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SARS (1), Principle Of Legality (0) The ‘rogue unit’ is no part of SARS—it’s the entire shindig.

MONTHLY LISTING Latest Legislation & Legislative Material To Emerge Or To Be Found Since Issue #158

This is a free publication devoted to unearthing what is going on in the SA tax field. If it isn’t here, it never happened. Unless otherwise indicated (‘§’), every document listed is cumulatively included in the Tax Shock, Horror Database, which is available

monthly, quarterly or even individually on DVD by post for R250 a month inclusive of VAT at 14%. This is perhaps the only newsletter in the world with its own stylebook (also free), by Costa Divaris & Duncan McAllister (2015 ed):

http://www.bspseminars.co.za/BspStylebook.pdf

For an extraordinary collection of tax and tax-related acts, books, databases and newsletters by and compiled by Costa Divaris: http://www.bspseminars.co.za/BspSeminarsPublications.pdf

CHM directive 4, 2007 12 July 2007: Chief Master’s Directive 4 of 2007. Sundry matters. CHM directive 2, 2015 03 August 2015: Chief Master’s Directive 2 of 2015—Appointments in deceased

estates. In 149 TSH 2015, I neglected to mention that this directive recalls CHM directive 3 of 2006, on the same topic (133 TSH 2014).

CHM directive 1, 2016 21 January 2016: Chief Master’s Directive 1 of 2016—Appointments in terms of the POI/BEE list of insolvency practitioners. (A disgraceful policy; 132 TSH 2014.)

High Court case 17 February 2016: Thuthungani Contractors (Pty) Ltd v CSARS (13812/2014) [2016] ZAKZPHC 33. Anyone relying upon the diesel rebate under the Customs & Excise Act is potentially a victim of the arcane rules under which the government gives with one hand & takes back with both hands. Need I add that the taxpayer lost?

CHM directive 2, 2016 16 March 2016: Chief Master’s Directive 2 of 2016—Deceased estates: dealing with estate duty matters by the Master & SARS. (Not accessible on the doj&cd website.) All of these directives are produced in an inaccessible format. The department ought to read the White Paper on persons with disabilities (156 TSH 2016).

SARS presentation 16 March 2016: Suspension of payment on eFiling. fin24 22 April 2016: Mcebisi Jonas opens up on state capture.§ Investec PN May 2016: Practice note 255(a)—Taxation of trusts as owners of living annuities:

As previously communicated, SARS initially informed Investec Investment Management Services (Pty) Ltd (IMS) that a trust may approach SARS for a tax directive in the event that the trust distributes annuity income to its beneficiaries in the year in which the income is received. Such a tax directive will allow the administrator of the annuity to refrain from withholding the full amount of employees’ tax from the annuity incomes that ultimately accrues to the vested beneficiaries, where the marginal tax rates of these beneficiaries are lower than that of the trust. Alternatively, the administrator may apply for a directive on the trust’s behalf, if the trust registers as an employer and the trust provides a tax clearance certificate to the administrator on an annual basis, as proof that the trust submitted the required returns and all taxes have been paid.§

Just make sure you know what you are doing. PSC report 26 May 2016 (dated March 2016): Assessment of the effectiveness & efficiency of the

Office of the Chief State Law Adviser: The independence of the OCSLA came under the spotlight and debates for and against its independence yielded thought-provoking results. What is important to bear in mind is the fact that the OCSLA is not a constitutional institution. In order for it to have the status equated to the NPA as it was proposed during the discussions to have, legislative changes will be to be made. While there were many positive and negative issues raised in the report, the PSC has outlined [a] few recommendations, which if properly implemented, would reinforce some of the existing systems and processes and simultaneously address some of the weaknesses.§

SCA case 30 May 2016: Herr v Innomet (Pty) Ltd (394/2015) [2016] ZASCA 82. A case, admittedly

Issue: 159 Tax Shock Horror Database—15 954 items (4,06 GB)—4 023 subscribers June 2016

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159 Tax Shock, Horror 2016—June—2


not earth-shattering, on the principle of reciprocity & the exceptio non adimpleti contractus (151 TSH 2015) under a lease. But it does show that a failure of reciprocal obligations wipes the slate clean for both parties; a state of affairs that would apply, I say, just as much within the fiscal sphere.§

Business Day 30 May 2016: Treasury’s centre designed to end delays in paying suppliers. In fact, the Treasury has no idea how bad the problem is, & this week’s MOF, like his predecessors, refuses to takes his responsibilities under the PFMA seriously.§

SCA case 31 May 2016: e.tv (Pty) Ltd v Minister of Communications (1039/2015) [2016] ZASCA 85. This is the notorious TV set-top-box case, which the government-side lost. I mention it because it is devoted wholly to the principle of legality.§

News24 31 May 2016: You are putting Gordhan in a dangerous position, Mantashe tells media: ‘Taking him out of the Cabinet collective and putting him somewhere as an institution, it’s dangerous’, ANC secretary general Gwede Mantashe told reporters in Johannesburg.§

IRBA website June 2016: A much-needed facelift. SAIT website June 2016: This lists more than 1 000 ‘tax specialists’ in Gauteng alone, & another 872

in the Western Cape. I describe myself mostly (especially to SARS) as a ‘shit-stirrer’, but at least I’ve read the Tax Administration Act.

SARB website June 2016: Special voluntary disclosure programme: The web page is currently under construction and will be active shortly. In the interim, please email us at [email protected] should you have any queries.

I just cannot figure it out. Why the unintelligible terms of the tax VDP? Why the effective moratorium until October? And why this enduring silence from the SARB? Want to know what I think? This VDP has been designed for one, particular applicant, who or which is entirely satisfied with the way it is being handled.

SARS to RCBs June 2016: Employee tax certificate (IRP 5/IT 3(a)): individual taxpayers no longer able to make changes or updates:

Where an employer has provided incorrect employee information, the affected employee will have to revert to the employer who will need to make changes on the IRP 5 certificate and then re-submit it to SARS.… Taxpayers can add additional IRP 5s but not change those filed by their employers. Should an employer or service provider revise a taxpayer’s IRP 5 data after an ITR 12 has been

declared and assessed, the taxpayer has the ability to file a Request for Correction (RFC) or SARS has the ability to do a Revised Declaration (RD) and send a revised assessment (ITA 34) to the taxpayer.

I reckon it’s safer to object. SARS website June 2016 (undated): Auto-merging of taxpayer profiles.* SARS guide June 2016 (undated): A step-by-step guide to the auto merge function on eFiling GEN-

ELEC-15-G02 revision 0.* SARS website June 2016 (undated): How to switch from Edge to IE 11 in Windows 10.* AGSA release 01 June 2016: Auditor-general reports an overall, encouraging five-year improvement in

local government audit results. How do they do it? I mean, pass on, from one AG to the next, the skill to gift-wrap turds?

Releasing his report on local government audit outcomes for the 2014–15 financial year, [Kimi Makwetu, the AG] revealed that municipalities have shown an encouraging improvement in their audit results over the past five years from 2010–11 to 2014–15. He said the number of municipalities that received financially unqualified audit opinions with no findings (commonly known as ‘clean audits’) had increased from 13 to 54. However, 18 additional municipal entities also achieved clean audit status, taking the total number of clean audits to 72 in the current period.

The report covers 271 municipalities. I don’t pretend to understand the figure of seventy-two but, even if it means that seventy-two municipalities are not obviously stealing us blind, they represent only 27% of the municipalities covered (out of an apparent total of 278). And why a five-year period over which to make the measurement? Admittedly, the AGSA website is a mystery to me but I cannot find a comparable release for the 2013–14 year. In the 2012–13 year, there were thirty clean audits (136 TSH 2014), & in the 2011–12 year, sixteen (126 TSH 2013). The trend might represent improvement, but off a depressingly low base.

doj&cd release 01 June 2016: Vandals of critical infrastructure to face harsher punishment. Coming into effect of the implementation of the Criminal Matters Amendment Act, 2015:

As of 29 October 2015 the South African economy lost to a tune of about R5–7 billion per year as result of theft and vandalism of the essential infrastructure. It must also be noted that these types of offences resulted in loss of life and joblessness in some parts of the country.… The Department is of the view that community and business involvement will assist in deterring most offenders from perpetrating crimes of this nature.

In other words, don’t expect the government to lift a finger, & especially not the one that’s permanently stuck in the cookie jar.

SARB speech 01 June 2016: Governor, at Agricultural Business Chamber Congress 2016:



The South African Reserve Bank is certain that an environment of consistently low and stable inflation is the best contribution it can make to balanced and sustainable growth in South Africa. However, inflation shocks such as the current food price spike can compromise the credibility of the Bank and thereby permanently accelerate inflation.

There’s my problem; right there. What evidence is there that the SARB maintains a low rate of inflation, & when, exactly, have we experienced the low rate so achieved?

SCA case 01 June 2016: Avenant v CSARS (367/2015) [2016] ZASCA 90. The taxpayer, a wine farmer, lost this case on the issue of a farmer’s year-end produce, & mishandled a costs question, to boot. If you want to find out more, either (a) struggle yourself to parse Swain JA’S judgment, or (b) wait for Julian Ware to cover the case in the Cases section of this newsletter. From the little I can gather, though, the taxpayer appears to have had a crap case. SARS deserves no congratulations on this one. It was a slam dunk.*

SCA case 01 June 2016: Du Toit NO v Errol Thomas NO (635/15) [2016] ZASCA 94. This judgment ought to serve as a lesson to all the so-called legal & accounting professionals performing to an unacceptable standard. Per Victor AJA:

The appellant accepted that the minor child was entitled to maintenance and that in law the estate had an obligation to maintain her. That notwithstanding, he contended that the second respondent had to proceed in terms of the Administration of Estates Act and not the Maintenance Act. Thus although not disputing the validity of the claim, the attitude of the appellant was that the second respondent had to be burdened with a high court application instead of the more expeditious remedy provided by the Maintenance Act. In adopting such an unduly technical stance the appellant has put both the second respondent and the estate to the cost of this litigation. In this court a concession was made on behalf of the executor that if the High Court had ordered the same amount of maintenance as the maintenance court he would have paid it.

