Abuse of legal personality to avoid tax : piercing the corporate veil as remedy in case of the abuse of legal personality for tax purposes
Thesis (LLD)--Stellenbosch University, 2019.
ENGLISH ABSTRACT : Companies are legal persons and as much part of commercial traffic as the natural persons owning and controlling them. Compared to one another, companies and natural persons nevertheless have very different legal abilities and characteristics. It is therefore not unexpected that they are treated differently for purposes of the law of taxation. As a result it may often be more beneficial to have the profits generated by a business enterprise taxed in a company rather than in the hands of a natural person, especially in instances where a shareholder would be commercially indifferent to whether those profits are generated in a company or not. By using the separate legal personality of a company shareholders may often perpetrate an abuse of that separate legal personality. Such abuse of legal personality can also take place when legal personality is employed primarily for tax reasons. While a limited form of abuse of the corporate veil is tolerated, whether the use of separate legal personality for tax reasons amounts to an abuse thereof beyond what is permitted in South Africa can be determined in terms of three tests. These tests are the traditional “piercing of the corporate veil” judgments forming part of the common law, section 20(9) of the Companies Act 71 of 2008 and the General Anti-Avoidance Rules (“GAARs”) (and other specific provisions) in the Income Tax Act 58 of 1962. This dissertation considers when any of these various tests will dictate that the separate personality of a company be ignored (or “pierced”) for purposes of taxes levied in terms of the Income Tax Act. Through critical analysis of both the South African rules on piercing as applied for tax purposes as well as the circumstances under which selected other jurisdictions provide for piercing for tax reasons the dissertation formulates what best practice and desired policy for piercing for tax reasons are.
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