Judges’ Remuneration & Conditions of Employment Amendment Bill, 2011 was valid…until the judgment of the Constitutional Court on the previous day. This must be the most asinine legal opinion ever uttered.

C&E amendments 01 August 2011. According to Proc R 35 of 17 June 2011 GG 34365 of 17 June 2011, this is the day on which the following amendments to the Customs & Excise Act af-fecting accredited clients come into effect: Substitution of s 64E(1)(a); substitution of the words of s 64E(1)(b) preceding s 64E(1)(b)(i); substitution of s 64E(3)(a); inser-tion of s 64E(3)(c); & insertion of s 64E(4). (From the Proclamation Log in my Amendments to Amendments 11 ed.)

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

LOST & FOUND TSH Database This month 152 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. Provisional tax tables Since 25 April 2003, SARS has failed to gazette the annual provisional tax tables. PAYE tax tables Since 1 March 2011, SARS has failed to gazette the annual PAYE deduction tables.

MONTHLY NOTEBOOK

Small business corporations—don’t be wrongly disqualif ied

The concept of pre-populated tax returns is bound to fail, to the extent that it will rely upon unvalidated third-party information. Reliance upon third-party information is official policy, although, as far as I am aware, not a word has been said about valida-tion.

Databases are maintained for different reasons and subject to wildly different standards of integrity. There is no reason whatsoever why the data in one database will be suitable for inclusion in another database, especially not for legal purposes, such as taxation.

There is really no need for me to lecture SARS on this topic, since it has effectively conducted a case study in the field when, several years ago, one of its officials had the bright idea to compare the da-tabases of interest paid to individuals by banks with the database of interest-earnings reported by indi-viduals in their income tax returns. On the basis of the raw, aggregate totals, there appeared, it seems, to be a huge discrepancy, and thus mas-sive evasion.

The next step led to disaster, in that the untested third-party data were relied upon as a direct route to the raising of assessments, mainly upon widows, orphans and the retired. I remember that a very large number of assessments had to be recalled, although not before reports circulated in the press of heart attacks and even deaths, allegedly brought about by the usual, draconian threats accompany-ing the exorbitant assessments. (As I always say, rather owe money to the Mob than to SARS, since research shows that, unlike SARS, the Mob has a sense of humour.)

In recent years, I have reason to suspect, SARS has targeted another group of taxpayers, those operating small businesses corporations (SBCs), on the basis of the most unreliable, most corrupt and most sinister database in the land—that of Cipro

(now CIPC). What it appears to have done is to compare the SARS database of taxpayers owning SBCs with the Cipro database of individuals regis-

tered as owning companies and close corporations. Those taxpayers thus shown to own shares in or to be a member of an SBC as well as being registered at Cipro as a shareholder in or member of any other company or close corporation found their SBCs being reassessed as ordinary ‘companies’. My further suspicion is that the great majority of those targeted simply gave up, accepting reas-sessment.

Yet some interesting points of law arise that could offer succour to victims of this inherently flawed initiative.

In order for a company to qualify as a ‘small business corporation’, during each year of as-sessment it must, under s 12E(4)(a)(ii) of the In-come Tax Act, be able to declare that

none of the shareholders…holds any shares or has any interest in the equity of any other company as de-fined in section 1….

As I have previously shown (90 TSH 2010), throughout the Income Tax Act, the word holds means, at best, owns, and, at worst, enjoys a pat-rimonial right to or in property. Disqualification therefore arises out of a patrimonial interest en-joyed by any one of the shareholders at any time during a year of assessment in any other ‘com-pany’ as defined in s 1.

In s 12E(4)(a)(ii) two types of patrimonial rights or objects are clearly contemplated, namely, any shares and any interest. Equally clearly, these are neither merely shares in any other company nor merely an interest in any other company, since the quoted words cannot be read in this manner. How the disqualification is meant to be read, since there is no alternative, is that it will be triggered if a shareholder of the target company is found

to hold shares in the equity of any other com-pany, or

to have an interest in the equity of any other company.


