Retrospective legislation : the Pienaar Brothers case

• Jurisdiction: South Africa
• Author: Chevon Marupen,Hillary Botha
• DOI: 10.10520/EJC-a069043bb
• Published date: 12 October 2017
• Date: 12 October 2017
• Record Number: btclq_v8_n3_a3
• Pages: 11-19
• Published By: Siber Ink

11

© SIBER INK

Retrospective Legislation:

THE PIENAAR BROTHERS CASE1

HILLARY BOTHA • CHEVON MARUPEN*

ABSTRACT

So-called ‘legislation by press release’ is nothing new. The case of Pienaar

Brothers (Pty) Ltd v C: SARS & Another is, however, the first time that it has been

challenged — on the basis that the retrospective legislation foreshadowed in

general terms by the press release when adopted was unconstitutional. This

article provides a useful summary of the facts and arguments advanced by

Pienaar Brothers and SARS. It also refers to analysis by Advocate Trevor Emslie

SC and Judge Denis Davis.

Pienaar Brothers had made a distribution to its shareholders out of share

premium created when it issued shares in terms of an amalgamation trans-

action under section 44 of the Income Tax Act, 1962 (‘the Act’). At that

time such a distribution did not constitute a dividend for secondary tax on

companies (‘STC’) purposes. However, prior to such distribution the Minister

of Finance and SARS had indicated an intention to amend the legislation

to close a so-called loophole in the amalgamation provisions that in effect

resulted in a permanent loss of STC. While the Minister had not indicated

what exactly the nature of the loophole was and how this was to be closed,

SARS issued a press release that suggested that it would withdraw the exemp-

tion that applied when the amalgamated company distributed its shares in

the resultant company to its shareholders. When the final legislation was

tabled, the amendment was different from that originally indicated by SARS

in its press release and was made retrospective to the date on which SARS had

issued its press release. Instead of the exemption that applied on distribution

of the resultant company’s shares being withdrawn as indicated by SARS in

its press release, distributions out of share premium were in essence treated

as dividends which were accordingly subject to STC. Thus, while the relevant

distribution out of share premium had not been subject to STC when made,

the effect of the retrospective amendment was that the distribution became

subject to STC. SARS subsequently raised an STC assessment on Pienaar

Brothers. Pienaar Brothers approached the court for a declaratory order that

the assessment was inconsistent with the Constitution and therefore invalid,

or in the alternative that the amendment did not apply to completed transac-

tions. The court found in favour of SARS.

The most important take-away from the judgment is that there is no

absolute constitutional prohibition against retrospective legislation, and that

each case will need to be considered on its merits. While certain foreign juris-

dictions require reasonable advance notification, the court here held that no

such requirement exists in South African law.

1

* Candidate attorneys, Tax Practice, Webber Wentzel.

Pienaar Brothers (Pty) Ltd v C: SARS & Another Case 87760/2014 — not yet reported.