Does the Bill of Rights Apply Extraterritorially for Tax Administration Purposes?

• Jurisdiction: South Africa
• Date: 01 June 2020
• Published date: 01 June 2020
• Author: Moosa, F.
• Pages: 37-54

37

DOES THE BILL OF RIGHTS APPLY

EXTRATERRITORIALLY FOR TAX

ADMINISTRATION PURPOSES?

Fareed Moosa*

B Proc LLB LLM LLD

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

1 Introduction

In South Africa (“SA”), tax consequences ar ise from a “taxable event”1 that

occurs withi n and beyond SA’s territor ial limits. Therefore, taxpayers include

persons onshore (or resident) in SA and offshore in the sense that they la ck

a physical presence or footprint i n SA. This is evident from SA’s income tax

regime that is main ly residence-based and, to a les ser degree, source-ba sed.

A person who is a “ resident” of SA in the technical sense and as dened in

section 1 of the Income Tax Act 58 of 1962 (“ITA”) is liable for tax on their

worldwide income. Conversely, a non-resident is liable to pay tax only on such

income as is “received by2 or accrue d”3 from a South Africa n “source”.4 In

terms of section 1 of the ITA, a natu ral person is considered a “re sident” for

a particular t ax year if he or she is either “ordinar ily resident”5 in SA duri ng

that period or is physically present the re for the minimum pe riods prescribed

in the denition of “resident”. A “person (other than a natural person)”,

namely, a juristic entity, is a “resident” of SA for income tax pur poses if it is

* This art icle is derived from p art of the author’s LLD dis sertation: F Moo sa The 1996 Constitu tion and the

Tax Administrat ion Act 28 of 2011: Balancing ef ficient and effec tive tax administr ation with taxpayer s’

rights LLD diss ertation Univer sity of the Western Cap e (2016)

1 In this conte xt, a “taxable event” mean s “an occurrence which affe cts or may affect the liabilit y of a

person to ta x” See s ection 1 of the Tax Admin istration Act 28 of 2011

2 For the meaning of “ received by”, see Secret ary for Inland Reven ue v Smant 1973 1 SA 754 (A) 762-763;

MP Finance Gro up CC (in liquidation) v Com missioner, South Afr ican Revenue Serv ice 2007 5 SA 521

(SCA) 524

3 For the meaning of “a ccrued to”, see Commissio ner for Inland Revenue v Peop le’s Stores (Walvi s Bay)

(Pty) L td 1990 2 SA 353 (A) 365-367; Cactus Inves tments (Pty) Ltd v Comm issioner for Inland Reve nue

1999 1 SA 315 (SCA) 323

4 For the principle s governing “sou rce”, see Essent ial Sterolin Pro ducts (Pty) Ltd v C ommissioner f or

Inland Revenue 1993 4 SA 859 (A) 870-871; First National Bank o f Southern Afric a Ltd v Commissioner

for Inland Reven ue 2002 3 SA 375 (SCA) 381-384 See also, W Hellerstein “Ju risdiction to Tax Income

and Consump tion in the New Economy: A theo retical and comparat ive perspective” (2003) 38 Georgia

Law Review 1

5 For the meaning of “or dinarily resident ”, see Cohen v Commissioner for Inl and Revenue 1946 AD 174

175; Commission er for Inland Reve nue v Kuttel 1992 3 SA 242 (A) 247-248 For a discussion of the

meaning of “re sident” in tax law, see Est ate Kootcher v Commis sioner for Inland Reven ue 1941 AD 256

260; H v Commissio ner of Taxes 1960 2 SA 695 (SR) 696-697

(2020) 31 Stell LR 37

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“incorporate d, established or formed in t he Republic6 or … has its place of

effective management in the Republic”.7

Natural and jur istic persons, whether locat ed inside or outside SA’s

geographical borders, may be l iable for other taxes too, such as tran sfer duty,

value-added tax (“VAT”), donations tax, and capital gain s tax (“CGT”).