There is no reason in law or even under the ten-ets of colloquial language why such shares are required to be held, while such an interest is re-quired to be had. Both terms require beneficial ownership, in the sense of possession by lawful title. In patrimonial terms, the shares are or interest is required to vest in the shareholder.

Nor may it be argued that an interest, as op-posed to a share, has been included solely to cater for close corporations. The definition of a ‘company’ includes several entities, such as associations, that do not have shareholders holding shares but members having interests. It follows that disqualifi-cation depends upon ownership or possession of shares in ‘companies’ having shares and of an interest in ‘companies’ not having shares.

Another possible reason for the distinction made between shares and an interest is that it is possible in law to have an interest in shares without enjoy-ment of full ownership in them, for example, in the form of a usufructuary interest or a some form of derivative.

An interest is reliably defined as an advantage or profit, especially of a financial nature, and as a legal share in something or a claim to or right in property. A possible definition of the term equity in this context is that it constitutes an ownership-interest in property, especially in a business.

But two different terms used deliberately in close conjunction to each other cannot be given the same or even a similar meaning, merely, of owner-ship, that is, of a vesting in the shareholder. The term equity is used, rather, in the sense of a home-owner’s equity in his house, being its net value to him, represented by the excess of its market value

over the mortgage loan raised in order to facilitate its acquisition (positive equity, as opposed to nega-tive equity).

The very deliberate word-order chosen places extraordinary emphasis upon this concept of equity, which must have been used with the purpose of making disqualification dependant not merely upon a vesting of patrimonial rights or objects in the form of shares or an interest but upon their being such rights or objects having a value for the shareholder concerned. Under the common law, ‘property is a vested right or an object with patrimonial value’ (P J Badenhorst et al The Law of Property 5 ed (2006) LexisNexis). What the disqualification requires is both a vesting and a patrimonial value.

It follows that a shareholder’s membership of, say, an association not for gain registered under s 21 of the Companies Act cannot serve as a dis-qualification for purposes of s 12E(4)(a)(ii), for the reason that the member’s interest has no patrimo-nial value. In the same way, a member of a club has no equity in the club.

These are fairly sophisticated conclusions. What about the no-brainers?

If shares are registered in my name purely in my capacity as an employee or an agent, I do not hold them.

If shares I used to own are still registered in my name by Cipro or, even more improbably, CIPC but I have divested myself of ownership by agreement, I do not hold them, even if I have still to effect deliv-ery of the shares, since, regardless of the precise moment that my formal ownership comes to an end, my equity in the shares will (ordinarily) have terminated upon conclusion of the agreement.

Upon whom are ‘binding general rulings’ binding?

Some sharp characters in commerce and industry have hit upon BGR 06 ‘Discounts, rebates and in-centives in the fast-moving consumable goods industry’ as a means of altering in their own favour their long-standing contractual arrangements with their customers. And they do so on the spurious basis that binding general rulings are binding upon taxpayers.

I have met enough of my colleagues in the tax field to know that they are too clever to buy into this fiscal catachresis but I imagine that some of them are sufficiently burdened by overheads not to have any qualms about assisting a client to pull a fast one.

In the context of BGR 06, the applicable law is represented by the Value-Added Tax Act and regu-lations issued under that act. Advance tax rulings are catered for by s 41A:

41A. The provisions relating to advance tax rulings contained in Part IA of Chapter III of the Income Tax Act, 1962, apply mutatis mutandis for purposes of this Act.

(2) Any procedures and guidelines issued by the Com-missioner in terms of section 76S of the Income Tax Act, 1962, for implementation and operation of the ad-vance tax ruling system apply mutatis mutandis for

purposes of this Act.

The relevant part of the Income Tax Act, Part 1A of Chapter III, thus incorporated into the VAT law, no-where states that rulings are binding upon taxpay-ers, the reason being that the intention of the Part is to make the rulings provided for binding upon the Commissioner. (The history behind its introduc-tion—the widespread reliance of taxpayers upon rulings issued by SARS several years ago but not recorded by it in any database—strongly supports this interpretation.)

