The recent High Court decision of Pienaar Brothers (Pty)
Ltd v Commissioner for the South African Revenue, a highly
important judgment dealing with the constitutionality of
retrospective legislation, underscores the importance for
taxpayers of participating in or at least being aware of the
public consultation process around proposed tax amendments in
order to be forewarned of pending changes.
The court in this case was faced with the fundamental issue
of whether retrospective legislation that applies to completed
transactions is a violation of the rule of law and the
principle of legality, principles deeply entrenched in the
South African Constitution.
The court noted that South African case law distinguishes
between retrospectivity in a "strong" and a "weak" sense. A
provision is retrospective in the "strong" sense if the
provision applies from an earlier date than the date on which
it is enacted. A provision is retrospective in a weak sense if
it affects future consequences of existing transactions or
matters. Two issues were considered, namely whether an
amendment, which resulted in retrospectivity in a "strong"
sense should be declared to be unconstitutional, and also
whether the wording of the specific amendment that was relevant
actually affected the transaction of the taxpayer, since it did
not state explicitly that it applied to completed
On the interpretational issue, the court disagreed with the
taxpayer's arguments that the amendment resulted in anomalous
and unfair consequences. The purpose of the amendment was to
close an unintended loophole, which allowed for a specific
exemption in respect of secondary tax on companies on certain
distributions, with a resultant loss to the fiscus. The court
agreed with the tax authorities that a purely prospective
amendment would have encouraged taxpayers to exploit the
loophole in time remaining before the loophole closed.
The court held that the amendment was clear, its purpose was
rational and that it applied to all transactions, including
On the constitutional issue, the court considered approaches
to the issue followed in foreign jurisdictions as well as prior
guidance given by the Constitutional Court. The court agreed
with submissions made that retrospective laws are permissible
and common place in countries based on the rule of law.
However, this did not mean that Parliament could enact
retrospective legislation as it pleased. The constitutional
validity of retrospective legislation was still be judged by
the standards of judicial review, i.e. whether the amendment
was (i) rational; and (ii) reasonable or proportional relative
to the infringement of fundamental rights of taxpayers.
The court, somewhat controversially, held that the rule of
law did not require fair warning of the proposed retrospective
amendment to be given to taxpayers before the enactment and
that in any event the public consultation process carried out
when the amendment was proposed would have provided any
taxpayer seeking to exploit the STC exemption with more than
adequate notice that the elimination of this particular tax
planning opportunity was imminent.
This case is going on appeal and it will be interesting to
monitor developments on the pertinent issues.
Joon Chong (firstname.lastname@example.org),