The Tax Administrat ion Act 28 of 2011 (“TAA”)8 is SA’s premier tax

administ ration statute. Sect ion 4(1) thereof stipulates that the TAA applies

to “every person” liable to comply with a “t ax Act”.9 The word “every” has

the effect of rendering ver y wide the ambit of the affected legal subject.10

Thus, the TAA applies to everyone liable to taxat ion under a domestic scal

statute. Moreover, the TAA applies to foreigners liable for a tax debt r aised

by a tax authority of a count ry with which the govern ment of SA concluded

an internat ional tax agreeme nt.11 This is clear from, rst , the broad denition

of “taxpayer” in sect ion 151 of the TAA12 and secondly, from the collection

powers conferred on the South A frican Revenue Serv ice (“SARS”) by, inter

alia, sections 163 and 185 of the TAA.13 Accordingly, every “taxpayer ” as

dened, regardless of their legal nature, their places of residence, location,

domicile, establishment, effect ive management or formation, is subject to

tax admi nistration conducted by SAR S, an organ of state in ter ms of the

South African Revenue Ser vice Act 34 of 199714 and the Constitution of the

Republic of South Africa, 1996.15

6 For a discussion of a ju ristic person’s place of residence, se e Bisonboard Ltd v K Braun Woodwo rking

Machinery ( Pty) Ltd 1991 1 SA 482 (A) 493-499

7 For the meaning of “ place of effective ma nagement”, see Oc eanic Trust Co Ltd NO v Co mmissioner, So uth

African Reve nue Servic e 2012 74 SATC 127 (WCC) Se e also C de M Ala “Plac e of Effective Manage ment

Criterion for D etermining th e Tax Residence of Persons Other t han Natural Person s: Oceanic Trust Co

Ltd v CSARS” (2015) 132 SALJ 41

8 For a discussion of the TA A’s constitut ional validity, see F Mo osa “Taxation: Const itutionality of t he Tax

Administ ration Act 28 of 2011” (2017) 28 Stell LR 638

9 Section 1 of the TAA def ines “tax Act” t o mean “this Act or an Act , or portion of an Act, refer red to in

section 4 of the SAR S Act, excluding Cust oms and Excise legislat ion”

10 See Arprint Ltd v G erber Goldsch midt Group Sou th Africa (Pt y) Ltd 1983 1 SA 254 (A) 261; Southern Life

Associatio n Ltd v Commissioner fo r Inland Revenue 1984 47 SATC 15 (C) 18-19

11 For the meani ng of “internat ional tax agreem ent”, see its definit ion in the TAA (s 1)

12 The TAA in sect ion 151 defines “taxpayer ” as including, inter al ia, “a person chargeable t o tax” and “a

person who is th e subject of a request t o provide assista nce under an in ternationa l tax agreem ent” Section

152 reads: “A person chargea ble to tax is a person upo n whom the liability for t ax due under a tax Act is

imposed and wh o is personally lia ble for the tax ”

13 Whereas se ction 163 permits SARS to a pproach a High Cour t for a preservation orde r relating to assets

of any “taxpaye r” as defined , section 185 delineates t he procedure to b e followed by SARS for collect ing

a tax debt as an ag ent of a foreign governme nt

14 Section 2

15 See para (b)(ii) of t he definition of “orga n of state” in sect ion 239 of the Constitut ion See Commissioner,

South Afric an Revenue Se rvice v Trend Finan ce (Pty) Ltd 2007 6 SA 117 (SCA) para 25; Pearse v

Commissioner, South African Revenue Service GPPHC 04-05-2012 case no 10498/11 paras 49-51 Yakoob

J held, in AAA In vestments (Pty) Ltd v Micro Fi nance Regulatory Coun cil 2007 1 SA 343 (CC) paras

40-41, that the Co nstitution has

“a relatively broad def inition of an organ of sta te … If [an e ntity] performs its f unctions in term s of

national legi slation, and these func tions are public in chara cter, it is subject to the legalit y principle

and the priva cy protection In our cons titutional s tructu re, [the entity] doe s not have to be part of

government or t he government itsel f to be bound by the Cons titution as a whole ”

See also AllPay Con solidated Inve stment Holding s (Pty) Ltd v Chief Ex ecutive Off icer of the So uth

African Soc ial Security Age ncy 2014 1 SA 604 (CC) para 53

38 STELL LR 2020 1

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