For example, s 76H(1), headed 'Binding effect', includes only one reference to the party bound, namely, the Commissioner. Section 76H(1)(2) elaborates upon that theme:

(2) An advance tax ruling does not have any binding effect upon the Commissioner unless that advance tax ruling applies to that person in accordance with sec-tion 76J.

The fact that, under s 76H(3),

(3) A binding general ruling may be cited by the Com-missioner or any person in any proceeding before the Commissioner or the courts.

the Commissioner and a taxpayer may cite a biding



general ruling in court in no way can be construed as a power given to the Commissioner to make law. Section 76C does not go so far:

76C. The purpose of the advance tax ruling system is to promote clarity, consistency, and certainty regarding the interpretation and application of the Act.

The party being bound is also made clear by s 76I(2) read with (5):

(2) A nonbinding private opinion does not have any binding effect upon the Commissioner.

(5) Except to the extent the Commissioner prescribes otherwise in accordance with subsection (4) of this section, any written statement issued by the Commis-sioner prior to the effective date of this Part is to be treated as and have the effect of a nonbinding private opinion.

The wording of s 76J reinforces the point here be-ing made, since s 76H deals solely with the binding effect of rulings upon the Commissioner:

76J. (1) For purposes of section 76H, an advance tax ruling applies to a person only if all of the following conditions have been satisfied—

In any event, rulings apply only to the postulated facts upon which they are based (see, for example, s 76K).

If any further proof were required that rulings cannot override the law, save in the taxpayer's fa-vour, and then only until the law is interpreted by the courts, it is s 76L(1):

76L. (1) Notwithstanding any provision to the contrary contained in this Act, an advance tax ruling ceases to be effective upon the occurrence of any of the following circumstances—

(b) if a court overturns or modifies an interpretation of the Act on which the advance tax ruling is based, the advance tax ruling will cease to be effective from the date of judgment unless—

(i) the decision is under appeal; (ii) the decision is fact-specific and the general

interpretation upon which the advance tax ruling was based was unaffected; or

(iii) the reference to the interpretation upon which the advance tax ruling was based was obiter dicta.

The clear conclusion to be drawn is that binding general rulings bind SARS alone, and have no effect upon either the tax law or the general population of taxpayers.

I have enjoyed the advantage recently of closely studying the advance tax rulings section of the Tax Administration Bill, 2011, and can report that it makes such a conclusion even more obvious.

Under contract law But even if the point being made here were wrong, it would be impossible to assert that a binding gen-eral ruling can have an effect upon commercial contracts, outside of the need to issue a tax invoice or a credit or debit note.

For example, if the parties to a contract have agreed upon a means of payment involving the immediate deduction by the recipient of the amount due by the supplier by way of an unconditional discount from the pre-discount price invoiced by the supplier (and so, incidentally, reflecting the true 'consideration' for the supply), the supplier cannot, on the basis of a binding general ruling, claim a variation of the contract. All that the VAT law (and, to the extent that it is applicable to the facts and is correct in law, a binding general ruling) can do is compel the supplier to issue a credit note and pre-vent the recipient from issuing a tax invoice.

It has always been necessary to distinguish be-tween various forms of price-reduction, which, in law, are properly the subject-matter of a credit note issued by the supplier, and the rendering of ser-vices by the recipient of goods supplied, which are properly the subject-matter of a tax invoice issued by the recipient of the goods, in its capacity as supplier of the service.

BGR 06 in no way changes this understanding of the law.

Suppliers sending their customers solemn form-letters asserting, for example, that BGR 06 compels them first to issue a credit note before allowing any remission of the pre-discount price are simply mak-ing unilateral attempts to alter existing contracts disguised as adherence to a legal necessity, which, in my view, they deliberately misunderstand.

Perhaps, though, I am being uncharacteristically generous, and, in reality, either they or their advis-ers are simply numbskulls.

When does ‘source’ signify for residents?

The famous Lever Bros case showed that the fiscal concept of source in the context of taxation com-prises two elements—the identification of the origi-nating cause of an income-stream, and then the location, somewhere in the world, of that originat-ing cause. Under our worldwide system of taxation the source of receipts and accruals (including the proceeds arising from the disposal of assets) is supposed to be irrelevant for ‘residents’. It is only nonresidents whose income tax base is limited to their ‘gross income’ from a source in the ‘Republic’.

