X (Pty) Ltd v CSARS : another ride on the substance-over-form rollercoaster?

AuthorEd Liptak
DOI10.10520/EJC-b6a2a89b3
Published date01 December 2017
Date01 December 2017
Record Numberbtclq_v8_n4_a4
Pages16-25
16 © SIBER INK
X (Pty) Ltd v CSARS:
ANOTHER RIDE ON THE SUBSTANCE-OVER-
FORM ROLLERCOASTER?
ED LIPTAK1
ABSTRACT
In X (Pty) Ltd v Commissioner for the South African Revenue Services,2 the Tax
Court held that certain back-to-back sales agreements were simulated transac-
tions. Whatever the merits of that ultimate conclusion, the Court’s reasoning
appears to rest upon a logical impossibility namely, that an agreement can
be both genuine and simulated.3 Thus, despite the repeated efforts of the
Supreme Court of Appeal to dispel the confusion in this area generated by the
judgment in CSARS v NWK Ltd,4 taxpayers seemed to be embarked on another
ride on the ‘substance-over-form’ rollercoaster.
This article discusses the merits of the decision in some detail and
concludes that while SARS’s attempt to disregard the back-to-back agree-
ments is understandable, the answer does not lie in attempting to stretch the
substance-over-form doctrine to cover what SARS might consider to be step
transactions or fiscal nullities under foreign law. The author further concludes
that to the extent that SARS feels compelled to rely upon those concepts
(tacitly or otherwise) to attack steps in composite transactions it does not
like, it will inevitably find itself implicitly conceding the very point it seeks to
disprove i e that the underlying agreements are indeed genuine.
The transactions at issue
Stripped to their essentials, the transactions at issue were relatively straight-
forward. At all times relevant to the dispute, X (Pty) Ltd (‘the Taxpayer’)
had a subsidiary in the Isle of Man (‘IOM Sub’) that purchased crude oil
from third parties.5 Prior to South Africa’s move from a sourced-based to
a residence-based tax system and the concomitant enactment of broader
controlled foreign company legislation in March 2001, the IOM Sub sold
the oil directly to the Taxpayer.6 In terms of the contract between the parties
during this period, risk and ownership of the oil passed to the Taxpayer
1
Independent Tax Consultant.
2
IT 13065/13, an unreported judgment of the Gauteng Tax Court delivered on 30
June 2017.
3
Ibid at para 24.
4
2011 (2) SA 67 (SCA).
5
Ibid at paras 7 and 8. From 1998 until 2004, the subsidiary was X Trading
International Ltd. From 2004 onwards, the subsidiary was X Oil International Ltd.
The change in companies did not have an effect upon the issues.
6
Ibid at para 8.

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