Are Trusts Holders of Fundamental Rights During Tax Administration by SARS?

• Jurisdiction: South Africa
• Published date: 27 May 2019
• Date: 27 May 2019
• Author: Fareed Moosa
• Citation: (2018) 29 Stell LR 453
• Pages: 453-470

453

ARE TRUSTS HOLDERS OF FUNDAMENTAL

RIGHTS DURING TAX ADMINISTRATION BY

SARS?

Fareed Moosa

B.Proc (UWC) LLB (UWC) LLM (UCT) LLD (UWC)

Head of Department: Mercantile and Labour Law, University of the Western Cape

1 Introduction

In South Africa , freedom is a value recognised in sections 1(a) and 39(1)(a)

of the Constitution of the Republic of South Afr ica, 1996 (“Constitution”).1

Freedom includes the freedom of nat ural persons to select the business entity

(such as a company, close corporation, association, or tr ust)2 through which

to exercise any fundamental right entrenched in the Bill of Rights (“BOR”).

These include freedom of tr ade (section 22), to operate an independent

educational instit ution for the purposes of section 29(3), or to operate a

cultural, religious or linguistic association under section 31(1)(b). Property,

possessions, communications, information, and any othe r constitutionally

protected interest held by, or in, a juristic ent ity for the benet of a natu ral

person ought to be protecte d. Every trust or other t ype of juristic entity used

for trade or other legitimate purposes ought to be confer red BOR protection.

It is socially, economically and legally desirable to do so.3 Such protect ion

reinforces the protection of fundamental rights in the hands of those natural

persons behind the entities (such as, company shareholders and ofcer s,

members and employees of corporations, trust donors and tr ust beneciaries).

Trusts are generally use d as vehicles for estate planning pur poses. They

are a reality of modern social, economic, and juridical life in South Africa

with their own ethos der ived from a trust deed , governance struct ure and

1 Freedom is a broad c oncept. See Ferreira v L evin NO; Vryenhoek v Powe ll NO 1996 1 SA 984 (CC) para

50. Also, see DW Jordaa n “The open society” (20 01) 64 THRHR 107; S Woolman & D Davis “The l ast

laugh: Du Plessis v De K lerk, classical liber alism, creole liber alism, and the applic ation of fundament al

rights unde r the interim and f inal Constitut ions” (1996) 12 SAJHR 361 382-383; JL Hill “Th e five faces

of freedom in A merican politica l and constitut ional thought” (200 4) 45 Boston College LR 499.

2 For discussion of the d ifferent forms of busin ess entities, see CJ Nagel, A B oraine A & WP de Villiers

Business Law 2 ed (2000) 309-392; ML Benade, JJ Henn ing & JJ du Plessis Entrepreneurial Law 4 ed

(2008) 9-383. The freedom u nder section 22 to engage in p roductive work is an integr al component of

human dign ity. See Minister of Home Affairs v Watch enuka 2004 4 SA 326 (SCA) para 27; Affordable

Medicines Trust v Mi nister of Health 2006 3 SA 2 47 (CC) para 59.

3 A van Coller “Th e minority defend ing the interes ts of the vulner able [an evaluation of the mi nority

judgment in NCSPCA v Openshaw 2008 (5) SA 339 (SCA)]” (2011) 22 Ste ll LR 306 309; E Pollman

“Reconceivi ng corporate pe rsonhood” (2011) Utah LR 1629 16 63-1675.

(2018) 29 Stell LR 453

© Juta and Company (Pty) Ltd

compliance with laws.4 A trust’s aims depend on its founder’s intentions.

