Interpretation of fiscal legislation
- DLA Cliffe Dekker Hofmeyr
- South Africa
- January 9 2015
In Commissioner SARS v Bosch (394/2013)  ZASCA 171 (November 19 2014), the Supreme Court of Appeal dealt with the fiscal consequences of a deferred delivery transaction. The judgment is important not only in the context of the meaning of simulation, but also with reference to the way in which legislation should be interpreted. In Bosch, the question arose as to the meaning of Section 8A of the Income Tax Act (58/1962), which read that a taxpayer’s income should include any gain made by the exercise, cession or release of any right to acquire a marketable security during the year of assessment.
The issue in dispute was whether the right to acquire shares arose when the taxpayer exercised the option to acquire shares or only at the time of payment and delivery of the shares. The court indicated that, as a starting point, the words of the section must be considered in light of their context, the apparent purpose of the provision and any relevant background material. The court indicated that there may be rare cases where the words of the statute are capable of bearing only a single meaning. However, outside those scenarios, it is “pointless” to refer to a statutory provision having a plain meaning. One meaning may strike the reader as syntactically and grammatically more plausible than another. However, as soon as more than one possible meaning is available, the determination of the proper meaning depends as much on context, purpose and background as on dictionary definitions or even “excessive peering” at the language to be interpreted without sufficient attention to the historical context.
In the context, reference was made to the right to acquire a marketable security – not to the acquisition of a marketable security. The court indicated that where an offer is made to sell a marketable security in circumstances where the offer is not linked to keep the offer open for a defined period, the offeree has the right to acquire the marketable security for as long as the offer remains open for acceptance.
Apart from the fact that the fiscal legislation was subsequently amended in order to address the apparent anomaly, the court specifically referred to the explanatory memorandum that accompanied the amending legislation, which indicated that the previous wording “fail[ed] to fully capture all the appreciation associated with the marketable security as ordinary income”.
The court also indicated that, in the case of a marginal question of statutory interpretation:
“evidence that it has been interpreted in a consistent way for a substantial period of time by those responsible for the administration of the legislation is admissible and may be relevant to tip the balance in favour of that interpretation“.
The court indicated that the conduct of the South African Revenue Service (SARS), which administered the legislation, provides evidence of how reasonable persons in their position would understand and construe the legislation. It is thus a valuable pointer to the correct interpretation of the legislation. Given that SARS interpreted the legislation in a specific manner (contrary to the argument that was presented in Bosch), the court accepted the interpretation proposed by the taxpayer.
Bosch is clear authority for the fact that one should not adopt a literal interpretation to legislation, as the so-called ‘plain meaning’ approach is not helpful. The moment that more than one meaning is possible, one should look at all of the surrounding circumstances, including:
- subsequent legislation and the reason for it; and
- the way in which SARS has interpreted the legislation previously.