Case Comments: Modernising the ‘Substance over Form’ Doctrine: Commissioner for the South African Revenue Service v NWK Ltd

• Jurisdiction: South Africa
• Date: 25 May 2019
• Published date: 25 May 2019
• Author: Thabo Legwaila
• Pages: 115-127

Modernising the ‘Substance over Form’

Doctrine: Commissioner for the South African

Revenue Service v NWK Ltd

THABO LEGWAILA

University of Pretoria

1 Introduction

Taxpayers are entitled to arrange their affairs so as to remain outside the

provisions of taxing statutes. However, an attempt that harbours dishonesty

can always be challenged by the tax authorities, and the courts will not be

deceived by the form of such a transaction. They can examine the true nature

of the transaction and attach adequate tax implications to it (WT Ramsay Ltd v

Inland Revenue Commissioners [1982] AC 300; 11 ATR 752; Dadoo Ltd

v Krugersdorp Municipal Council 1920 AD 530; Commissioner of Inland

Revenue v Saner 1927 TPD 162; Commissioner of Customs and Excise v

Randles, Brothers & Hudson Ltd 1941 AD 369; Secretary for Inland Revenue

v Hartzenberg 1966 (1) SA 405 (A)). This is the essence of the doctrine of

substance over form (‘the doctrine’).

The doctrine is based on a principle that Innes CJ expressed in Dadoo

(supra at 547) as a ‘branch of the fundamental doctrine that the law regards

the substance rather than the form of things – a doctrine common, one would

think, to every system of jurisprudence and conveniently expressed in the

maxim plus valet quod agitur quam quod simulate concipitur’. This principle

forms an important part of South African law (see SA Pulp and Paper

Industries Ltd v Commissioner for Inland Revenue 1955 (1) SA 8 (T); Du

Plessis v Joubert 1968 (1) SA 585 (A); Bozzone and Others v Secretary for

Inland Revenue 1975 (4) SA 579 (A)). On the adoption of the substance-over-

form principle in South Africa, see AG Derksen ‘Should the South African

Courts Adopt the English Anti-Tax-Avoidance Rule in Furniss v. Dawson?’

(1990) 107 SALJ 416; ‘Margo Commission of Inquiry into Certain Aspects of

the Tax Structure in South Africa’ (1986) Chapter 27; and ‘The Report of the

Katz Commission into Tax Reform’ Chapter 11 (available at http://

www.polity.org.za/polity/govdocs/commissions/katztoc.html, visited on 10

December 2011).

Traditionally, the doctrine entailed two elements: the label principle and the

simulation principle (P Surtees & S Millard ‘Substance, Form and Tax

Avoidance’ November/December 2004 Accountancy SA 14). Under the f‌irst,

parties attach a wrong label to a transaction but act in good faith and intend to

give effect to the transaction. Under the second, they enter into a sham

transaction or a transaction that is in fraudem legis (at 15; see also T Emslie et

al Income Tax: Cases and Materials 3 ed (2001) at 896–7). The latter type of

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(2012) 24 SA Merc LJ 115

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