Tax Treaties, the Income Tax Act and the Constitution: Trump or Reconcile?

• Jurisdiction: South Africa
• Author: Tracy Gutuza
• Date: 20 August 2019
• Published date: 20 August 2019
• Citation: (2016) 28 SA Merc JL 480
• Pages: 480-507

TAX TREATIES, THE INCOME TAX ACT AND

THE CONSTITUTION — TRUMP OR

RECONCILE?

TRACY GUTUZA*

Associate Professor, Department of Commercial Law,

University of Cape Town

I INTRODUCTION

Despite treaties for the relief of double taxation (‘tax treaties’)

1

being

incorporated into the Income Tax Act

2

by section 108(2),

3

the Income

Tax Act does not provide certainty on whether the Act or the treaty

prevails where the two interact or conf‌lict. Likewise, South African

courts have not decisively ruled on which of the two prevail. This

interaction between the Income Tax Act and a tax treaty has found its

way into two recent cases — Commissioner for the South African Revenue

Service v Tradehold Ltd

4

and Commissioner for the South African Revenue

Service v Van Kets.

5

In the former, the court, in an obiter statement,

mentioned that ‘... a double taxation agreement thus modif‌ies the

domestic law and will apply in preference to the domestic law to

the extent that there is any conf‌lict’

6

while in the latter the court

indicated that ‘... the provisions of the DTA [double taxation agreement]

and the Act, should, if at all possible, be reconciled and read as one

coherent whole’.

7

* LLB (UCT) LLM (UNISA) LLM (UCL) PhD (UCT).

1

South Africa has entered into a number of double taxation treaties with other countries. A

full list of these treaties can be found at http://www.sars.gov.za.

2

Act 58 of 1962.

3

Section 108(2) of the Income Tax Act 58 of 1962 provides that

‘(2) As soon as may be after the approval by Parliament of any such agreement, as

contemplated in section 231 of the Constitution, the arrangements thereby made

shall be notif‌ied by publication in the Gazette and the arrangements so notif‌ied shall

thereupon have effect as if enacted in this Act.’

4

SATC 263.

5

SATC 9.

6

Commissioner for the South African Revenue Service v Tradehold Ltd 74 SATC 263 para 17

where the court states that ‘... A double taxation agreement thus modif‌ies the domestic law

and will apply in preference to the domestic law to the extent that there is any conf‌lict’.

7

Commissioner for the South African Revenue Service v Van Kets 74 SATC 9 para 25 where

the court states that ‘... Given the manner in which the DTA stands to be treated in terms of

s231 of the Constitution, its provisions must rank at least, equally with domestic law,

including the Act. For this reason, the provisions of the DTA and the Act, should, if at all

possible, be reconciled and read as one coherent whole.’

480

(2016) 28 SA Merc LJ 480

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The two cases seem to ref‌lect different views on the treatment of

conf‌lict between provisions of the Income Tax Act and tax treaties. The

question therefore seems to be whether in fact the approaches of the two

courts differ or whether the two cases ref‌lect different aspects of the

South African rules of statutory interpretation. It is the latter view which

it is argued, is the preferred approach to dealing with this ‘complex’

8

issue of the interaction between the Income Tax Act and tax treaties.

9

II APPROACH TO THE INTERPRETATION OF

INTERACTING OR CONFLICTING PROVISIONS

10

The South African approach to sections of a statute or of two statutes

which potentially have more than one meaning, each resulting in a

different application and/or effect, is to consider the context and the

purpose of the two allegedly inconsistent provisions, and then attempt

to reconcile the provisions.

11

This attempt at reconciliation must also

take into account the provisions of the Bill of Rights set out in the South

African Constitution

12

as well as promoting ‘the spirit, purport and

objects of the Bills of Rights’.

13

The interpretation chosen must therefore

best ref‌lect the provisions of the Constitution.

14

If, despite the attempt at

reconciliation and seeking the interpretation which best ref‌lects the

Constitution, the two conf‌licting provisions are irreconcilable, it is likely

that the timing rules, together with the general or special nature of the

provisions, determine which of the provisions prevails.

15

The use of

8

De Koker in De Koker & Brincker, Silke on International Tax Law LexisNexis electronic

version, last updated November 2010 para 1.3.

9

See also Du Plessis, ‘Some thoughts on the interpretation of tax treaties in South Africa’

(2012) 24 SAMLJ 31–52.

10

For a detailed analysis of the approach to interpreting conf‌licting provisions in statutes,

see Du Plessis, Re-interpretation of Statutes (Butterworths 2002); Du Plessis, ‘Statute law and

interpretation’ in LAWSA Vol 25(1) LexisNexis electronic version, updated March 2011. See

also Glenister v President of the Republic of South Africa and others 2011 (3) SA 347 (CC); Natal

Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA). It is

acknowledged that a somewhat superf‌icial approach is set out in the following paragraphs.

11

Du Plessis, LAWSA (note 10).

12

Chapter 2 of the Constitution of the Republic of South Africa, 1996 (Act 108 of 1996)

(‘the Constitution’).

13

Section 39(2) of the Constitution.

14

See also Bishop & Brickhill, ‘‘‘In the beginning was the word’’: The role of text in the

interpretation of statutes’ (2012) 129 SALJ 681; Froneman, ‘Legal reasoning and legal culture:

Our ‘‘vision’’ of law’ (2005) 1 Stell Law Rev 3.

15

Du Plessis LAWSA (note 10) para 305 where it is stated that ‘A statutory provision clearly

inconsistent and irreconcilable with its preceding, hierarchically equal or subordinate

counterparts in pari materia revokes them to the extent of such inconsistency and irreconcil-

ability’. See also Du Plessis, Re-interpretation of Statutes (note 10).

TAX TREATIES, THE INCOME TAX ACT AND THE CONSTITUTION 481

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