8 July 2011

Purposive interpretation of tax statutes - back to the future?

Schreiner JA in Savage v CIR [1951] 4 All SA 249(A) stated "...what seems to be a clear meaning to one man may not seem clear to another."

The local arrival of the purposive approach to statutory interpretation to some extent coincided with the advent of the Constitutional era in the mid-nineties.

The Constitutional Court in 1995 in S v Zuma and Others 1995(2) SA 642 (CC) expressly approved of the purposive approach to the interpretation of the Constitution. Commentators speculated that this reflected a transition away from strict literalism towards a more purposive approach, thereby promoting the democratic values underlying the Constitution. A respected tax author announced the dawn of a "new approach." A highly regarded tax guru warned of "...a far more judicial activist approach to the handling of tax cases."

The purposive approach was ready to grow and blossom - or was it?

In a recent tax appeal, XYZ v CSARS (Case No. 12895, decided in the Pretoria Tax Court on 15 June 2011), the taxpayer's representative argued strongly in favour of the purposive approach. He urged the Court not to simply attribute to the words in question their prima facie meaning, but to also have regard to their context and purpose as indicated in the relevant explanatory memoranda.

The Commissioner's representative, in turn, contended that the plain wording used by the legislature was central to the interpretation of all statutes and that applied equally to tax legislation.

The battle lines were drawn between the purposive approach to interpretation and the more traditional approach of ascertaining the intention of the legislature from the text of the applicable provision.

Amongst others, the taxpayer's representative referred to CSARS v Airworld CC and another [2008] 2 All SA 593 (SCA) in which it was stated that, in recent years, Courts have placed emphasis on the purpose with which a specific provision had been enacted. The interpreter must accordingly seek an interpretation giving effect to such purpose. In that way the purpose acts as a guide to ascertain the legislature's intention. There was also reliance on SARS v Dunblane Transkei (Pty) Ltd 2002 (1) SA 38 (SCA). Dunblane indicated that the legitimate field of interpretation should not be limited by excessively peering at the language to be interpreted, without sufficient attention to the contextual scene.

All of the above gave Fabricius J, in XYZ, the chance to do a thorough stock-take of the current position relating to the interpretation of tax provisions. Referring to precedent, the Judge stated:

  • Legislation must have its language respected. The words chosen by Parliament cannot be subverted in favour of the spirit of the law, or by referring to background policy considerations that were not reflected in the language of the particular statute itself.
  • Acts are expressed in words. Interpretation concerns the meaning of words used by the legislature and it is therefore useful to approach the task by referring to the words used, and to leave extraneous considerations for later.
  • Although South African law is an enthusiastic supporter of purposive construction, the purpose of a statutory provision can be a reliable pointer to the intention of the legislature but only where there is an ambiguity.

Although there is a role for purposive interpretation, this recent case strongly indicates that it can only come into play where the intention of the legislature is not readily discernable from the wording of the applicable provision.

For now it appears that the traditional "intention of the legislature" approach to statutory interpretation has carried the day against the upstart purposive approach.

The problem faced by taxpayers is that it is difficult to accurately capture ideas in words. Add to that the inherent complexity of tax. But according to Fabricius J taxpayers' salvation lies in the hands of the draftspersons responsible for tax statutes.

The warning by the then AD in Spies v Lombard 1950 (3) SA 355 (A) might be apt: "The Dutch, like the Romans, did not rely too much upon the draftsman of statutes."

Johan van der Walt

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