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the rise of democratic tax interpretation

Of late, it appears as if the courts are increasingly leaning towards the interpretation of tax law in a manner that is in accordance with constitutionally compliant precepts. This emphasises that the interpretation of tax law is evolving on a continuous basis and that now, more than ever, the outcome depends on the facts and circumstances of each case. This interpretative evolution has even resulted in a court disregarding a SARS Interpretation Note in making its ruling.

the role of interpretation notes

In the case of Marshall and Others v Commissioner, South African Revenue Service [2018] ZACC 11, a vendor contended that no consideration should be given to a relevant Interpretation Note, and that the court should independently consider the meaning of the relevant legislative provisions in the event of a dispute. SARS, on the other hand, submitted that the courts may have regard to an Interpretation Note to the extent to which said Interpretation Note constitutes evidence of consistent interpretation over a substantial period of time by SARS (i.e. a practice generally prevailing). The court, while recognising the importance of Interpretation Notes in determining the meaning that should reasonably be placed on words used in legislative provisions, also emphasised that the unilateral practice of a governmental institution, such as SARS, is only justifiable where such practice provides evidence of a custom that is recognised by all relevant parties. However, where such practice is unilaterally established by SARS as a litigating party, it would not aid independent interpretation by the courts. The court then ruled that, given the specific facts and circumstances, the relevant legislative provisions should be interpreted independently from the relevant Interpretation Note.

remission of interest

A vendor submitted an application for Voluntary Disclosure Relief (“VDR”) pursuant to the relevant provisions in the Tax Administration Act (2011) (“TAA”). An agreement was reached between SARS and the vendor, and following acceptance of the agreement by the parties, SARS agreed to waive any understatement and late payment penalties imposed. The vendor settled all amounts owing pursuant to the agreement, including interest imposed with respect to the underpayment of VAT. The vendor approached the Voluntary Disclosure Programme (“VDP”) Unit to request a remittance of the interest imposed with respect to the underpayment of VAT. The VDP Unit indicated that they do not have the authority to waive the interest, and also confirmed that the VDP agreement is not subject to objection and appeal. The court proceeded to confirm that the vendor already complied with the VDP agreement and has paid the interest on the underpayment of VAT. Furthermore, the VDP does not prohibit a taxpayer from requesting a remission of interest in terms of section 39(7) of the VAT Act. The court was of the opinion that SARS was not authorised by any empowering provision to refuse the consideration of a request for the remission of interest. The court, therefore, held that SARS was required to consider any request for the remission of interest, notwithstanding the fact that such request has been preceded by a VDP agreement.

Corporate tax compliance often requires taxpayers to make certain assumptions that underly one or more aspects of their tax returns (i.e. determining a tax position). When a tax position is challenged by SARS, taxpayers have the burden to support the tax position taken. While it is advisable that taxpayers have regard to the practice generally prevailing in determining the tax position to be taken, the courts have also confirmed that the law and the independent interpretation thereof is crucial as part of the development of a more democratic approach to the interpretation of legislative provisions.

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