Given the unconscionable stance adopted by the appellant, there can be no justification for the deceased estate to bear the costs of this appeal. The appeal was pursued with no regard to the child’ best interests or its prospects of success.

The executor was ordered to pay the surviving spouse’s costs of the appeal de bonis propriis (out of his own pocket), on the attorney-and-client (punitive) scale.

BN 81 GG 40032 01 June 2016: Levies on financial institutions. Under s 15A of the Financial Services Board Act.

GN 613 GG 40035 02 June 2016: Section 38 of the Division Of Revenue Act, 2016: first transfer of equitable share & conditional allocations for pre-election municipalities. With explanatory memorandum.

Treasury release 02 June 2016: Provisional figures on loan issues, national revenue fund receipts/pay-ments & cash balances as at 31 May 2016.

Treasury speech 02 June 2016: Lungisa Fuzile (DG) at the Association for Savings & Investment South Africa (ASISA) Conference:

Despite the glitches, Treasury remains committed to retirement reforms, and both these reforms and social security remain on our agenda for this year. The path to get greater consensus will be difficult, but are necessary to have, in order to benefit our people. Indeed, it is better to have repeated hard discussions than not talk at all. And to agree to disagree where compromises cannot be found.

Treasury release 03 June 2016: S&P Global Ratings affirms South Africa’s rating, keeps outlook negative: Government notes and welcomes S&P’s decision to affirm South Africa’s credit ratings. The benefit of this decision is that South Africa is given more time to demonstrate further concrete implementation of reforms that are underway aimed at achieving higher levels of inclusive growth and place public finances on a sustainable path.

GN 671 GG 40041 03 June 2016: Income tax 2016: notice to furnish returns for the 2016 year of assessment. Under s 66(1) of the Income Tax Act.*

SARS website 03 June 2016: Draft rule amendment notice in terms of ss 64D & 120 relating to the movement of new imported vehicles on own wheels (158 TSH 2016):

As discussed in the Industry Forum held on 16 May 2016, comments are invited to be submitted no later than 30 June 2016.*§

Draft rules 03 June 2016: Draft amendment of rules under ss 64D & 120 of the Customs & Excise Act (movement of new imported motor vehicles on own wheels).*

GCIS release 04 June 2016: Government notes announcement by credit rating agency S&P Global Ratings:

Government has noted the decision by credit rating agency S&P Global Ratings (S&P) to affirm South Africa's credit ratings. Acting Director-General of GCIS, Donald Liphoko said; ‘Although S&P has affirmed South Africa’s investment rating, government wants to reiterate that concerns raised by the ratings agency are being addressed through various government programmes and policies such as the National Development and Nine-Point Plans. Government is committed to cutting R25 billion spending over the next three years to ensure we implement the National Development Plan which aims to achieve socio-economic growth and development.’

If the ratings agencies believe our cash-based national accounts, they’ll believe anything. The real trouble, though, is that the government itself believes those accounts.



GN R 689 GG 40053 06 June 2016: Notice in terms of s 14(1) of the Broad-Based Black Economic Empowerment Act. Eighty pages of regulations. And so it goes—the development of a parallel ideological, legal & economic system.§

SARS release 06 June 2016: SARS warns against tax scams: The South African Revenue Service (SARS) has noted a few incidents of scam artists that pretend to be representatives from SARS that have approached unsuspecting small businesses enterprises to demand ‘outstanding payments’ on undeclared taxes. Over the last few months, there has been a few incidents that have been reported to SARS of scam artists that have demanded money to wipe off debts. Taxpayers and traders with outstanding accounts must directly resolve the matter with SARS.

There are indeed several outfits out there claiming to be able to access your SARS slate & wipe it clean. You know what? I believe them. But call me gullible. As for following the advice of SARS, to report the gangsters involved, well, rather you than me.*

SARS release 06 June 2016: SARS busted meth & cocaine worth R9 m over one weekend.* SARB speech 07 June 2016: The evolution of South Africa’s credit ratings. By Leon Myburgh:

These data indicate the importance of an investment grade status for a country. This is also confirmed by an IMF study showing that reaching investment grade lowers sovereign interest rate spreads by 36 per cent, over and above what is implied by macroeconomic fundamentals. This compares to a 5–10 per cent reduction in spreads following rating upgrades within the investment grade asset class, and no impact for movements within the speculative grade asset class. This study shows that an investment-grade rating reduces financing costs significantly, improves market sentiment, and encourages greater inflows from a more diversified investor base. This is of particular importance given South Africa’s reliance on foreign capital inflows. The market reaction to the possible downgrade of South Africa to non-investment grade supports the IMF findings and bears testament to the increased cost the country faces should its credit standing continue to deteriorate.

The good news, he says, is that we may already be paying the price, because markets anticipate bad news.

Treasury release 07 June 2016: Local government revenue & expenditure: third quarter local government s 71 report for the period: 1 January 2016–31 March 2016.

BPR 237 07 June 2016: Binding private ruling: BPR 237—Reinstatement of a deregistered company to transfer immovable properties:

This ruling determines that the re-instatement of a deregistered company in order to complete the transfer of immovable properties pursuant to an amalgamation transaction will not be a step taken to withdraw or invalidate the deregistration of that company as envisaged in section 44(13) of the Act.*

SARS PN withdrawn 07 June 2016: Practice Note RF 1/2004 on payment of annuities in arrear was withdrawn with effect from 7 June 2016 [owing] to legislative amendments to para 4(1) of the Second Schedule to the [Income Tax] Act.*

Business Day Live 07 June 2016: SARS spends more than R23 m on investigation of ‘rogue unit’ by KPMG.§ NA release 08 June 2016: Quarterly crime stats decision welcomed by Police Committee:

Mr Beukman said quarterly announcements should be welcomed, as this will strengthen police accountability. ‘It will enable closer scrutiny of crime trends and ensure that pro-active, effective decisions and interventions are made in hotspot areas’, Mr Beukman added. He noted also that deployment of additional resources would also be enhanced.

And you have been where since (at least) 2001, when annual reports were recommenced?

Treasury release 08 June 2016: Fitch Ratings affirms SA’s rating, keeps outlook stable: Once again, this rating outcome demonstrates that during difficult times, South Africa—government, labour, business and civil society—can work together to achieve a common goal. Government is grateful to all social partners for their efforts towards achieving this positive outcome and urges everyone to continue this close working relationship over the challenging period ahead.

Puleeze! All they did was hold a meeting. And a rating that is reviewable in six short months is hardly an ‘outcome’. MISSION ACCOMPLISHED à la George W Bush?

Fitch has highlighted a couple of risks that could lead to the rating being lowered. Government is mindful of these and fully aware that the next several months are critical. We are stepping up the implementation of the 9-point plan and other measures to boost the economy. Efforts are redoubling our efforts aimed at: i) Restoring confidence and boosting investment amongst local and international investors; ii) Unblocking obstacles to faster employment growth in key sectors; and iii) Undertaking fiscal, State-Owned Company (SOC) and regulatory reforms.

It ain’t necessarily so. But why be rude, when all you have to do is wait & watch? Updated SARS table 08 June 2016: Table A—Average exchange rates for a year of assessment.* Updated SARS table 08 June 2016: Table B— Average monthly exchange rates.* SCA case 09 June 2016: Gowar v Gowar (149/2015) [2016] ZASCA 101. It beggars belief but here

is a bitterly disputed case on the administration of trusts yet nowhere are the types of



trusts involved characterized. Were they are of a discretionary nature, or were they bewinds? Did any real rights vest? Hells, bells, were they even valid? Both the appeal & the cross-appeal failed, so nothing was achieved. When will wealthy families realize that the price of not settling disputes in a calm, rational fashion is to make lawyers filthy rich. It’s odd but, in trust matters, the citation of authority just doesn’t inspire confidence in the courts’ mastery of this branch of the law. Yet all that is needed is to read the judgment of Alkema JP in RP v DP and Others 2014 (6) SA 243 (ECP) (143 TSH 2015).

BPR 238 09 June 2016: Binding private ruling: BPR 238—Taxation of receipts by or accruals to a programme of activities of a clean development mechanism project:

This ruling determines the taxability of receipts of a managing entity that manages a ‘Clean Development Mechanism project’ as defined in section 12K carried on under a programme of activities modality.*

BCR 053 09 June 2016: Programme of activities of a clean development mechanism project: This ruling determines the tax consequences for the participants in a ‘Clean Development Mechanism project’, as defined in section 12K of the [Income Tax] Act, carried on under a programme of activities modality.*

SCA case 10 June 2016: Hangar v Robertson (211/2015) [2016] ZASCA 102. Per Leach JA (footnote suppressed):

It is truly astonishing how often businessmen conduct their affairs, involving at times huge financial interests, on the strength of crude and vague agreements and then ‘rely on hope, good spirits, bona fides and commercial expediency to make such agreements work’. This is another such case, and resulted in successful businessmen finding it necessary to go to court to determine the true meaning of an agreement they had concluded.…

The quotation is per Harms JA in Namibian Minerals Corporation Ltd v Benguela Concessions Ltd [1996] ZASCA 140. Both judges neglect to mention the complicity of the drafting attorneys concerned. I very seldom am able easily to understand commercial documents, & regularly come across contracts, even some running to billions, based upon some other universe’s laws of contract & property, & leaving the parties shockingly unprotected. The parties merrily sign, relying upon their advisers.§

GN 692 GG 40058 10 June 2016: Appointment of a committee. The ‘steel committee’, as in: ‘Steel yourself for coming, whacko interventions.’ Under s 14 of the International Trade Administration Act, & in response to a request from the International Trade Administration Commission.

