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The lawfulness of retrospective amendments in tax law
Taxand South Africa examines the lawfulness of retrospective amendments in tax law.
On 29 May 2017, Judge Fabricius delivered judgment in the Gauteng High Court in the case of Pienaar Brothers (Pty) Ltd vs Commissioner for the South African Revenue Service and the Minister of Finance, in a case dealing with the Taxation Laws Amendment Act, 2007 (the “Amending Act”) which inserted section 44(9A) into the Income Tax Act, 1962 (the Act).
The taxpayer sought an order declaring that section 34(2) of the Amending Act is inconsistent with the Constitution, and invalid to the extent that it provides that section 44 (9A) of the Act shall be deemed to have come into operation on 21 February 2007 and to be applicable to any reduction or redemption of the share capital or share premium of a resultant in company, including the acquisition by that company of its shares in terms of section 85 of the Companies Act, on or after that date.
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As a result, the court dismissed the company’s application to find that the amendment was unlawful under the Constitution. By virtue of the fact that the case related to constitutional issues, it made no orders as to costs. It remains to be seen if the case will proceed on appeal to a higher court. The judgment is important in that it sets out clearly, for the first time, the consequences of retrospective amendments to legislation in the tax arena and taxpayers and advisors are well advised to study the comprehensive judgment which is a good summary of the law in South Africa and around the world.