Nevertheless, there was a hiccup when we switched to the worldwide system, in that we con-

tinued to apply a deemed-source formula to pen-sions earned wholly or partly abroad even by resi-dents, so as to establish what part, if any, is taxable here. By extension, the same formula was applied to lump-sum benefits from retirement funds. In 83 TSH 2010 I showed what the National Treasury has done to that extension, although not so thoroughly as to rule out all hope for its survival.

Source signifies also in the application of s 6quat of the Income Tax Act, the unilateral relief offered against foreign taxation. For foreign-sourced in-come-streams, you get a rebate; for locally sourced income-streams, you get a mere deduction.


Cases

July 2011

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

by Julian Ware © 2011 J Ware ([email protected])

Deductions— contingent liabilities Ackermans Ltd v CSARS

Supreme Court of Appeal (2010)—73 SATC 1 (judgment delivered by Cloete JA; Navsa JA, Cachalia JA, Mhlantla JA & Bosielo JA concurring): Under a sales agreement, Ackermans sold its retail clothing business as a going concern to Pep Stores. The purchase price was ‘the amount equal to the sum of R800 000 and the rand amount of the liabilities’. Included in the liabilities were three contingent liabilities amounting to R17 174 777, comprising contractual obligations to fund employee post-retirement medical aid benefits and bonuses and carry out repairs to hired property. The purchase price was settled partly on loan account and partly by the assumption of the liabilities, including the contingent ones, which, argued Ackermans, were tax-deductible from the purchase price. Since the partial discharge of the purchase price by the assumption of the seller’s liabilities was neither in fact nor in law expenditure incurred, the appeal was dis-missed, with costs. Although arriving at the right decision, the court left many a question unanswered. Under the banner of legal certainty, it was announced in the February Budget proposals that the law will be re-viewed. Do I smell a lobbyist?

Taxation— fraud upon fiscus Van Heerden & Others v The State

Western Cape High Court (2010)—73 SATC 7 (judgment delivered by Louw and Zondi JJ): Garth le Roux, of cricket fame, and his accountant, Gideon Van Heerden, were charged with tax fraud. The allegation was that Le Roux had failed to account for estate agent’s commission, and VAT thereupon, in one of his business entities. Le Roux maintained that the entity waived the commission before becoming unconditionally entitled to it. Thus there was no accrual, even though, in return for the waiver, he had benefited indirectly by enjoying reduced purchase prices on other properties bought from the seller. Upholding his argument, the court over-turned the lower court’s conviction of fraud. On the alleged VAT fraud, since no VAT was charged or received, a conviction of theft could not be sustained. Scary stuff indeed! But more worrisome are the potential new powers granted unto SARS under the Tax Administration Bill, which has just been tabled before Parliament.

2003 tax amnesty— applicability Taxpayer v SARS

ITC 1844 (South Gauteng Tax Court) (2010)—73 SATC 45 (judgment deliv-ered by Claasen CJ): SARS argued that a taxpayer had applied for, and obtained, tax relief under the wrong provisions of the 2003 tax amnesty. Consequently, he was ineligible for the relief granted. He was a South African resident employed to run a foreign parent company’s operations here. Was a gain made by him upon the exercise of share options granted to him, as alleged by SARS, derived from a South African source? The court did not share SARS’s view, and the taxpayer succeeded with his ap-peal. Yet, since share-incentive schemes are linked to services rendered, surely it is the place where the services are rendered that determine the source of gains under a scheme?

t s h

Feature Supplement to 100 Tax Shock Horror 2011


Briefing

July 2011 Tax Administration Bill—effective dates

by Michael Stein © 2011 M L Stein ([email protected])

The Tax Administration Bill, 2011 has made its ap-pearance. Once passed, the equivalent act will be huge, containing no fewer than 272 sections and a schedule with as many as 191 paragraphs. I deal here only with its effective dates, some of which have already passed.

Because the act will dramatically affect taxpay-ers’ rights, tax practitioners need to know what it says, if they want to stay in business and avoid charges of professional negligence.