BPR 239 10 June 2016: Binding private ruling: BPR 239—Cash contributions made to a special purpose vehicle established to provide housing to mine workers:

This ruling determines the income tax consequences resulting from cash contributions to be made by the Applicant (as a party to a mining joint venture) to a special purpose vehicle established to provide housing for the employees of the joint venture and the group of companies of which the Applicant forms part (the group).*

The Star 11 June 2016: Gordhan choked up & in tears. Told you so (158 TSH 2016). DEA release 13 June 2016: SA welcomes its fire-fighters home:

‘We call upon the nation not to condemn the fire-fighters. Condemning them for disappointing us can only demoralize them despite their successful track-record. Upon their arrival at home, we will engage in the appropriate manner in which they should raise any legitimate concerns in future, should they have any.’ said Minister Molewa.

According to press reports, they went on strike while fires raged, because they were seemingly being paid less than firefighters from other countries paid in other currencies.

BPR 240 13 June 2016: Taxation of parties to share index linked notes: This ruling determines the income tax consequences resulting from the issue of notes that provide a return determined with reference to a share index, issued by a special purpose vehicle to its holding company that is an insurer.

BPR 241 13 June 2016: Award received for a black economic empowerment (BEE) training initiative:

This ruling determines the income tax and capital gains tax consequences for the recipient of an award of participation units in a trust received in pursuance of a BEE training initiative and its entitlement to claim a section 24C allowance against the award.*

After seeing a second-tier accounting & auditing firm citing BPRs in support of an ‘opinion’ given to a third party, I couldn’t give a toss whether the things are right, wrong or the wages of sin.*

SARS release 13 June 2016: R9 million cocaine bust in untagged bag at OR Tambo.* Concourt case 14 June 2016: Electoral Commission v Mhlope and Others [2016] ZACC 15. Per

Mogoeng CJ, writing for the majority (footnote suppressed): Unlawful conduct in relation to the compilation of the national common voters’ roll contemplated in section 1(d) of the Constitution, amounts to a breach of the rule of law that is embedded in our Constitution by section 1(c), as the nerve-centre of our constitutional democracy. The IEC acted in conflict with constitutionally compliant and unchallenged legislation. In so doing it acted inconsistently with the constitutional prescript of legality and the rule of law, which was necessarily imported to and rooted in our Constitution in terms of section 1(c).



Although a voters’ roll that does not have addresses poses a potential threat to the fairness and freeness of the elections, that does not mean that elections held in terms of that roll are without more, not free and fair. Section 190(1)(b) of the Constitution cannot therefore be breached by a distant hypothetical possibility….§

Tax court case 14 June 2016: TC VAT 1390 [2016] ZAWCHC 72. A case involving a mistake repeated in various forms over the years by taxpayers in diverse VAT jurisdictions. ‘Petrol money’ given by customers to the taxpayer’s subcontracted drivers represented part of the consideration for its supplies.

GN 719 GG 40067 14 June 2016: Draft preferential procurement regulations, 2016 published for public comment. A mixed image/text document, & so partially inaccessible.

SARS website 14 June 2016: Customs & Excise Act/Changes in Harmonized System (HS) Nomenclature:

HS 2017 reflects the amendments to the Nomenclature appended to the International Convention on the Harmonized Commodity Description and Coding System (HS Convention), which were accepted as a result of the Customs Co-operation Council’s (now the World Customs Organization) recommendations of 27 June 2014. Complementary amendments to the HS Nomenclature 2017 Edition have been accepted as a result of the Council recommendation of 11 June 2015.

Comment period extended to 29 July 2016. I need to check whether the material concerned represents a further draft.*§

BPR 242 15 June 2016: Venture capital company investment in qualifying companies carrying on business as hotel keepers. I pass.*

BPR 005 replaced 15 June 2016: Whether dividend income received by a trust retains its nature in the hands of the beneficiaries on distribution thereof, by the trust, in the same tax year:

The guidance contained in this ruling is affected by subsequent law changes.* BPR 006 replaced 15 June 2016: The application of s 24C in the context of a repair & maintenance

contract: Policy guidance on the subject provided in Interpretation Note no 78 Allowance for Future expenditure on contracts.*

BPR 011 replaced 15 June 2016: Transfer of a pre-1 March 1998 amount from a pension fund as an own contribution to other retirement funds;

The guidance contained in this ruling is affected by subsequent law changes.* BPR 016 replaced 15 June 2016: Loans from a subsidiary company to a holding company:

The guidance contained in this ruling is affected by subsequent law changes.* BPR 017 replaced 15 June 2016: The supply of trophy, accommodation & services to a person who is not a

resident of the Republic: Policy guidance on the subject provided in Interpretation Note no 81 The supply of goods and services by professional hunters and taxidermists to non-residents.*

BPR 020 replaced 15 June 2016: Impact that the transfer of an amount of share premium of a company to another reserve of that company has on the nature of the share premium:

The guidance contained in this ruling is affected by subsequent law changes.* BPR 022 replaced 15 June 2016: Taxation aspects of bonuses & penalties payable in terms of an

employees’ bonus incentive & retention scheme: The guidance contained in this ruling is affected by subsequent law changes.*

On these items 15 June 2016: Section 86(1) of the Tax Administration Act allows SARS to withdraw or modify an advance ruling at any time.§

Treasury release 16 June 2016: Proposed new preferential procurement regulations, 2016: The Office of the Chief Procurement Officer (OCPO) has published the proposed new Preferential Procurement Regulations in terms of section 5(2) of the Preferential Procurement Policy Framework Act, 2000 (Act no 5 of 2000) (PPPFA), to afford the public an opportunity to provide comments. The revision of the Preferential Procurement Regulations of 2011 was influenced, to a large extent, by the need to provide for a mechanism that will assist in targeting certain categories of persons, including looking at how government can procure at least 30 per cent from SMMEs, co-operatives, township and rural enterprises, and other targeted groups.

The economics behind this idea are puzzling. Can we really afford it in such dire times? SARB release 17 June 2016: Declaration of 3 August 2016 as a public holiday in the RSA:

The South African Reserve Bank (SARB) supports the normal market practice of changing the value date for foreign exchange transactions maturing on 3 August 2016 to the next business day, 4 August 2016, with adjustments in the exchange rates.

SARB release 17 June 2016: Trading of renminbi & rand on the China foreign exchange trade system (CFETS):

The Peoples Bank of China (PBoC) announced today that with effect from 20 June 2016, the South African rand and the Chinese renminbi can be traded in the Chinese interbank market on a bilateral basis. The South African Reserve Bank welcomes this development and believes that the introduction of this bilateral foreign exchange trading cross will reduce the cost of the two countries trading relationship and promote further trade and investment. It will also boost greater cooperation and strengthen the economic and financial relationship between China and South Africa.



SARB release 20 June 2016: Appointment of Mr Jabulani Sikhakhane. Head of communications & spokesperson.

Treasury release 20 June 2016: Publication of the draft regulations on the carbon offset in terms of the draft Carbon Tax Bill for public comment:

The Carbon Offset Regulations was developed jointly by the National Treasury, the Department of [Energy] and the Department of Environmental Affairs in terms of Sections 13 and 20(b) of the Draft Carbon Tax Bill and sets out the procedure for the use of carbon offsets by taxpayers to reduce their carbon tax liability.

But where is the bill itself? And are we mad to introduce a new tax when we are staring a recession in the face, not to mention a downgrading by the rating agencies? We promised, initially, to do the carbon/climate thing only if we received oodles of foreign funds. But, I only now see, the National Climate Change Response White Paper (19 October 2011) includes no hint of any conditionality. An own goal.

Draft regulations 20 June 2016: Draft regulations: carbon offsets. Treasury template 20 June 2016: Stakeholder commentary template on preferential procurement

regulations 2016. From the office of the chief procurement officer. I pass.§ Draft EM 20 June 2016: Explanatory note for the draft regulations on the carbon offset. Published

in terms of s 20(b) of the draft Carbon Tax Bill, 2015. SARS release 20 June 2016: Two passengers swallow 91 cocaine bullets in long weekend drug busts

worth R6,5 million by SARS customs.* Concourt case 23 June 2016: MEC for Health, Gauteng v Lushaba [2015] ZACC 16. Per Jafta J:

It is understandable that trial courts are concerned about the flood of medical negligence litigation aimed at provincial health departments. It is on public record that staggering increases in claims have occurred in recent years, at enormous cost to the public capacity to render health services. It is equally understandable that at times trial courts feel frustration that litigation costs mount up, as delays become more and more protracted, while injured claimants suffer. Worst of all, litigious lawyers seem to prosper and bureaucrats seem to get off scot-free, blithely taking no responsibility. But the Court here sought to apply inapposite implements to a profound structural problem. The quest to bring accountability to those who are responsible for the tragic proliferation of damages claims, and the seeming morass of never-ending litigation amidst which deserving claimants are sometimes made to suffer, must take a different form.

Hear! Hear! An attempt by the High Court, in a ‘a strange & incompetent order’, to impose a punitive costs order de bonis propriis (out of his own pocket) against the MEC & other officials goes spectacularly wrong.§

FIC release 23 June 2016: Revised goAML notice 01—23 June 2016. To existing registrants who have received an ORG ID from, & need to file a report with, the FIC [the FIC’s commas, not mine].

