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judgment of the High Court in Unitrans is a nullity. In this regard see Commissioner, South African Revenue Service v Sprigg Investment 117 CC t/a Global Investment 2010 Taxpayer 221, [2010] ZASCA 172, 2011 (4) SA 551 (SCA), 73 SATC 114, at paragraph 30, where Maya JA (as she then was) held as follows: ‘The enquiry ... should have been conducted by the Full [Tax] Court in terms of section 83(4). The proceedings were, therefore, a nullity and the Tax Court’s order is, for that reason, of no force or effect. To the extent that Tax Court Rule 26(8) provides otherwise it must be ultra vires.’ Adams J and Strydom J found against the taxpayer, but when it is borne in mind that it is stated in paragraph 38 of the judgment that ‘the taxpayer earned unproductive interest’, it is perhaps just as well that the High Court’s findings are of no force and effect. This is because the notion that interest earned – as distinct from interest expenditure – can be ‘unproductive’ is enough to boggle even the most sanguine and tolerant mind. Thus jurisprudential nullity eclipses judicial shortcoming, which nevertheless – ghost-like – identifies profound shortcomings in ITC 1959 85 SATC 35. ‘And I guess there’s nothing more to say’, with acknowledgment to Phil Collins – save, perhaps, non quieta movere: do not disturb what is settled. h e E x t r a o r d i n a r y N a t u r e O f A GAAR A s s e s s m en t – W h y SARS C a n o t B r o a d en , A m p l i f y O r C h a n g e T h e D e t e r m i n a t i o n T h a t C o n s t i t u t e s I t s GAAR A s s e s s m en t Introduction by Trevor Emslie SC, Matthew Blumberg SC and Ruan Kotze1 AUGUST-OCTOBER 2024 142 A r t i c l e s a n d N o t e s The extraordinary nature of a GAAR assessment, ie an assessment issued by or on behalf of the Commissioner for the South African Revenue Service (‘the Commissioner’ or ‘SARS’) in accordance with the general anti-avoidance rules (‘the GAAR’) in sections 80A to 80L of the Income Tax Act, 58 of 1962, as amended, (‘the Act’), is not hard to discern. A casual glance at section 80B(1) reveals the vast ambit of the Commissioner’s power to levy tax in accordance with a fictional set of facts determined by him once he is satisfied that the taxpayer has engaged in an ‘impermissible avoidance arrangement’ as contemplated in section 80A of the Act. What is noteworthy in relation to a GAAR assessment is that the real facts are not simulated or a sham, for if they were there would be no need for an assessment to be issued under the GAAR – a court would then simply ignore the simulation or sham and determine the tax consequence on the basis of the true facts, not the simulation or the sham. It follows that where the GAAR is relied on, the facts with reference to which a court will decide whether or not SARS was justified in issuing a GAAR assessment will be the real facts. If the real facts do justify the GAAR assessment issued by SARS, it is the Commissioner who will then depart from those facts and determine the taxpayer’s tax liability in accordance with whichever fiction he selects from the menu of fictions available to him under section 80B(1) of the Act. The Commissioner’s powers under the GAAR Section 80B(1) provides as follows: ‘The Commissioner may determine the tax consequences under this Act of any impermissible 1 Members of the Cape Bar. This article was written in October 2020 and has lain dormant, awaiting an appropriate moment for publication in The Taxpayer. That moment has now arrived.
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avoidance arrangement for any party by – (a) disregarding, combining, or re-characterising any steps in or parts of the impermissible avoidance arrangement; (b) disregarding any accommodating or tax- indifferent party or treating any accommodating or tax-indifferent party and any other party as one and the same person; (c) deeming persons who are connected persons in relation to each other to be one and the same person for purposes of determining the tax treatment of any amount; (d) reallocating any gross income, receipt or accrual of a capital nature, expenditure or rebate amongst the parties; (e) re-characterising any gross income, receipt or accrual of a capital nature or expenditure; or (f) treating the impermissible avoidance arrangement as if it had not been entered into or carried out, or in such other manner as in the circumstances of the case the Commissioner deems appropriate for the prevention or diminution of the relevant tax benefit.’ An important obligation that accompanies the Commissioner’s powers under section 80B(1) – one that we have seen more honoured in the breach than in the observance – is contained in section 80B(2), which provides as follows: ‘Subject to the time limits imposed by sections 99, 100 and 104(5)(b) of the Tax Administration Act, the Commissioner must make compensating adjustments that he or she is satisfied is necessary and appropriate to ensure the consistent treatment of all parties to the impermissible avoidance arrangement.’ Section 99 of the Tax Administration Act, 28 of 2011, as amended, (‘the TAA’) deals with the period of limitations for the issuance of assessments (more commonly referred to as ‘the prescription period’), section 100 deals with the finality of assessments or decisions, and section 104(5)(b) provides that the period for objection cannot be extended if more than three years have elapsed from the date of the assessment or decision in question. (The question how the inability of the Commissioner to make compensating adjustments due to the time limits imposed by sections 99, 100 and 104(5)(b) of the TAA impacts on his powers under section 80B(1), if at all, is perhaps a subject for another article.) The jurisdictional fact Subject to what follows concerning the Commissioner’s satisfaction in this regard, it is the existence of an ‘impermissible avoidance arrangement’ that constitutes the jurisdictional prerequisite for the exercise of the Commissioner’s extraordinary powers which permit him to depart from the actual facts underlying a tax dispute. An ‘impermissible avoidance arrangement’ is defined in section 80A of the Act as follows: ‘An avoidance arrangement is an impermissible avoidance arrangement if its sole or main purpose was to obtain a tax benefit and – (a) in the context of business – (i) it was entered into or carried out by means or in a manner which would not normally be employed for bona fide business purposes, other than obtaining a tax benefit; or (ii) it lacks commercial substance, in whole or in part, taking into account the provisions of section 80C; (b) in a context other than business, it was entered into or carried out by means or in a manner which would not normally be employed for a bona fide purpose, other than obtaining a tax benefit; (c) in any context – (i) it has created rights or obligations that would not normally be created between persons dealing at arm’s length; or (ii) it would result directly or indirectly in the misuse or abuse of the provisions of this Act (including the provisions of this Part).’ It can be seen from the above that there are, broadly, four requirements for the existence of an ‘impermissible avoidance arrangement’, all of which must be satisfied: 1. There must be an ‘arrangement’ (as defined). The word arrangement is defined in section 80L to mean ‘any transaction, operation, 143

