Page 753 - SAIT Compendium 2016 Volume1

CASE DIGEST 2013–2014
TA Act, where the Commissioner for the South African Revenue Service (CSARS) indicated his requirement that the applicants provide SARS with copies of certain documentation. The audit was conducted following a letter of ndings issued by the CSARS on 15 October 2013 which served as a notice, as required by s 80J (1) of the Income Tax Act, that the Commissioner considered the applicants to be involved in ‘impermissible tax avoidance’ as de ned in s 80A of the Income Tax Act.
SARS, having spent considerable time investigating the tax affairs of the group of companies, believed the applicants had knowledge of the ow of funds involved in certain structured nance arrangements and were involved in a joint venture with an offshore consortium, which SARS suspected of involving tax-base erosion by shifting pro ts offshore. The Commissioner decided to reassess the third applicant’s liability for payment of income tax and secondary tax on companies in terms of s 80B of the Income Tax Act.
Insight into the invoices was also required because it was foreseen that they might provide relevant factual information pertinent to the wide-ranging investigation by SARS into the group of companies’ tax affairs. More speci cally, a breakdown of professional fees of one of the applicant companies pertaining to the 2009 year of assessment was required. In the response given to the Commissioner, the second applicant, who was dealing with the Commissioner’s requirements on behalf of the other two applicants, gave a breakdown of the fees involved, together with certain supporting invoices. Copies of the invoices from their attorneys would be given to the Commissioner at a later date. The applicants subsequently provided copies of the relevant invoices to SARS with certain content on the invoices being redacted due to the claim that they were subject to legal professional privilege between the applicants and their attorneys.
The issue in contention was thus whether legal professional privilege extended to invoices between attorneys and their clients. The applicants felt there was certain information on the invoices which contained details of advice sought in con dence from their attorneys. They felt furnishing the Commissioner with uncensored invoices would compromise their legal privilege. This led to them providing the Commissioner only with redacted copies.
In the absence of relevant South African case law on this particular matter, the court had to consider various international cases, especially from English jurisprudence. Though the court found that attorneys’ fee notes (ie invoices) were not subject to a blanket rule automatically making them subject to legal privilege, it was conceded by Binns-Ward, J at para 31 that:
‘Attorneys’ fee notes might contain references to legal advice sought and given in the course of a narration of the services in respect of which the fees have been raised.’
He further added, in the same paragraph, that:
‘If the fee note refers to the advice only in terms that describe that it was given, without disclosing its substance, I do not consider that the mere reference would be suf cient to invest the relevant content of an otherwise unprivileged document or communication with legal advice privilege. The position would be different, of course, if the fee note set out the substance of the advice, or contained suf cient particularity of its substance to constitute secondary evidence of the substance of the advice.’
The court unfavourably regarded the fact that the applicants provided no detailed substantiation with regards to why legal privilege applied to the censored parts of the invoices. However, the applicants did invite the court to take a ‘judicial peek’ at the redacted portions of the invoices.
Held
Following exercising of the ‘judicial peek’, the court held that only one of the invoices contained suf cient detail to warrant legal privilege. The relevant portions of that invoice were protected from disclosure by reason of legal advice privilege. This was not found to be the case with the rest of the invoices. The declaratory relief sought by the applicants could not therefore be granted for the rest of the invoices. Each party was ordered to pay its own costs.
2. AB Trust v The Commissioner for SARS ITC 13254 (22 January 2014)
Introduction
This matter is an appeal against the decision taken by the Commissioner. The Commissioner refused to approve AB Trust’s application as a PBO. The Trust objected to the Commissioner’s decision to refuse its application and upon disallowance of its objection lodged an appeal with the court.
The appellant (‘the Trust’) is an inter vivos trust established in terms of a deed of trust (‘the Trust Deed’) concluded on 15 March 2010. The appellant was registered with the Master of the High Court, Cape Town on 7 September 2010 under the Master’s reference number IT XXX /2010.
The respondent is the Commissioner for the South African Revenue Service (‘the Commissioner’), who, apart from many other of ces in the rest of the country, has of ces at 11 Buitengracht Street, Cape Town.
Facts
On 24 December 2010 the Trust lodged an application with the Commissioner seeking approval as a public bene t organisation in terms of s 30 (3) as well as approval in terms of s 18A of the Income Tax Act 58 of 1962 (‘the Income Tax Act’) to issue tax deductible receipts to donors.
In order to qualify for the exemption from income tax on certain receipts and accruals in terms of s 10 (1) (cN) of the Income Tax Act, the Trust had to be approved by the Commissioner in terms of s 30 (3), read with the Ninth Schedule, to the Income Tax Act. The Trust’s application for approval was refused by the Commissioner on 13 December 2011.
Section 10 (1) (cN) of the Income Tax Act provides for a partial exemption from normal tax of certain receipts and accruals of any public bene t organisation approved by the Commissioner in terms of s 30 (3) of the Income Tax Act. To be approved as a public bene t organisation as contemplated in s 30 of the Income Tax Act, the organisation, in the rst instance, must fall within the de nition of a public bene t organisation as de ned in s 30 (1) of the Income Tax Act; it should have as its sole or principal objective the carrying on of one or more approved public bene t activities listed
SAIT CompendIum oF TAx LegISLATIon VoLume 1 745
CASE DIGEST 2013-2014