PSC release 23 June 2016: PSC releases the Report on the availability of Learner & Teacher Support Material:

The systematic challenges in the provisioning of LTSM remain a cause for concern, with the majority of schools still experiencing a shortage of textbooks, and thus depriving many learners of their constitutional right to quality basic education as per the decision of the SCA [Minister of Basic Education and others v Basic Education for All and Others (20793/2014) [2015] ZASCA 198; 153 TSH 2016]. Batho Pele [people first] is also not taken seriously in the majority of schools as they were found lacking in compliance despite the policy being in its 19th year of implementation.

NA release 24 June 2016: Trade & Industry Committee concerned about dti’s observer status on ‘steel committee’:

The Portfolio Committee on Trade and Industry has noted with concern that the Department of Trade and Industry (DTI) has been excluded as a direct participant from the ‘Steel Committee’ that was set up after concerns in the industry around the price of steel and its impact on the manufacturing sector. ‘We expressed our disappointment that the DTI is not represented on the Committee. It is our view that an observer status is not desirable’, said Ms Fubbs. She said the Trade and Industry Portfolio Committee raised concerns about the steel price from as early as 2014 and repeatedly in 2015 and 2016.

GN 367 GG 40095 24 June 2016: Imposition of levies on medical schemes issued in terms of s 2 of the Council for Medical Schemes Levies Act.

GN 742 GG 40088 24 June 2016: Commission of inquiry into allegations of fraud, corruption, impropriety or irregularity in the strategic defence procurement package (arms procurement commission). A clean bill of health. Roll on Rosatom! Never fear, all will be forgiven.§

GN 748 GG 40088 24 June 2016: Additional considerations in terms of s 80(2) of the Tax Administration Act in respect of which an application for a binding private ruling or a binding class ruling may be rejected. All previous such notices are replaced. (I count one such notice—GN 103 GG 36119 of 8 February 2013; 119 TSH 2013.)*

GN 749 GG 40088 24 June 2016: Agreement between the government of the RSA & the government of the Kingdom of Lesotho for the avoidance of double taxation & the prevention of fiscal evasion with respect to taxes on income. Enters into force on 27 May 2016.*

SARS summary 24 June 2016: Summary of all treaties for the avoidance of double taxation.* Treasury release 27 June 2016: Report to the Constitutional Court on Nkandla:



The Constitutional Court ordered on 31 March 2016 that: ‘The National Treasury must determine a reasonable percentage of the costs of those measures which ought to be paid personally by the President [and]…report back to this Court on the outcome of its determination within 60 days of the date of this order.’ The National Treasury, has in line with the Court’s order, submitted its report on the President’s homestead in Nkandla to the Court. All queries regarding the matter should be directed to the Court.

SARS release 27 June 2016: Get ready, Tax Season 2016 is here.* SARS extension 28 June 2016: Extension of time for comment on the SARS draft Guide on the taxation of

professional sports clubs & players (158 TSH 2016).* doj&cd release 29 June 2016: Three Justice Department officials arrested for corruption-related

offences. On suspicion of ‘of soliciting illegal gains from service providers in their work environment’.

SSA release 29 June 2016: Financial census of municipalities for the year ended June 2015: According to the Financial Census of Municipalities results released by Statistics South Africa today, for the financial year ended 30 June 2015, municipalities across South Africa had received an income of R309 billion from all sources of income, this represented an increase of R25,5 billion compared with R283,5 billion in 2014. The largest contributor to municipal revenue was ‘grants and subsidies received’ (31,0%), followed by ‘electricity sales’ (28,3%), ‘property rates received’ (14,7%), ‘other revenue’ (11,2%) (which consists of fines, licenses and permits, public contributions and donations, etc.), ‘water sales’ (8,5%), ‘sewerage and sanitation charges’ (3,7%), and ‘refuse removal charges’ (2,8%).

The results showed that municipalities spent a total of R289,3 billion in 2015. The largest contributor to municipal total operating expenditure was ‘employee-related costs’ (25,6%), followed by ‘electricity purchases’ (21,7%), ‘depreciation and amortization’ (9,3%), ‘other expenditure’ (9,1%) (which consists of collection costs, loss on disposal of property, plant and equipment, impairment loss, etc.), ‘bad debts’ (7,3%), ‘general expenditure’ (5,4%) (which consists of accommodation, travel and subsistence costs, audit fees, bank charges, consultancy and professional fees, fuel and oil, hiring of equipment, insurance costs, subscriptions and membership fees, telecommunication costs, etc.), ‘water purchases’ (5,4%), ‘contracted services’ (5,0%), ‘repairs and maintenance’ (5,0%), ‘interest paid’ (2,7%), ‘grants and subsidies paid’ (2,4%), and ‘remuneration of [councillors]’ (1,2%).

It’s not often I can find anything on this wretched site. Is there a separate capex budget? Business Day 29 June 2016: Deliberate delays. In a letter to the editor, Gordin Hill-Lewis MP wonders

whether delays caused by the NRCS are deliberately designed to ‘frustrate imports’. I find that a flattering take on governmental endeavours.

NA release 30 June 2016: There must be compulsory & free education in SA—say young people: According to the young people, the principle of autonomy for the South African universities is a camouflage of the perpetuation of white privilege at that sector of the South African education—as that places the historically advantaged white people in an advantage. ‘This principle and other related principles must be scrapped with immediate effect. The government must be in charge of the universities.’

Be careful, as they say, what you wish for. SARB speech 30 June 2016: The South African situation: opportunities & challenges. By Francois

Groepe. The SARB narrative just doesn’t grab me anymore. SARS release 30 June 2016: Trade statistics for May 2016. A trade surplus of R18,73 billion.* Updated SARS guide 30 June 2016: Guide on the determination of medical tax credits (Issue 7).* Updated SARS guide 30 June 2016: Guide on income tax & the individual (2015/16).* On these items 30 June 2016: The SARS Legal & Policy outfit seems to have taken to calling itself ‘Legal

Counsel’. Rather high-brow, wouldn’t you say? And misleading? Delictually speaking? CHM directive 3, 2016 1 July 2016: Chief Master’s Directive 3 of 2016—Deceased estates: dealing with an

executor’s application for discharge. That would make a change. In recent years, I understand, executors have struggled to be discharged.

GN 380 GG 40117 01 July 2016: Upper limits of total remuneration packages payable to municipal managers & managers directly accountable to municipal managers. Under s 72(2A) of the Local Government: Municipal Systems Act. It is an absolute mystery to me how the Government Printing Works produces these terrible PDF files.

SARS release 01 July 2016: SARS Walk-For-Tax hits Pretoria for tax season. Bring back the riots.* SARS release 01 July 2016: Zimbabwean clampdown strangles Beitbridge border:

A group of South African traders staged a protest at the Beitbridge border following a clampdown on trade with South African businesses by the Zimbabwean authorities. There was a 5 hour blockade between 9am and 1pm that brought traffic to a halt. The matter was resolved when South African Revenue Service, South African Police Service and Department of Home Affairs officials held negotiations with the leaders of the group. The meeting agreed that the grievances of the South African traders will be presented to the Department of Trade & Industry to take up the matter with Zimbabwean authorities. SARS wishes to commend South African officials for the speedy resolution of the matter that was occasioned by the attitude of the Zimbabwean authorities.*

Barrons 02 July 2016: Trump & Clinton are taking a step away from prosperity by attacking trade: Speaking near Pittsburgh last week, Trump deplored the ‘wave of globalization that has wiped out



our middle class’, with special sympathy for the steel industry of the region. He blamed ‘dumping’, which is nothing but competition using cut-rate prices, and he ignored the changing technologies of steel-making and the substitution of better and cheaper materials that actually displaced most US steel mills and workers. (Trump, by the way, spoke at an aluminium plant.) When he noted that the US lost a third of its manufacturing jobs since 1997, he should have added that US now produces more manufactured goods than ever. This is the very definition of productivity improvement, which creates profits, jobs, and wealth for the nation. Steel offers a good example. In 1980, nearly 400 000 US workers produced 83,9 million tons of steel. In 2014, 91 400 workers produced 98,2 million tons.§

Sunday Independent 03 July 2016: Beit bridge burns—chaos at border as ban on goods sparks angry protest.§

Sunday Independent 03 July 2016: Treasury rules continue to betray entrepreneurs. The deputy president of the Black Management Forum, on the new state procurement dispensation. If you are not BBBEE compliant, he says, you shouldn’t get the business.§

* Found or to be found on the SARS website. Concurrently on the SARS ‘What’s new’ page. § Not included in Tax Shock, Horror Database.

LOST & FOUND TSH Database This month 84 items were added to the Tax Shock, Horror Database. Land subdivision Since 16 September 1998, the President has failed to proclaim the Subdivision of

Agricultural Land Act Repeal Act 64 of 1998. C&E consultants Since 1 January 2002, the CSARS has failed under s 99A of the Customs & Excise Act to

gazette requirements for the registration of consultants to principals. PCC 05A 30 March 2016: PCC 05A remains unavailable (156 TSH 2016). PCC 24 8 November 2014: The revised PCC 24 remains unavailable (140 TSH 2014). PCC 30 28 November 2014: PCC 30 remains unavailable (140 TSH 2014). FIC website 28 May 2016: I have communicated with the FIC on these unavailable PCCs. Its website

has acknowledged receipt (public query reference number: PQ20160528–010). Repo rate 29 February 2016: Increased to 6,75%—MPC (154 TSH 2016). Official rate of interest 01 March 2016: Increased to 7,75%—ITA (repo plus 1%). (SARS disagrees with the date.) Standard Interest Rate 01 March 2016: Increased to 10,25%—PFMA (156 TSH 2016) (repo plus 3,5%). Repo rate 18 March 2016: Increased to 7%—MPC (156 TSH 2016). Official rate of interest 01 April 2016: Increased to 8%—ITA (repo plus 1%). Standard Interest Rate 01 May 2016: Increased to 10,50%—PFMA (157 TSH 2016) (repo plus 3,5%). Prescribed rate 01 May 2016: Increased to 10,25%—TAA (156 TSH 2016) (= SIR). Prescribed rate 01 June 2016: Increased to 10,50%—TAA (= SIR).

