Abuse of legal personality to avoid tax : piercing the corporate veil as remedy in case of the abuse of legal personality for tax purposes
Date
2019-04
Authors
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Journal ISSN
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Publisher
Stellenbosch : Stellenbosch University
Abstract
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.
AFRIKAANSE OPSOMMING : Geen Afrikaanse opsomming geskikbaar nie
AFRIKAANSE OPSOMMING : Geen Afrikaanse opsomming geskikbaar nie
Description
Thesis (LLD)--Stellenbosch University, 2019.
Keywords
Tax evasion -- South Africa, Corporate veil -- South Africa, South Africa -- Close Corporations Act, 1984, Corporations -- Taxation -- South Africa, South Africa -- Companies Act, 2008, Unconscionable abuse, South Africa -- Income Tax Act, 1962, UCTD