Effective dates The act will come into operation on a date to be determined by the President, and he may deter-mine different dates for different provisions. But the bill fixes specific effective dates for the following provisions of its Schedule 1, some of which, having nothing to do with tax administration, are already effective:

Paragraph 61(1)(g) and (h): Adds s 66(13)(a) of the Income Tax Act, which provides that when a person ceases to be a resident a return must be made for the period commencing on the first day of that year of assessment and ending on the day preceding the date that he or she ceases to be as resident.

Paragraph 61(i): Adds a proviso to s 66(13)(b) of the Income Tax Act, which provides that when a company ceases to be a resident a return must be made for the period commencing on the first day of that financial year and ending on the day preceding the date that it ceases to be a resident.

Paragraph 61(j): Amends some cross-references in s 66(13B), which, once amended, will provide that the word income in s 66(13A) and 66(13C) must be construed as including an aggregate capital gain or aggregate capital loss.

These three amendments are effective as from the effective date (not yet fixed) of Part VIII of Chap-ter II of the Income Tax Act (the new dividends tax).

Paragraph 79: Adds para 2(4)(cA) of the Fourth Schedule to the Income Tax Act, which adds to the amounts that may be deducted in the de-termination of ‘balance of remuneration’ for PAYE purposes a premium paid by an employer of the taxpayer directly or indirectly for the benefit or

on behalf of the taxpayer, to the extent that the policy of insurance on which the premium is paid covers the taxpayer against the loss of in-come as a result of illness, injury, disability or unemployment. Effective as from 1 January 2011, and applicable to premiums incurred on or after that date.

Paragraph 83(a): Substitutes para (f)(ii) of the definition of the term ‘net remuneration’ for SITE purposes in para 11B(1) of the Fourth Schedule, which adds to ‘net remuneration’ remuneration derived by way of withdrawal from a retirement income draw-down account provided or payable by a pension, pension preservation, provident, provident preservation or benefit fund. Effective as from 1 March 2012.

Paragraph 90(a): Substitutes para 18(1)(c)(ii) of the Fourth Schedule, which exempts from the payment of provisional tax a natural person who on the last day of the year will be below the age of 65 years and does not derive income from the carrying on of a business, if his or her tax-able income for the relevant year from interest, dividends and rentals from fixed property will not exceed R20 000. The dividends in question have been limited to ‘foreign dividends’.

Paragraph 90(c). Substitutes para 18(1)(d)(iii) of the Fourth Schedule, which exempts from the payment of provisional tax a natural person (other than a director of a private company) who on the last day of the year of assessment will be over the age of 65 years, if the Commissioner is satisfied, amongst other things, that the per-son’s taxable income for the year will be derived only from remuneration, interest, dividends or rentals from fixed property. An amendment here also limits the dividends in question to ‘foreign dividends’.

The last two of these amendments are effective as from 1 March 2012 and applicable in years of as-sessment commencing on or after that date.

Paragraph 179: Effects a textual amendment to s 4(1)(b) of the Mineral and Petroleum Re-sources Royalty (Administration) Act, 2008. Ef-fective as from 1 March 2010 and applicable to mineral resources transferred on or after that date. t s h

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Davey’s Locker

July 2011 Repudiating an inheritance Timing is everything

by Tony Davey © 2011 A H Davey ([email protected] www.tonydavey.com)

[For more detailed treatments of this topic, see 70 TSH 2009; 80 TSH 2009 (two items); 83 TSH 2010; and 93 TSH 2010.]

BPR 105 (née BPR 038) SARS has just published BPR 105 [see the Monthly Listing]. This effectively replaces BPR 038, on the tax consequences of insur-ance policies issued by foreign insurers not registered here (97 TSH 2011). According to BPR 105, the policyholder is liable to tax, on an annual basis, on all in-vestments receipts and accruals of the foreign insurer’s portfolio assets in the policy-wrapper. Next month I shall examine it.

The current topic The oft-invisible hand of tax is present not only in commercial transactions but permeates many domestic arrangements (89 TSH 2010).