MONTHLY NOTEBOOK

The invalid trust deed beloved of judges and curators No names, no pack drill. But I have at last secured a copy of the specimen deed typically used in RAF and medico-legal matters, which the industry, at least in Gauteng, has been hiding from me for years. Why? For the simple reason that it is ignorant of trust law, and, rather than learn that law (the basics take about an afternoon to master, if you buy your study materials from me and are a quick reader), refuses to expose itself to criticism.

And if you think I am referring only to attorneys and accountants, you have not been a conscientious reader of this newsletter, which has recorded numerous instances of the complicity of our judges, one of whom, in an infamous incident, recorded for posterity, descended on to the courtroom room and wrote an invalid deed all by himself (132 TSH 2014).

First impressions first. The thing is only six pages long, while a real trust deed usually runs to an average of about twenty-seven pages (in fact, way beyond the attention-span of most of those drafting deeds). There is a founder, the attorney of record for the now-successful plaintiff, whom, for reasons that will become clear, I shall not call the beneficiary, and a trustee, a corporate trustee, plus a clause stipulating that the trustee be represented by its nominees from time to time (as is required by the

Trust Property Control Act; s 6(4)). The founder is obliged to act as founder, under a

court order, which I deal with separately in this issue. Oddly, although the trust is founded by a delictual

award that should have been granted (not to but) in favour of the plaintiff, and thus constitutes the all-important trust property, the parties have seen fit to provide also for a donation of R100 to be made by the donor to the trustees. Perhaps even more weirdly, the delictual award is ‘confirmed’ as not being a donation. These two quirks raise suspicions that may be dispelled only by an examination of the court order.

The plaintiff is the only beneficiary, and no ‘gift over’ is provided for in the event of the plaintiff’s death. Thus the trust is a single-beneficiary trust and thus invalid ab initio but in any event entirely useless from a financial point of view. (In this particular instance, the beneficiary is neither a minor or, as far as I can tell, otherwise legally incapacitated.)

Rather than befuddle you by dealing, yet again, with the nudum praeceptum rule (the owner of a thing may ignore clogs imposed upon it in his own favour; 78 TSH 2009 ff), allow me to repeat an extract from a judgment recently referred to in these pages (158 TSH 2016), which explains all anyone needs to know about the nature of property (footnotes suppressed):



The person who is entitled to a real right over a thing can, by way of vindicatory action, claim that thing from any individual who interferes with his right. Such a right is the right of ownership. If, however, the right is not absolute, but a relative right to a thing, so that it can only be enforced against a determined individual or a class of individuals, then it is a personal right.

(Per Zondi JA in Absa Bank Ltd v Keet 2015 (4) SA 474 (SCA).)

In the circumstances here described, the plaintiff’s creditors or spouse may attack the supposed trust property. But you are free to ignore everything patrimonial I have just uttered, since the deed goes on specifically to pronounce its own uselessness. The very next clause proclaims that the plaintiff has ‘immediate vested rights in the trust fund’.

In other words, were it a valid trust, it would be of the class of trusts known as bewinds, in which the beneficiary owns the trust property, subject to the (consensual) control exercised by the trustees. The very least of the consequences is that the trust property is exposed to the plaintiff’s creditors and spouse. In addition, suspicion is raised about the strange protestation that the delictual award is not a donation.

If the deed proclaims the award (and the supposed founding donation) to belong to the plaintiff, perhaps

the court order made the award not to a trust in existence at the time but directly to the beneficiary (132 TSH 2014). I address that issue, too, separately.

Then, in a brilliant illustration of cognitive dissonance, the very next clause purports to give the trustee an outright discretion over the distribution of the income and capital (undefined terms, as usual) of the trust.

The deed next alleges that only upon the plaintiff’s death will the trust property devolve upon the plaintiff’s estate, yet, by definition, as it were, it is already there.

As for the powers clause, it purports to give the trustee unfettered powers that no owner of property would ever allow. Things continue to get worse, since there is a clause purporting to prevent the owner of the property, that is, the plaintiff, from encumbering his own property, and another excluding it from any joint estate.

The deed closes by delivering a final insult to the owner of the trust property by declaring that only the founder and the trustee may amend the deed. In a self-proclaimed bewind? Are you utterly crazy? Such an embarrassing display of ignorance of contract, property and trust law demands an explanation. Who is to blame? The attorneys involved or acting for the parties? Or the court? Read on.

Readers’ views—what no cash payments? Vic from Cape Town asks how it can be legal for SARS to ‘proclaim’ that it will not accept cash?

The Commissioner may prescribe the method of payment under s 162(2) of the Tax Administration Act, under which he promulgated GN 437 GG 39922 (157 TSH 2016). But this does not deal with cash payments. Then there is GN 415 GG 37690 (134 TSH 2014), which

deals with payments by cheque (it replaces GN 764 GG 36921; 127 TSH 2010).

The phasing-out of cash payments started on 30 October 2009 (79 TSH 2009). It is illegal (85 TSH 2010 and 87 TSH 2010). See, especially, ‘Forms & payments to SARS—a few surprises, not only for SARS’ 85 TSH 2010.

VAT: Yes, we have no invoices—III It was s 16(2)(f) of the Value-Added Tax that caused the problem (as SARS saw it) in ABC (Pty) Ltd v CSARS (A 129/2014) [2015] ZAWCHC 8. As shown in 158 TSH 2016, it now reads as SARS wished ABC (Pty) Ltd had read it. The newly inserted s 16(2)(g) restates what the old s 16(2)(f) used to say. Here they both are, the old and the new:

The old (f) the vendor, in any other case, except as

provided for in [s 16(2)(a) to (e)] is in possession of documentary proof, as is acceptable to the Commissioner, substantiating the vendor’s entitlement to the deduction at the time a return in respect of the deduction is furnished:

The new (g) in the case where the vendor, under such

circumstances prescribed by the Commissioner, is unable to obtain any document required in terms of [s 16(2)(a), (b), (c), (d), (e) or (f)], the vendor is in possession of documentary proof, containing such information as is acceptable to the Commissioner,

substantiating the vendor’s entitlement to the deduction at the time a return in respect of the deduction is furnished:

Once again, the tedious numerical cross-references are identified by the following subheadings taken from my own ‘value-added’ version of the Value-Added Tax Act (R750 inclusive of VAT at 14%):

Supplies: tax invoices, debit & credit notes (s 16(2)(a)).

Supplies: alternative documentary proof (s 16(2)(b)).

Supplies: second-hand & repossessions (s 16(2)(c)).

Imports: customs documentation (s 16(2)(d)) (For some reason, s 16(2)(dA) is unmentioned.)

Supplies: agency arrangement (s 16(2)(2)(e)). Documentary proof (s 16(2)(f)).

Here is what the relevant Memorandum says:

Section 16(2)(g) provides relief to recipient vendors when they are unable to obtain the correct information



or documentation from supplying vendors.

Well, yes, once we know (a) how the Commissioner ‘prescribes’ anything and (b) what he plans so to prescribe.

As a courtesy, I accept that under the Value-Added Tax Act the Commissioner ‘prescribes’ by way of interpretation note. But my real views, based upon the Tax Administration Act, are far more hostile (see elsewhere in this issue).

TAA: when a commissioner is ruled by his IT department What are the forms to be used in a dispute under s 103(3) of the Tax Administration Act?

(3) The Commissioner may prescribe the form of a document required to be completed and delivered under the ‘rules’.

As I have suggested (see elsewhere in this issue), it is possible that, under s 257(1), such a formulation might require the proclamation of a regulation by the minister of finance. Alternatively, the Commissioner enjoys a special power to design forms. But how is he meant to make his designs known? Until recently, as far as anyone at SARS thought about such things, it was reckoned that any old SARS publication would satisfactorily accomplish the task. Moreover, the IT situation at SARS is so dire that not all taxes are included within the same systems, so that different forms are required for the old (possibly DOS-based?) systems on one hand and for the new, snazzy, eFiling-enabled systems on the other.

The hopelessly garbled instructions (where, for example, ‘etc’ is listed as a category with severe legal consequences) are most recently referenced in

‘Dispute resolution guide’, published on 28 October 2014, although the actual damage is done by ‘Dispute resolution’, published on 1 October 2012.

I am prepared, only as a matter of convenience, to accept that these pathetic mumblings identify, under s 103(3), the occasions when you are to use the ADR forms (DOS systems) and when to use the NO forms (eFiling systems). But, during April 2016, without any warning, those wishing to obey the supposed dictates of these publications found the familiar eFiling route blocked by the silent introduction of a new, catastrophically inadequate form, known as DISP.

This form is not promulgated by regulation or by general notice, and, as far as I know, is still not mentioned in any SARS publication (and I am the self-appointed national fiscal librarian).

Which naïf introduced it, into an environment in which the ill-trained, predatory, scofflaws comprising the SARS staff complement will latch on to any ruse to deny taxpayers justice so as to further their own ‘production’ and careers? My guess is that it is the outfit that is supposedly transforming SARS, computationally speaking, against the wishes of this week’s minister of finance.

Readers’ views—the RAF’s prize Greg Beykirch writes:

I must congratulate the RAF on winning the 2016 Top Performing Companies Award for the second consecutive time (158 TSH 2016). So they won the 2016 Award twice? They are not posted as winners of the 2015 Award on the Awarder’s website, so it can’t be 2015 and 2016 in a row. Perhaps the RAF received a

certificate of sorts not mentioned in the dispatches? In fact, though, the Awarder has not yet listed the 2016 winners on their website.