Since a trust may ea rn income from business activities,5 it may incur an

income tax liabilit y.6 Trusts may also e mploy workers and incur an obligation

to pay unemployment insurance contributions,7 skills development levies,8

and employees’ tax.9 As taxpayers, trusts are subject to the administr ative

powers of the South African Revenue Ser vice (“SARS”) acting under the Tax

Administr ation Act 28 of 2011 (“TAA”).10

The TAA applies to “every person” liable to comply with a t axing statute.11

“Every” extends the ambit of the legal subject to which it relates.12 Thus, for

tax purposes, it includes trusts so that they are statutory persons affected by

tax administration. By virt ue of section 43(1) of the TAA, ever y taxpayer,

including a tru st, may be criminally prosecuted.13 As accused, tr usts ought

to be entitled to the fair t rial rights under sect ion 35(3) of the BOR.14 The

affairs of all taxpayers may also, under the TAA, be subjected to criminal

investigation (section 44), inquiry proceedings (section 52), warrantless

inspections (section 45), as well as warranted (section 61) and wa rrantless

searches and seizu res (section 63). However, the exercise of these powers

places SARS on a collision course with a t axpayer’s fundamental rights to,

inter alia, privacy and proper ty. Since the TAA does not confer these rights,

4 The Trust Prop erty Control Act 57 of 1988 (s 1) defines a tr ust as “the arra ngement through which t he

ownership i n property of one person is by v irtue of a trust in strument made over or beq ueathed” to a

truste e or to beneficiaries d esignated in the tr ust instrume nt. For tax purposes, s ection 1 of the Income

Tax Act 58 of 1962 (“ITA”) defines “tr ust” to mean “any trus t fund consisting of cash or ot her assets

which are adm inistered and cont rolled by a person actin g in a fiduciary capa city, where such person is

appointed u nder a deed of trus t or by agreement or und er the will of a deceas ed person”.

5 B Wunsh “Tradi ng and business trus ts” (1986) 103 SALJ 561 564-570. See also PA Olivier, S Strydo m

& GPJ van den Berg Trust Law a nd Practice 2 ed (2014) Issue 1 5-18. For examples of cas es involving a

trust ca rrying on a tr ade, see Nieuwoud t v Vrystaat Mielies (Ed ms) Bpk 2004 3 SA 486 (SCA); Land and

Agricultu ral Bank of South Arica v Parke r 2005 2 SA 77 (SCA). Under section 2(3) of the Communal

Propert y Associations Act 28 of 1996 , a trust is a “simi lar entity” def ined in s 1 thereof a nd may, thus, be

a holder of commun al land for the purp oses of benefitt ing a “community ” contemplated by s 25(7) of th e

Bill of Rights.

6 For the legal natu re of rights and clai ms against tr usts, see De Lee f Family Trust v CIR 1993 3 SA 345 (A)

paras 13-23.

7 See s 5 of the Unemployme nt Insurance C ontributions Act 4 of 20 02.

8 See s 3 of the Skills D evelopment Levies Act 9 of 1999.

9 The Fourth Sch edule of the ITA obliges an “employer” (as defi ned) to withhold “employees’ tax” (as

defined) f rom the “remunera tion” (as defined) ear ned by an “employee” (as defi ned) and to pay such tax

at fixed, pe riodic interv als.

10 For a discussion of t he TAA, see F Moosa “Taxation: C onstitutional ity of the Tax Adminis tration Act 28

of 2011” (2017) 2 8 Stell LR 638.

11 S 4(1) of the TAA.

12 See Arprin t Ltd v Gerber Goldschm idt (SA) Ltd 1983 1 SA 254 (A) 261; Southern Life Associat ion Ltd v

CIR 47 SATC 15 (C) 18-19.

13 Section 43(1) reads:

“If at any time b efore or during the cou rse of an audit it appear s that a taxpayer may have co mmitted

a serious ta x offence, the investig ation of the offence must b e referred to a sen ior SARS official

responsible for c riminal inves tigations for a decision as to whet her a crimina l investigation shoul d

be pursued.”

In crimi nal tax cases, the ordi nary crimina l law principles apply. See Van Heerden v S 2011 73 SATC

7 paras 81 92-93. In civi l tax cases, the crimi nal law principle of dolus eventualis does not apply. See

CSARS v Capst one 556 (Pty) Ltd 2016 4 SA 341 (SCA) para 28.

14 For example, in Mile s Plant Hire v CSARS 2 015 JOL 33326 (SCA), a representative taxpaye r was convicted

for crimin al tax offences com mitted by a taxp ayer company.

454 STELL LR 2018 3

© Juta and Company (Pty) Ltd