Take, for example, the possi-ble tax consequences of a repu-diation of an inheritance by an heir or a legatee under a will, which would then instead de-volve upon the deceased’s chil-dren. In this context, timing is everything. A ‘donation’ is de-fined in the Income Tax Act as including a gratuitous waiver or renunciation of a right to prop-erty.

The point here is that a repu-diation (or non-adiation) by an heir before acquiring a vested right (that is, in the late Mey-erowitz’s view, as expressed in Administration of Estates and Estate Duty, with which I concur, the approval of the liquidation &

distribution account by the Mas-ter of the High Court) is merely the waiver of a spes (a hope or expectation), which thus attracts no donations tax.

The Supreme Court has con-firmed this approach, albeit not in the context of tax but that of an insolvent heir repudiating his inheritance, thus defeating the claims of his trustee, in Wessels NO v De Jager.

A renunciation of an inheri-tance after the accrual of such a vested right is an entirely differ-ent matter. Take the plight of a legatee who inherited a usufruc-tuary right to a share portfolio and was already in receipt of dividend payments. She wished to renounce that right to income in favour of her children, who were the holders of the bare dominium. The repudiation, be-ing a waiver of a right to property and a ‘disposal’ for CGT pur-poses, would have triggered a liability to both donations tax and CGT, on the capitalized value of the right to income. (Para-graph 11(1)(b) of the Eight Schedule to the Income Tax Act includes as a CGT disposal the renunciation of an asset.

Just as prevention is better than cure, so is tax planning important, even with the seem-ingly most innocuous of ar-rangements.

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July 2011

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

Policemen behaving badly; very badly

by Andrew Paizes © 2011 A Paizes ([email protected])

Many of the difficulties raised by the vexed question of improperly obtained evidence are illustrated and raised by what happened in S v Pillay & others 2004 (2) SACR

419 (SCA). The accused in that case had

been charged with involvement in a robbery. The police had illegally tapped her telephone. They used the information obtained as a result to raid her house. They found some of the stolen money hidden in the ceiling where the robbers had placed it. When the police entered the house they told the accused that they in-tended to use her and members of her family as witnesses against the perpetrators of the robbery, and that they would not arrest them. This assurance induced the accused to make a statement that led to the discovery of the money.

It was agreed with representa-tives of the state that the accused would not be prosecuted if they testified against the robbers, but the state’s case against the rob-bers fell away, so that the ac-cused and her family were not called to testify against them. Instead, they were charged, and the accused was convicted by the trial court of having been an ac-cessory after the fact to robbery. Her appeal against that convic-tion was built on the objection that the reception by the trial court of the evidence of the dis-covery of the stolen money in her house fell foul of s 35(5) of the

Constitution. As I have shown, s 35(5) re-

quires a court to exclude evi-dence obtained in a manner that violates a constitutional right if its reception would either render the trial unfair or be otherwise detri-mental to the administration of justice. Since the accused’s rights, both to privacy and to si-lence, were clearly infringed, the Supreme Court of Appeal turned its attention to the two exclusion-ary legs of s 35(5).

What is there to suggest that the reception of the contested evidence would render the trial unfair or be detrimental to the interests of the administration of justice?

It is true that the evidence of what the accused had said on the telephone was what the courts call ‘testimonial evidence’, in that it emanated from the accused herself and was self-incriminatory. But, on the other hand, this evidence was not in-duced or created by the police, they merely intercepted evidence (albeit illegally) that already ex-isted and was a product of the accused’s own will.

It is true, too, that the state-ment made by the accused to the police, which led to the discovery of the money in the ceiling, was ‘conscriptive’, in the sense that she had been induced to make it as a result of the actions of the police. But that objection was met, in part, by the fact that the

money would, in all likelihood, have been discovered even in the absence of her statement.

And it is true that the infraction of her rights was a serious one. But, again, the sting of that com-plaint was lessened by the fact that the police were found to have acted in the bona fide and reasonable belief that they were authorized to do what they did; by the fact that South Africa has a very high rate of crime; and the fact that the robbery in question was a very big one which consti-tuted a very serious crime.