It seems as if the Awarder is a relationship between BUSA and Government and run like those open universities from the Virgin Islands that award doctorates based on work experience, with a healthy dollop of money, of course.

TAA: subordinate legislation—what does ‘prescribe’ mean? The Tax Administration Act is a shoddy piece of drafting. For example, it unnecessarily defines a notice in the Government Gazette as a ‘public notice’ (s 1). Why reconstitute such a widely recognized medium as a term of art?

Then it includes a public notice in the set ‘official publication’ (s 1), further enveloping mere Government Gazette notices in obscurity. Unsatisfied even so, it then includes them as well in the set ‘this Act’ (s 1).

The implication, by the way, is that mere general notices are referred to (GN), rather than regulations (GN R). To the extent, then, that the act refers to public notices, it enables the Commissioner to add to the law by way of a general notice, rather than by way of regulation.

What is the difference between a general notice and a regulation? They are both types of so-called

subordinate or secondary legislation, and, as far as I can tell (especially by examining the Interpretation Act), there is no difference between them.

The only rule seems to be that, if an act calls for regulations, regulations must be proclaimed, and if it calls for general notices, general notices it must be. Except that this supposed rule is not always adhered to. For example, the regulations proclaimed under s 41 of the Special Economic Zones Act seem to have emerged as a proclamation (155 TSH 2016) (the only such instance I have ever observed). And GN 1080 GG 39379 (152 TSH 2015) should have been a regulation, as should GN 1023 GG 38335 (141 TSH 2014, and GN 511 GG 33278, and GN 666 GG 33412 (88 TSH 2010).

In my The Tax Administration Act (R750, inclusive of VAT at 14%), I maintain a ‘Record of public notices’, being a chart of the provisions required to be



supplemented by government notices, together with details of any such notice that has duly appeared. Currently, there are sixteen unfilled boxes.

Then there is also a ‘Record of regulations’, since the act conjures as well with regulations, which is a much shorter list, where there are a mere three vacancies.

But then the act, which fails to define ‘prescribe’, also refers to a wide range of matters to be prescribed by SARS or by the Commissioner (although what the difference might be, I shall probably never fathom) or by an official, as well as by some unspecified entity or person.

You will find these in ss 22(2)(a), (b), 22(3), 25(1)(a), 26(2), 26(2)(a), 27(2), 30(1)(b), 38, 67(2), 78(5), 79(1), 87(2), 89(3), 103(3), 147(3), 153(2), 167(1), 176(3), 185(2), 190(5A), 204(2)(b), 215(1), 215(2), 227, 230, 240(1), 240A(3), 244(2), 244(3) and 256(4).

That is an awful lot of work to be accomplished by the same, undefined word. In many instances, I suppose, if someone is authorized to design a form, he or she gets to ‘prescribe’ its content. Besides the problem of actually laying hold of SARS forms (a topic, possibly, for another day), there is no defined location of the full list of such forms, unless you are prepared to put up with the Forms page on the SARS website,

which has never struck me as being particularly comprehensive or reliable, especially over time. To mention just a few problems, the SARS forms are usually undated, are silently updated, and are suddenly changed without notice, while no chronological record is maintained of the various vintages of forms that have appeared over the years. These are significant issues within the adversarial environment in which tax professionals ought to be operating.

In 141 TSH 2014, in which I first looked at this topic, I speculated whether there is some difference between ‘prescribe’, ‘prescribes’ and ‘prescribed’ as used in the act, and ended with an ominous reproduction of s 257(1)(b):

257. (1) The Minister may make regulations regarding— (b) any matter which under this Act is required or

permitted to be prescribed.

If words mean anything, my previous conclusion has to be correct:

Anything requiring or permitted to be prescribed must be prescribed by the Minister, and by way of regulation!

That invalid trust deed: who is responsible? Who is responsible for the invalid specimen deed typically used in RAF and medico-legal matters? In law, it is the judges handing down orders for the supposed establishment of such trusts. In practice, though, the terms of such orders follow an industry-standard template, and the judge concerned signs the thing.

In the order accompanying the deed described elsewhere in this issue, the judge involved ostensibly makes himself responsible for several of its failings, but I continue to blame the industry, as a whole.

The first thing the industry fails to understand is that, if an order is made in favour of a plaintiff, and the funds are only later placed in a trust that has in the meantime been formed, two patrimonial events might arise, one in favour of the plaintiff, at the cost of the defendant, and another in favour of the trustees, at the cost of the plaintiff. The plaintiff’s transaction may be characterized only as a donation (it can have no other causa), subject to donations tax, unless, as in the particular circumstances I am describing, the trust that is supposedly formed is a bewind, in which event, there is no transfer of property at all—it remains throughout in the ownership of the plaintiff.

If you want to protect the funds from the plaintiff himself and the plaintiff’s creditors and spouse, you have to make the award ab initio to the trustees of a trust already in existence, and the trust cannot be a bewind but must include a gift over, settling the trust property on at least one other beneficiary upon the plaintiff’s death. Alternatively, you must suspensively award the funds to an agent, usually an attorney, to hold the funds in trust, until a suitable trust is established.

In the court order available to me the award is in my view made to the plaintiff, finish and Selebian klaar. Luckily, the judge also orders the plaintiff to be the sole beneficiary, so that no patrimonial—and so no chargeable—event arises. The plaintiff remains the owner of the property throughout, and there can be no donation in favour of the trustees.

Yet, at the same time, the order speaks of the plaintiff’s ‘contingent rights’ under the deed. Owners of property enjoy real, not contingent rights. Luckily, there can be no such contingent rights, for this (garbled) clause of the order purports that they may be excluded from the plaintiff’s property upon insolvency, in direct violation of the Insolvency Act (146 TSH 2015). It also appears to suggest that the plaintiff enjoys no patrimonial rights except upon a distribution by the trustees—out of his own property.

Far more properly, the order demands that amendments to the deed be made only by way of the leave of the court, yet, shockingly, the deed fails to include any such provision. Nor does the deed exactly mimic the order’s instruction on the use of the capital and income of the trust, which vests both in the plaintiff, as would in any event be the position under a bewind. Not only does the order demand that the plaintiff be the sole beneficiary but, by requiring the purported trust property to fall into his estate upon death, it rules out, doubly, any gift over. (I have bemoaned this type of lost opportunity in 91 TSH 2010.) Oddly, the order assumes that the Master has some sort of say over the content of a deed.

Perhaps the courts believe that their special power under the Trust Property Control Act gives them authority to override statutory and common law.



Conflict of statutes and tax—II Principle of subsidiarity The Constitution is about more than just rights but, if you want to focus on rights, you have to take on board the principle of subsidiarity, which, effectively stands between you and the Bill of Rights.

The principle is an ancient one, although, if you search SALR for the string “principle of subsidiarity”, you will come up with only a handful of hits. The reason is, partly, that the principle is nowhere enshrined in our law (Minister of Welfare and Population Development v Fitzpatrick and Others 2000 (3) SA 422 (CC)), and, partly, that our courts have only recently taken specifically to using the rubric ‘principle of subsidiarity’.

Essentially, the principal states that, if some other statute mediates rights, it is under that statute, rather than the Bill of Rights, that you must seek redress. For example, if administrative action has infringed some fundamental right, your remedy is to be found under the Promotion of Administrative Justice Act (PAJA); you ‘cannot avoid PAJA by seeking to rely directly on that fundamental right’ (Plasket J in Tripartite Steering Committee and Another v Minister of Basic Education and Others 2015 (5) SA 107 (ECG)).

The leading source for the history, scope and details of the principle are to be found in the minority judgment delivered by Cameron J in My Vote Counts NPC v Speaker of the National Assembly and Others 2016 (1) SA 132 (CC) (footnotes suppressed):

Parliament's argument brings to the fore the principle of subsidiarity in our constitutional law. Subsidiarity denotes a hierarchical ordering of institutions, of norms, of principles, or of remedies, and signifies that the central institution, or higher norm, should be invoked only where the more local institution, or concrete norm, or detailed principle or remedy, does not avail. The word has been given a range of meanings in our constitutional law. It is useful in considering the scope of subsidiarity, and Parliament's reliance on it—to have them all in mind.

…. 'Subsidiarity' has also been used to describe the

principle that overlap in functional areas of concurrent constitutional competence should be resolved by assigning the power to the sphere of government where the specific function is most appropriate. Within the Bill of Rights, subsidiarity entails that where the Constitution contains both a specific right, like the right of access to housing, and a more general right, like the right to human dignity, which informs the right to housing, the litigant must first invoke the specific right. The more general right is subsidiary.

But the most frequent invocation of subsidiarity has been to describe the principle that limits the way in which litigants may invoke the Constitution to secure enforcement of a right.…

Of course, this approach has long since been abandoned under the final Constitution in favour of its opposite, namely the primacy of constitutional approaches to rights determination. Far from avoiding

constitutional issues whenever possible, the court has emphasized that virtually all issues—including the interpretation and application of legislation and the development and application of the common law—are, ultimately, constitutional. This is because the Constitution's rights and values give shape and colour to all law.

But it does not follow that resort to constitutional rights and values may be freewheeling or haphazard. The Constitution is primary, but its influence is mostly indirect. It is perceived through its effects on the legislation and the common law—to which one must look first.

These considerations yield the norm that a litigant cannot directly invoke the Constitution to extract a right he or she seeks to enforce without first relying on, or attacking the constitutionality of, legislation enacted to give effect to that right. This is the form of constitutional subsidiarity Parliament invokes here. Once legislation to fulfil a constitutional right exists, the Constitution's embodiment of that right is no longer the prime mechanism for its enforcement. The legislation is primary. The right in the Constitution plays only a subsidiary or supporting role.

