Pienaar Brothers (Pty) Ltd v Commissioner, South African Revenue Service and Another

• Jurisdiction: South Africa
• Citation: 2017 (6) SA 435 (GP)

Pienaar Brothers (Pty) Ltd v Commissioner, South African Revenue Service and Another
2017 (6) SA 435 (GP)

2017 (6) SA p435

Citation	2017 (6) SA 435 (GP)
Case No	87760/2014
Court	Gauteng Division, Pretoria
Judge	Fabricius J
Heard	May 29, 2017
Judgment	May 29, 2017
Counsel	M Chaskalson SC (with S Budlender) for the first respondent.; W Trengove SC (with S Budlender) for the first respondent.; I Semenya SC (with N Mayet and Z Gumede) for the second respondent.

Flynote : Sleutelwoorde

Constitutional law — Legislation — Validity — Retrospective amendment of fiscal legislation — Whether, if enacted without adequate notice, offending rule of law and/or constituting arbitrary deprivation of property — F No overriding duty to give notice of retrospective amendment, nor to give notice stating precisely what intended legislation would entail — Standards for constitutional review of statutes decisive in determining validity of retrospective legislation — Legality to be assessed on case-by-case basis — No arbitrary deprivation of property where sufficient reason for retrospective amendment — Constitution, ss (1)(c), 25(1) and 36. G

Headnote : Kopnota

In August 2007 an amendment to s 44 of the Income Tax Act 58 of 1962 (the ITA) was enacted by s 34(1)(c) of the Taxation Laws Amendment Act 8 of 2007 (the Amending Act), effectively removing an existing exemption from secondary tax on companies (STC) of distributions made by a 'resultant company' pursuant to an amalgamation transaction. Section 34(2) of the H Amending Act deemed the amendment 'to have come into operation' on 21 February 2007, and provided that it would be applicable 'to any reduction or redemption of the share capital or share premium of the resultant company . . .'. The significance of 21 February 2007 was that that was when the first respondent (the Commissioner) issued a press release announcing the immediate withdrawal of the exemption. This announcement I followed an earlier indication by the Minister of Finance, in his budget speech of 20 February 2007, that the exemption created a loophole for avoidance of STC that would be dealt with. (See [25] for a detailed explanation of how the loophole arose.)

Following a 2011 audit of the applicant (the taxpayer), the Commissioner, relying on retrospectivity of the amendment, assessed the taxpayer, a J

2017 (6) SA p436

'resultant A company', for STC in respect of distributions it had made to its shareholders on 3 May 2007 pursuant to an amalgamation transaction. This case concerned the taxpayer's application to set aside this assessment. It advanced two grounds for the invalidity of the amendment: that retrospective amendments without adequate advance notice to taxpayers — which it alleged was absent here — was inconsistent with the principle of B legality and the rule of law enshrined in s (1)(c) of the Constitution because it prevented taxpayers from regulating their affairs according to the law; and also amounted to an arbitrary deprivation of property and was therefore inconsistent with s 25(1) of the Constitution. In the alternative, the taxpayer contended that, properly interpreted, the amendment did not apply retrospectively to completed transactions (see [18]). The court, C dealing with the alternative ground first, held that the amendment was clear that it applied to all transactions, including completed transactions (see [37]). In respect of the constitutional challenges —

Held

There was nothing in our Constitution which prohibited Parliament from passing retrospective legislation, nor was there such a prohibition in other D jurisdictions of similar constitutional structure. Also, there was nothing internal in the rule of law which rendered retrospective legislation per se unconstitutional. (Paragraphs [97] and [102].)

There did not appear to be any authority in our Constitution or in foreign law requiring knowledge of the proposed retrospective amendment, or that such knowledge would be fundamental to the rule of law. There was also no E overriding duty to give notice stating precisely what the intended legislation would entail. In any event, even if such 'knowledge' or 'adequate warning' were essential, the process that was followed in the present case was sufficient to have placed any taxpayer who was contemplating an amalgamation transaction with a view to deriving an STC exemption, on guard that legislation was going to be amended to remove the particular exemption F retrospectively. (Paragraphs [97], [107] and [110].)

The constitutional validity of retrospective legislation must be judged with reference to the standards of review laid down by our courts when challenging the constitutional validity of statutes. There were two main standards: 'rationality' (ie that the means chosen must be rationally connected to the end sought to be achieved) which applied to all legislation G under the rule of law entrenched in s 1(c) of the Constitution; and the more exacting standard of 'reasonableness' or 'proportionality' which applied when legislation limited a fundamental right in the Bill of Rights and the limitation had to be justified under s 36 of the Constitution. A third standard applied when assessing whether a law violated the prohibition on H arbitrary deprivation of property in s 25(1) of the Constitution, ie that there must be 'sufficient reason' for the deprivation. So, if the law did not infringe the Bill of Rights, then only the basic 'rationality' standard applied. The proper approach would be to judge the legality of retrospective amendments on a case-by-case basis. In the present case, the government's purpose in removing the tax exemption in respect of amalgamated transactions was rational. There was permanent loss of STC revenue arising from I amalgamations which the exemption only intended to defer. And to amend it retrospectively was also justified: a mere prospective amendment would have encouraged taxpayers to exploit the loophole in the last few months before the loophole was closed. (Paragraphs [37], [80] – [85] and [99].)