How, then, is a court to balance these conflicting considerations? How, moreover, do they decide which of the factors that militate against the admissibility of the evidence to group under each of the exclusionary provisions of s 35(5)?

Our courts have held that the two legs of s 35(5) are not en-tirely discrete. The first is, in ef-fect, a sub-set of the second: whenever the reception of un-constitutionally obtained evidence would render a trial unfair, it would necessarily be detrimental to the interests of justice to admit it; although the converse is not true, since the reception of evi-dence that offends the second leg will not necessarily render the trial unfair.

The first leg tends to pivot around those rights, set out in s 35(3)(a) to (o), that define a fair trial. Chief among these is the


July 2011

right ‘not to be compelled to give self-incriminating evidence’ in s 35(3)(j), a right buttressed fur-ther by the right to silence set out in s 35(3)(h). The right to legal representation and the right to be informed of this right promptly are also important in this context.

The second leg, on the other hand, requires a court to consider whether the repute of the admini-stration of justice would be served better by the reception or the exclusion of the evidence.

It is not surprising that the nebulous character of these con-cepts and their connectedness often leads courts to divide in their judgments. Pillay was one

such case. The majority and the minority were in agreement that the reception of the evidence would not render the trial unfair: the evidence gleaned from the illegal trapping of the accused’s phone did not violate her right against self-incrimination since it was not conscriptive (not brought about, in other words, by the compelled assistance of the ac-cused). Her statement was con-scriptive, but its reception was not unfair since the money would have been discovered anyway, so there was no prejudice caused to the accused.

It was the second leg, however, that split the court. The majority

put its focus on the gravity of the police impropriety and concluded that the evidence would be detri-mental to the interests of justice. The minority, on the other hand, formed the opposite conclusion, in view of the good faith of the police and the need to counter serious crime. These factors led the minority to believe that an acquittal would be more likely to bring about a loss of respect for the judicial process in the eyes of reasonable and dispassionate members of society than a con-viction would be to result in a loss of respect for the Bill of Rights.

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Bsp Seminars ®

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The Tax Administration Bill —A Comparative Analysis

s310 Full-day session Times: Registration 08h00-08h30. Seminar 08h30-12h00, 13h00-16h15

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Shortcut Keys in Word by Duncan S McAllister ©2011

July 2011

ALT sequence keys in Word 2007—VI (references)

Set out here are the ALT sequence keys for access-ing the functions on the References tab in Word

2007. t s h

ALT sequence keys (Word 2007) – The References tab

REFERENCES (ALT + S) ALT, S, T Table of Contents ALT, S, T, I Insert Table of contents ALT, S, T, R Remove Table of Contents ALT, S, T, S Save Selection to Table of Contents Gallery ALT, S, A Add Text ALT, S, U Update Table of Contents ALT, S, F Insert Footnotes [CTRL + ALT + F] ALT, S, E Insert EndNote [CTRL + ALT + D] ALT, S, O, N Next Footnote ALT, S, O, P Previous Footnote ALT, S, O, ,X Next Endnote ALT, S, O, V Previous Endnote ALT, S, H Show Notes ALT, S, Q Footnote and Endnote Dialog Box ALT, S, C Insert Citation ALT, S, C, S Add New Source ALT, S, C, P Add New Placeholder ALT, S, C, L Search Libraries ALT, S, M Manage Sources (opens Source Manager dialog box) ALT, S, L Style ALT, S, B Bibliography ALT, S, B, B Insert Bibliography ALT, S, B, S Save Selection to Bibliography Gallery ALT, S, P Insert Caption ALT, S, G Insert Table of Figures ALT, S, V Update Table of Figures ALT, S, R, F Cross‐Reference ALT, S, N Mark Entry [ALT + SHIFT + X] ALT, S, X Insert Index ALT, S, D Update Index ALT, S, I Mark Citation [ALT + SHIFT + I] ALT, S, R, T Insert Table of Authorities ALT, S, R, U Update Table of Authorities


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0 1 0 0 9 3 5 6 6 2 0 3 July 2011 - bspseminars.co.za · 2011), showing the portfolio committee amendments made to the Bill during its passage through Parliament. Tax Admin Bill 23