Supreme Court of Appeal Refuses ‘Reverse’ Piercing of the Corporate Veil

by | Apr 27, 2024 | BTCLQ, BTCLQ V15 I1

Supreme Court of Appeal Refuses ‘Reverse’ Piercing of the Corporate Veil

Author: Albertus Marais

ISSN: 2219-1585
Affiliations: Advocate of the High Court, CA (SA), Certified Tax Advisor (SAIT), Adjunct Senior Lecturer (UCT Law Faculty) and Director at AJM
Source: Business Tax & Company Law Quarterly, Volume 15 Issue 1, 2024, p. 1 – 8

Abstract

A company is a separate legal person in terms of South African law. That principle is also widely recognised in most countries. Sometimes, however, either through common law or statutory operation, the separate legal personality of a company may be ignored. Where a company’s separate legal personality is ignored for limited purposes, it is often referred to as a court ‘piercing the corporate veil’ of the company.
In South Africa, the piercing doctrine has historically been developed under the common law. More recently, however, that doctrine has now been incorporated into statute and, more specifically, section 20(9) of the Companies Act. The codification of the piercing doctrine is still rather new, and the recent case in The Butcher Shop and Grill is important because it reasserts the principles that have recently emerged in South African law in this regard.
That case is also important because it not only reasserts the interaction between section 20(9) and the common law but also because it deals with the interesting concept of so-called ‘reverse piercing’, that is, where a company’s shareholder approaches a court to have the separate legal personality of the company in which shares are owned disregarded. The Butcher Shop and Grill is important in this sense because it confirms the basic principle that a company is a legal person, the existence of which must at all times be acknowledged unless the separate identity of the legal person was the subject of abuse. This makes reverse piercing highly unlikely, if not impossible.

Understatement Penalties Through the Cases

by | Apr 27, 2024 | BTCLQ, BTCLQ V15 I1

Understatement Penalties Through the Cases

Author: Annalie Pinch

ISSN: 2219-1585
Affiliations: Senior Consultant, Bowman Gilfillan
Source: Business Tax & Company Law Quarterly, Volume 15 Issue 1, 2024, p. 9 – 19

Abstract

The understatement penalty (‘USP’) provisions were introduced in the Tax Administration Act in 2011 (‘the TAA’) with effect from 1 October 2012. These
provisions stipulate, amongst other things, when the South African Revenue Service (‘SARS’) may impose understatement penalties, when no penalties may be imposed, how the penalty must be calculated and when penalties imposed must be remitted. In particular, the USP rules require there to be an ‘understatement’, as defined in section 221 of the TAA. However, where an understatement arises from a ‘bona fide inadvertent error’, no penalty may be imposed. This term is not defined and has accordingly been the subject of many disputes between taxpayers and SARS, resulting in the term being considered by the tax court, the Supreme Court of Appeal (‘SCA’) and currently the Constitution Court, as discussed in this article. While SARS adopts a narrow view of what constitutes a bona fide inadvertent error, the SCA held in CSARS v The Thistle Trust (Thistle) that SARS was not entitled to levy an understatement penalty because the taxpayer made an error, but did so in good faith and acted unintentionally. In Commissioner for the South African Revenue Service v Coronation Investment Management SA (Pty) Ltd (Coronation), the SCA held that the understatement arose from a bona fide inadvertent error because it resulted from the taxpayer relying on a tax opinion from a tax practitioner.
The TAA also stipulates that the burden of proof is on SARS in respect of the facts on which SARS bases the imposition of an understatement penalty. The onus of proof has similarly been the subject of case law, resulting in a clearer understanding of the requirements that SARS has to meet in imposing understatement penalties. In terms of Purlish Holdings (Pty) Ltd v The Commissioner for the South African Revenue Service (Purlish Holdings) and Enviroserv Waste Management (Pty) Ltd v The Commissioner for the South African Revenue Service (Enviroserv), SARS must show not only that the taxpayer committed the conduct envisaged in the definition of ‘understatement’ (e g, an incorrect statement in a return), but also that such conduct resulted in prejudice suffered by SARS or the fiscus. Furthermore, it was held in Purlish Holdings that ‘prejudice’ is not limited to financial prejudice.

Thistle and Coronation: Can a Taxpayer Place Reliance on a Legal Opinion to Avoid or Reduce Penalties While at the Same Time Withholding Disclosure of the Opinion from SARS?

by | Apr 27, 2024 | BTCLQ, BTCLQ V15 I1

Thistle and Coronation: Can a Taxpayer Place Reliance on a Legal Opinion to Avoid or Reduce Penalties While at the Same Time Withholding Disclosure of the Opinion from SARS?

Author: Matthew Blumberg SC

ISSN: 2219-1585
Affiliations: N/A
Source: Business Tax & Company Law Quarterly, Volume 15 Issue 1, 2024, p. 20 – 27

Abstract

Understatement penalties1 featured in two tax cases recently argued in the Constitutional Court. In both cases, the taxpayer had sought to avoid or reduce liability for understatement penalties on the basis that the taxpayer’s contentious tax position had been based on a favourable legal opinion. In the one case, the opinion was disclosed to SARS. In the other, it was not. In the latter case, SARS contended that the taxpayer ought to have disclosed the opinion and adduced it in evidence. The SCA had disagreed, finding that ‘it was not incumbent on [the taxpayer] to disclose a tax opinion that it had obtained, any more than it would be on any other party which litigates on the basis of a procured legal opinion.’
It is, for various reasons, difficult to predict whether or not the Constitutional Court will engage with this finding. For the reasons explored below, however, taxpayers should proceed with caution before seeking to invoke the SCA-finding as authority for the proposition that they may rely on a legal opinion to avoid or reduce penalties, while at the same time withholding disclosure of the opinion from SARS.