SPEAKERS

Obscure law gives SARS power to pierce the corporate veil

11 JUL 2019 |

BY: ALEC BASSON

A relatively unknown piece of legislation could be a new ace up the sleeves of the South African Revenue Service (Sars) as it tries to catch shareholders who hide behind a company to avoid paying tax.

 “Section 20(9) of the Companies Act 71 of 2008, allows the Sars commissioner to pierce the corporate veil or disregard the separate legal personality of a company as a remedy against impermissible tax avoidance when taxpayers use companies predominantly to achieve a tax benefit,” says Dr Albertus Marais, who recently obtained his doctorate in mercantile law at Stellenbosch University.

As part of his study, Marais considered how people may use a company as a legal entity to obtain more beneficial tax consequences, and whether such use may be appropriately described as an “abuse” of corporate personality. He also looked at whether either the common law, the Companies Act 71 of 2008 or the Income Tax Act 58 of 1962 may be used to address such instances of abuse.