Section 25(1) was intended to deal with situations where the law took away or interfered with the use and enjoyment of assets. The fact that a law created J a civil liability did not in itself deprive taxpayers of property unlawfully;

2017 (6) SA p437

taxes could not without qualification be regarded as unjust deprivation of A property use. There was, as already held, no overriding duty to give notice of a retrospective amendment irrespective of the facts, and in the present instance there was sufficient notice of general impact. The amendment adopted by Parliament was not arbitrary and therefore not in breach of s 25(1) of the Constitution; it was reasonable and justifiable in terms of s 36(1) of the Constitution. The property challenge could therefore not be B upheld. (Paragraphs [107] – [108] and [110] – [111].)

Cases cited

Southern Africa

Affordable Medicines Trust and Others v Minister of Health and Others2006 (3) SA 247 (CC) (2005 (6) BCLR 529; [2005] ZACC 3): referred to C

Agri SA v Minister for Minerals and Energy2013 (4) SA 1 (CC) (2013 (7) BCLR 727; [2013] ZACC 9): referred to

Bellairs v Hodnett and Another1978 (1) SA 1109 (A): dictum at 1148F – G applied

Bothma-Batho Transport (Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk2014 (2) SA 494 (SCA) ([2013] ZASCA 176): dictum in para [12] D applied

City of Cape Town and Another v Robertson and Another2005 (2) SA 323 (CC) (2005 (3) BCLR 199; [2004] ZACC 21): referred to

Coetzee v Government of the Republic of South Africa; Matiso and Others v Commanding Officer, Port Elizabeth Prison, and Others1995 (4) SA 631 (CC) (1995 (10) BCLR 1382; [1995] ZACC 7): E referred to

Cohen Brothers Furniture (Pty) Ltd and Another v Minister of Finance1998 (2) SA 1128 (SCA): compared

Commissioner for Inland Revenue v Friedman and Others NNO1993 (1) SA 353 (A): compared

Commissioner for the South African Revenue Service v NWK Ltd2011 (2) SA 67 (SCA) ([2011] 2 All SA 347; [2010] ZASCA 168): dictum in F para [42] discussed

Cross-Border Road Transport Agency v Central African Road Services (Pty) Ltd and Others2015 (5) SA 370 (CC) (2015 (7) BCLR 761): referred to

Curtis v Johannesburg Municipality 1906 TS 308: dictum at 311 applied

Dawood and Another v Minister of Home Affairs and Others; Shalabi and Another v Minister of Home Affairs and Others; Thomas and Another v G Minister of Home Affairs and Others2000 (3) SA 936 (CC) (2000 (3) BCLR 837; [2000] ZACC 8): dictum in para [47] applied

Du Toit v Minister of Safety and Security and Another2009 (1) SA 176 (SCA): dictum in para [10] applied

Erf 3183/1 Ladysmith (Pty) Ltd and Another v Commissioner of Inland Revenue1996 (3) SA 942 (A): dictum at 953A – F H applied

Executive Council, Western Cape Legislature and Others v President of the Republic of South Africa and Others1995 (4) SA 877 (CC) (1995 (10) BCLR 1289; [1995] ZACC 8): referred to

First National Bank of South Africa Ltd t/a Wesbank v Commissioner, South African Revenue Service and Another; First National Bank of South Africa Ltd t/a Wesbank v Minister of Finance2002 (4) SA 768 (CC) I (2002 (7) BCLR 702; [2002] ZACC 5): dicta in paras [98] – [100] applied

Friedman and Others NNO v Commissioner for Inland Revenue: In re Phillip Frame Will Trust v Commissioner for Inland Revenue1991 (2) SA 340 (W): compared

Incledon (Welkom) (Pty) Ltd v QwaQwa Development Corporation Ltd1990 (4) SA 798 (A): referred to J

2017 (6) SA p438

K A v Minister of Safety and Security2005 (6) SA 419 (CC) (2005 (9) BCLR 835; [2005] 8 BLLR 749; [2005] ZACC 8): referred to

Law Society of South Africa and Others v Minister for Transport and Another2011 (1) SA 400 (CC) (2011 (2) BCLR 150; [2010] ZACC 25): dictum in para [35] applied

...