The Commissioner for the South African Revenue Service v Erasmus

The taxpayer, Pieter Johan Erasmus, received dividends exceeding R1.2 billion from Treemo (Pty) Ltd in March 2015 and declared that no dividends tax was payable because the distributions were offset by secondary tax on companies (STC) credits held by Treemo. SARS concluded that a series of transactions involving the acquisition of STC credits, restructuring of shareholdings, a Newshelf share repurchase, trust subscriptions, and a call option constituted an impermissible avoidance arrangement under the GAAR in the Income Tax Act 58 of 1962. SARS raised a GAAR assessment imposing dividends tax, penalties, and interest. After the taxpayer’s objection was disallowed and he appealed to the Tax Court, SARS delivered a rule 31 statement in which it materially modified its factual basis for applying GAAR, shifting from reliance on the Newshelf repurchase as the source of dividends to a later circular flow of funds involving the trust subscription and call option. The taxpayer applied under Uniform Rule 30 to set aside the rule 31 statement as an irregular step, which the Tax Court upheld. SARS appealed to the Supreme Court of Appeal.

The appeal was dismissed with costs, including the costs of two counsel. SARS was ordered to pay the taxpayer’s costs.

The judgment clarifies the limits of SARS’s powers under GAAR and the TAA rules, reinforcing procedural fairness in tax administration. It confirms that SARS may not, through a rule 31 statement, fundamentally alter the factual basis of a GAAR assessment after issuing it, and underscores the protective function of section 80J notices in South African tax law.