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judgment of the High Court in Unitrans is a nullity.

In this regard see Commissioner, South African Revenue Service v Sprigg Investment 117 CC t/a Global Investment 2010 Taxpayer 221, [2010] ZASCA 172, 2011 (4) SA 551 (SCA), 73 SATC 114, at paragraph 30, where Maya JA (as she then was) held as follows:

‘The enquiry ... should have been conducted by the Full [Tax] Court in terms of section 83(4). The proceedings were, therefore, a nullity and the Tax Court’s order is, for that reason, of no force or effect. To the extent that Tax Court Rule 26(8) provides otherwise it must be ultra vires.’ Adams J and Strydom J found against the taxpayer, but when it is borne in mind that it is stated in paragraph 38 of the judgment that ‘the taxpayer earned unproductive interest’, it is perhaps just as well that the High Court’s findings are of no force and effect. This is because the notion that interest earned – as distinct from interest expenditure – can be ‘unproductive’ is enough to boggle even the most sanguine and tolerant mind.

Thus jurisprudential nullity eclipses judicial shortcoming, which nevertheless – ghost-like – identifies profound shortcomings in ITC 1959 85 SATC 35.

‘And I guess there’s nothing more to say’, with acknowledgment to Phil Collins – save, perhaps, non quieta movere: do not disturb what is settled.

h e E x t r a o r d i n a r y N a t u r e O f A GAAR A s s e s s m en t – W h y SARS C a n o t B r o a d en , A m p l i f y O r C h a n g e T h e D e t e r m i n a t i o n T h a t C o n s t i t u t e s I t s GAAR A s s e s s m en t

Introduction by Trevor Emslie SC, Matthew Blumberg SC and Ruan Kotze1

AUGUST-OCTOBER 2024 142 A r t i c l e s a n d N o t e s

The extraordinary nature of a GAAR assessment, ie an assessment issued by or on behalf of the Commissioner for the South African Revenue Service (‘the Commissioner’ or ‘SARS’) in accordance with the general anti-avoidance rules (‘the GAAR’) in sections 80A to 80L of the Income Tax Act, 58 of 1962, as amended, (‘the Act’), is not hard to discern. A casual glance at section 80B(1) reveals the vast ambit of the Commissioner’s power to levy tax in accordance with a fictional set of facts determined by him once he is satisfied that the taxpayer has engaged in an ‘impermissible avoidance arrangement’ as contemplated in section 80A of the Act.

What is noteworthy in relation to a GAAR assessment is that the real facts are not simulated or a sham, for if they were there would be no need for an assessment to be issued under the GAAR – a court would then simply ignore the simulation or sham and determine the tax consequence on the basis of the true facts, not the simulation or the sham. It follows that where the GAAR is relied on, the facts with reference to which a court will decide whether or not SARS was justified in issuing a GAAR assessment will be the real facts. If the real facts do justify the GAAR assessment issued by SARS, it is the Commissioner who will then depart from those facts and determine the taxpayer’s tax liability in accordance with whichever fiction he selects from the menu of fictions available to him under section 80B(1) of the Act.

The Commissioner’s powers under the GAAR

Section 80B(1) provides as follows: ‘The Commissioner may determine the tax consequences under this Act of any impermissible

1 Members of the Cape Bar. This article was written in October 2020 and has lain dormant, awaiting an appropriate moment for publication in The Taxpayer. That moment has now arrived.

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