…. The principle of subsidiarity puts litigants to a

choice. It says that, 'where legislation has been enacted to give effect to a right, a litigant should rely on that legislation in order to give effect to the right, or, alternatively challenge the legislation as being inconsistent with the Constitution'. But where the legislation is challenged for not meeting a constitutional obligation, the principle does not apply.

This reflects the principle's rationale, which is the cooperation the courts, under the separation of powers, owe a fellow actor that is striving to give life to constitutional obligations. Because the courts act in partnership with Parliament in fulfilling the Bill of Rights, comity between the arms of government requires, if the relationship is to be successful, a measure of respect for what the other partner is trying to achieve. Parliament's role in operationalizing constitutional rights by enacting legislation must be respected—and the courts should not, therefore, allow litigants to 'circumvent' or 'bypass' that legislation.

What it all means in tax terms In a tax layperson’s terms, then, you may challenge a tax Act ‘for not meeting a constitutional obligation’. If that is not your argument, and the tax Act grants you rights, you must rely on it to give effect to those rights. And if the tax Act is silent or does not apply in the circumstances, but some other constitutional statute, such as PAJA, grants you rights, you must rely on that statute to give effect to those rights. (As a matter of fact, s 7(2)(a) of PAJA generally requires internal remedies under other laws to be exhausted first.)

And, in any conflict between a tax Act and the Bill of Rights, the Bill of Rights will prevail, unless the rights concerned have been operationalized in some other statute, which then assumes primacy.



Mora interest (damages) As shown in 156 TSH 2016, it is s 2A of the Prescribed Rate of Interest Act that establishes mora interest, that is, interest on an unliquidated debt, for example, a debt under dispute, such as a damages claim.

I understand that attorneys are trained (but often forget) to place the opposing side in mora, for the simple reason that, in the event of success with the claim, interest on the capital sum will run under s 2A much, and often, much earlier than under s 2, which prescribes the interest that will run on a judgment debt. In other words, wait until you win the case, and you will earn much, and often, much less interest.

How do you place the other side in mora? The timing rules of s 2A, which are of great concern, or ought to be, in the tax world, are elaborate but depend, to a substantial extent, upon the making of a ‘demand’, which is defined in s 4(ii) as

a written demand setting out the creditor’s claim in such a manner as to enable the debtor reasonably to assess the quantum thereof. From a tax point of view, it is the timing of the

incurral and accrual of interest on judgment debts, including those that arise under claims for damages, that is most significant but, I suspect, widely mishandled. I also suspect that the necessary distinction between a capital sum and lump-sum interest is seldom made properly. And I can only hope that trustees, curators and the like conscientiously report interest payments made at regular intervals as the income of their wards.

In a damages claim against SARS, I would recommend that you put your demand in as early as possible, and wish you a happy outcome. If I can be of any assistance, it will be a pleasure.

Emotional capital But in ordinary tax affairs, including disputes, you should check the Tax Administration Act before investing any emotional capital in an interest claim. Statutory interest is payable by SARS on refunds and on refunds of provisional tax and PAYE. And, under the Income Tax Act, interest is payable by SARS on overpayments of provisional tax.

TAA: delivery by SARS—electronic communicators In 158 TSH 2016, I expressed the view that GN 644 GG 37940 of 25 August 2014, promulgated under s 255(1) of the Tax Administration Act, applies to general delivery by SARS under ss 251 and 252 (as opposed to delivery under Chapter 9 of the act, on dispute-resolution) as from 8 January 2016 and not a moment sooner.

Whether or not that view is correct, the fact remains that this newsletter has never taken a close look at the notice.

Section 255 itself is, I say, a response to the requirements of s 28(1) of the Electronic Communications and Transactions Act, which reads as follows:

Requirements may be specified 28. (1) In any case where a public body performs any of the functions referred to in section 27, such body may specify by notice in the Gazette— (a) the manner and format in which the data messages

must be filed, created, retained or issued; (b) in cases where the data message has to be signed,

the type of electronic signature required; (c) the manner and format in which such electronic

signature must be attached to, incorporated in or otherwise associated with the data message;

(d) the identity of or criteria that must be met by any authentication service provider used by the person filing the data message or that such authentication service provider must be a preferred authentication service provider;

(e) the appropriate control processes and procedures to ensure adequate integrity, security and confidentiality of data messages or payments; and

(f) any other requirements for data messages or payments.

Without a doubt, then, GN 644 is lawful and binding on both SARS and taxpayers.

Although the notice abounds with references to persons, it is a fair bet that it is aimed in the main at ‘electronic communicators’:

‘electronic communicator’ means a person that— (a) is a registered user; or (b) is obliged to or has elected to communicate with

SARS in electronic form;

Who might be obliged to communicate with SARS in electronic form? If you search the act for the string “electronic”, you will find only one possibly relevant provision. Taking communication widely, you will hit on s 162(2), which allows SARS to prescribe, in the Gazette, the method of payment electronically, although no such Gazette notice exists.

Then, in the dispute-resolution ‘rules’ (GN 550 GG 37819 of 11 July 2014), the impression is created that, if you are on eFiling, delivery must take place via eFiling, although, eFiling is, even on its own terms, hopelessly inadequate as a communications medium, the rules themselves providing for the point in a dispute at which eFiling breaks down (rule 10(1)(b)), which I find slightly amusing.

A very fine point of law is involved, and I cannot say for sure whether taxpayers on eFiling are obliged, while it is possible to do so, to pursue a dispute via eFiling. To be safe, I myself assume that they are, but the ‘rules’ include conflicting instructions on the modality of delivery by the taxpayer, and I abide by these, indisputably real, rules as well.

On the other hand, in a dispute, SARS may ‘deliver’ by way of a posting to a taxpayer’s or an appellant’s eFiling page (para (b) of the definition in rule1).

Feature Supplement to 159 Tax Shock Horror 2016

Cases

June 2016

Winners & Losers In That Other Beautiful Game Current & Past SATC Case Reports

by Julian Ware © 2016 J Ware ([email protected])

Salary sacrifice— fringe benefits Anglo Platinum Management Services (Pty) Ltd v CSARS

Supreme Court of Appeal (2015)—78 SATC 73 (judgment delivered by Cachalia JA; Leach JA, Tshiqi JA, Pillay JA & Mbha JA concurring): Here we go, again! The taxpayer entered into an agreement with its employees whereby they sacrificed a portion of their cash remuneration in return for the use of company-owned motor vehicles. Did the parties enter into a legitimate salary-sacrifice arrangement? Thankfully, the court would not entertain the nonsense espoused by SARS’S officials. The fact that, for each participating employee, the taxpayer kept a notional account to determine and keep track of the cost to the company of the sacrifice, which under the agreement was adjusted from time to time, did not taint the veracity of the arrangement. The court (rightfully) criticized the tax court’s lack of application of the provisions of the law and its ‘unarticulated premise that that scheme was a sham, disguised to conceal its true nature’. The arrangement was properly designed and implemented. Para (i) of the ‘gross income’ definition trumps para (c).

Base cost— CGT CSARS v Stepney Investments (Pty) Ltd

Supreme Court of Appeal (2015)—78 SATC 86 (judgment delivered by Majiedt JA; Navsa JA, Shongwe JA, Mbha JA & Van der Merwe AJA concurring): During the 2002 and 2003 years of assessment, the taxpayer disposed of pre-valuation date unlisted shares held by it. It adopted the market value to determine the base cost of them at valuation date (1 October 2001) and, in particular, it used the discounted cash flow (DCF) method to do so. SARS, however, used the net asset value method and, based upon it, adjusted the base cost to nil, issuing additional assessments upon the taxpayer. In the tax court, SARS conceded that the DCF method was the more appropriate method to value the shares (and that the shares did have considerable value at valuation date) but it argued that there were still shortcomings in the taxpayer’s projected revenue flows and discount rate, which negatively affected the value. Valuers have a duty to assess the correctness and reasonableness of figures presented to them. At the time of doing a retrospective valuation, information about post-year-end events must be factored in. Since the taxpayer’s valuation was flawed and the Commissioner had properly conceded in the tax court that the shares had value, in the interest of justice, the matter was remitted to the Commissioner for further investigation and assessment. An appeal from a tax court to the Supreme Court of Appeal is not a review but a full appeal upon the issues.

Proceeds— CGT Taxpayer v CSARS

ITC 1880 (Johannesburg Tax Court—Case 13472 (2014))—78 SATC 103 (judgment delivered by Wepener J): The taxpayer disposed of shares in a company to a fellow shareholder. On advice from his accountant and a tax adviser, he reduced the proceeds by the amount of a liquidated damages claim brought against him by the company. Since the claim related to a separate parcel of shares in the company, which had previously been disposed of by another company to the shareholder some years earlier when the taxpayer acted in breach of his fiduciary duties as an agent for the company, there was no link between the claim and the later disposal. The taxpayer’s interpretation of para 35 was totally misplaced.

t sh


Davey’s Locker

June 2016 Retirement annuities Increased tax relief but access constraints

by Tony Davey © 2016 A H Davey ([email protected] www.tonydavey.com)

RAFs are long-term savings The increased tax deductibility of contributions to a retirement annuity fund, effective as from 1 March 2016, to 27,5% of the greater of taxable income and remuneration, has incentivized saving for retirement. The trade-off is that an RAF member cannot access any benefits, except in very limited circumstances, the rationale being that the nature of this type of investment should be long-term.

Pre-retirement access The reality is that, in an economic downturn, retrenchments are rife. Although such action ought not to be encouraged save in exceptional circumstances, members of a pension or provident fund can access a withdrawal benefit in whole or in part upon termination of service, since membership of a fund is related to employment.

