Tax Avoidance

Over the past few years the Courts have become increasingly intolerant of arrangements that are designed to look like legitimate commercial transactions but which are in fact complicated ruses by which the parties collude to secure a tax advantage. The Supreme Court of Appeal recently took this intolerance a notch higher by holding not only that the transactions in question were fake, but by imposing a penalty equivalent to 100% of the tax that was avoided.

The case, Commissioner for the South African Revenue Service v NWK Limited (NWK), involved an arrangement that had been entered into between NWK and First National Bank (FNB). The arrangement was complicated, involving a series of transactions, including a "loan" by FNB of some R97 million, repayment by NWK in the form of a delivery of maize, the issue of promissory notes that were later discounted and forward sales of the right to take delivery of the maize.