RAF members cannot access any withdrawal benefits upon retrenchment or redundancy, since there is no employment relationship.

RAF limited access Access to a retirement annuity is governed by the definition of ‘retirement annuity fund’, as read with the definition of ‘normal retirement age’, both contained in s 1(1) of the Income Tax Act. In

essence, no portion of an retirement annuity may be encashed before:

Attainment of age 55. Permanent disability. Death. Formal emigration from the

RSA.

Any cession (for example, as security) is prohibited.

Exceptions to limited access An exception to limited access is permitted under s 37D(l)(d) of the Pension Funds Act, as read with s 7(8) of the Divorce Act. In essence, a divorce settlement can include an award to the ex-spouse of a member of a ‘pension interest’, including an interest in an RAF, in whole or in part.

A further exception permitted under the definition of ‘retirement annuity fund’ arises upon emigration from the RSA, provided it is recognized by the South African Reserve Bank.

Conclusion The moral of the story is: Don’t put all your investment eggs into one retirement annuity basket, but ensure you also have discretionary savings to cater for ‘the slings and arrows of outrageous fortune’.

t sh


Shortcut Keys in Word by Duncan S McAllister ©2016

June 2016

ALT sequence keys (Word 2010)—the Insert tab

Insert (ALT + N)

Key sequence Action ALT, N, V Cover page ALT, N, V, M More Cover pages from Office.com ALT, N, V, R Remove Current Cover page ALT, N, V, S Save Selection to Cover Page Gallery ALT, N, N, P Blank Page ALT, N, B Page break ALT, N, T Table ALT, N, T, I Insert Table ALT, N, T, D Draw Table ALT, N, T, V Convert Text to Table ALT, N, T, X Excel Spreadsheet ALT, N, T, T Quick Tables ALT, N, T, T, S Save Selection to Quick Tables Gallery ALT, N, P Picture ALT, N, P, N File name ALT, N, F Clip Art ALT, N, S, H Shapes ALT, N, S, H, N New Drawing Canvas ALT, N, M SmartArt ALT, N, C Chart ALT, N, C, ALT + M Manage Templates ALT, N, C, ALT + S Set as Default Chart ALT, N, S, C Screenshot ALT, N, S, C, C Screen Clipping ALT, N, I Hyperlink ALT, N, I, ALT + X Link to Existing File or Web Page ALT, N, I, ALT + A Link to Place in this document ALT, N, I, ALT + N Link to Create New Document ALT, N, I, ALT + M Link to E-mail Address

June 2016


ALT, N, I, ALT + T Text to Display ALT, N, I, ALT + L Look in ALT, N, I, ALT + B Browsed Pages ALT, N, I, ALT + C Recent Files ALT, N, I, ALT + E Address ALT, N, I, ALT + P ScreenTip ALT, N, I, ALT + O Bookmark ALT, N, I, ALT + OL Select an existing place in the document ALT, N, I, ALT + G Target Frame ALT, N, I, ALT + GS Select the frame where you want the

document to appear ALT, N, K Bookmark ALT, N, K, ALT + N Sort by Name ALT, N, K, ALT + L Sort by Location ALT, N, K, ALT + H Show Hidden Bookmarks ALT, N, R, F Cross-reference ALT, N, R, F, ALT + T Reference type ALT, N, R, F, ALT + R Insert reference to ALT, N, R, F, ALT + H Insert as hyperlink ALT, N, R, F, ALT + N Include above/below ALT, N, R, F, ALT + W For which numbered item ALT, N, H Header ALT, N, H, M More Headers from Office.com ALT, N, H, E Edit Header ALT, N, H, R Remove Header ALT, N, H, S Save Selection to Header Gallery ALT, N, O Footer ALT, N, O, M More Footers from Office.com ALT, N, O, E Edit Footer ALT, N, O, R Remove Footer ALT, N, O, S Save Selection to Footer Gallery ALT, N, N, U Page Number ALT, N, N, U, T Top of page ALT, N, N, U, B Bottom of page ALT, N, N, U, P Page Margins ALT, N, N, U, C Current Position ALT, N, N, U, F Format page numbers ALT, N, N, U, R Remove Page Numbers ALT, N, X Text Box ALT, N, X, M More Text Boxes from Office.com ALT, N, X, D Draw Text Box ALT, N, X, S Save Selection to Text Box Gallery ALT, N, Q Quick Parts ALT, N, Q, A Auto Text ALT, N, Q, D Document Property ALT, N, Q, F Field ALT, N, Q, B Building Blocks Organizer ALT, N, Q, S Save Selection to Quick part Gallery ALT, N, W WordArt ALT, N, R, C Drop Cap

June 2016


ALT, N, G Signature Line ALT, N, G, A Add Signature Services ALT, N, D Date & Time ALT, N, D, ALT + D, Set as Default ALT, N, D, ALT + U Update automatically ALT, N, J Object ALT, N, J, J Object ALT, N, J, F Text from File ALT, N, E Equation ALT, N, E, M More equations from Office.com ALT, N, E, I Insert New Equation ALT, N, E, S Save selection to Equation Gallery ALT, N, U Symbol (euro, pound, yen, copyright,

registered, trademark, +/-, not equal to, less than or equal to, greater than or equal to, division, multiplication, infinity, micro, Greek small letter alpha, Greek small letter beta, Greek small letter pi, ohm, summation and more

ALT, N, U, M More Symbols

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June 2016 Evidence Corner—evidence could make a welcome change to tax cases

Section 35(5) of the Bill of Rights and the use of undercover operations as a weapon against hijacking syndicates

by Andrew Paizes © 2016 A Paizes ([email protected])

A very interesting question had to be addressed by the Supreme Court of Appeal in S v Singh & others [2016] ZASCA 37 (unreported, SCA case no 862/2015, 24 March 2016).

A well organized and ruthlessly violent syndicate was involved in hijacking very large trucks on the motorway between Johannesburg and Durban. Police patrols had not been effective, the hijackings increased to the point where the national economy itself had begun to suffer, and the police were desperate.

As a result, a sophisticated undercover operation was conducted to infiltrate the syndicate, detect its criminal activities, and apprehend those who had master-minded them. The operation involved the use of both an ‘in place informer’ and a ‘trap agent’, the latter being a person who worked his way into the employment of the syndicate as a driver who would transport the stolen goods.

As a result of this operation, and the use of the trap agent in six separate incidents, the appellants were arrested and indicted on twenty counts, covering a wide range of offences, including attempted murder and robbery with aggravating circumstances. The trap did not initiate any of the criminal activities, his main role being the conveyance of wheels stolen from the hijacked trucks to a

certain address in return for payment. He had, at all times during the six incidents, activated a tracking device and video cameras.

The defence challenged the admissibility of the evidence generated by the trap. This challenge contained two unusual features.

First, no reliance was placed on a provision in the Criminal Procedure Act (s 252A) that generally governs the admissibility of evidence of this kind. The appellants relied, instead, exclusively on s 35(5) of the Constitution, which governs unconstitutionally obtained evidence.

That section provides that ‘[e]vidence obtained in a manner that violates any right in the Bill of Rights must be excluded if the admission of that evidence would render the trial unfair or otherwise be detrimental to the administration of justice’. Reliance was placed on the second of the conditions set out in s 35(5), it being contended that the alleged violations were detrimental to the interests of justice.

The second unusual feature of the defence case was that it was not argued by the appellants that there had been any violation of their own rights. It was argued, instead, that the conduct of the state had violated the rights of the public at large, in that the state had undertaken the operation

‘whilst aware that members of the public had already been exposed to serious violence, and that it continued with the operation whilst aware of a real possibility of further exposure to such violence’ (at [15]).

This argument was unsuccessful. Tshiqi JA, who gave the judgment of the court, said that cases of this kind required the courts to resolve the delicate balance between preserving the respect for the Bill of Rights on the part of the police and the respect for the judicial process on the part of the man in the street.

In the present case, the attack on the operation by the defence could ‘simply be dismissed on the basis that it was meant to protect the very public alleged to have been exposed to violence’ (at [19]).

In resolving the balance in favour of the state, Tshiqi JA pointed to the following influential factors: the increasingly violent crimes committed by the syndicate; the ineffectiveness of other police techniques; the threat to the national economy; the fact that the trap did not initiate any of the offences but merely followed orders; the fact that there was no close connection between the rights violations and the criminal acts of the syndicate that exposed the public to danger; and the fact that the operation had not been conducted ‘in a flagrant disregard of the Constitutional rights of

June 2016


possible victims or other members of the public’ (at [21]).

The trap, said the court, had acted very cautiously. He performed his tasks in terms of guidelines approved by the Director of Public Prosecutions and acted, at all times, under the strict supervision of the Director and the investigation team.

The court stressed, finally, that public opinion was a relevant consideration in determining whether a violation was detrimental to the administration of justice. And, said Tshiqi JA (at [22]),

the public would ‘baulk at the idea that the law enforcement agencies failed to take bona fide measures aimed at effective detection of such an organized crime syndicate because of the fear that there may be danger to the public, specifically in the present circumstances where the crimes would have taken place irrespective of the operation’. The public reaction would, said the learned judge, have been one of ‘shock, fury and outrage’.

One final matter: it has sometimes been said that reliance on s 35(5) requires some form of

‘standing’ that echoes this requirement in the United States, where the right violated must be shown to be that of the accused. The fact that the Supreme Court of Appeal raised no objection to the appellants’ reliance on s 35(5) even though it was based on the infraction of the rights of the public at large—and not the appellants themselves—is a strong indication that this requirement is not part of our law. Nor should it be, since there is nothing in the wording of s 35(5) to suggest its inclusion.

t sh

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