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Tax Judges 'need to be experts'

Friday, 08 November 2013   (0 Comments)
Posted by: Author: Sanchia Temkin
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Author:  Sanchia Temkin (Business Day)

These are taxing times for SA's tax courts, whose judges have been accused of not always having sufficient knowledge or experience to hear the cases that come before them.

Although SA has specialised tax courts, these do not have their own judges but draw judges from other courts - many of whom have no specialist training in tax.It has been alleged that this has led to curious decisions, such as the Cape Tax Court's finding that annual royalty paid by BP SA to its parent company in the UK for the use of the parent's trademarks and marketing was of a capital nature and therefore not tax deductible.

Judge Basheer Waglay's ruling was recently overturned by the Supreme Court of Appeal on the grounds that royalty payments are tax deductible under the provisions of the Income Tax Act.

The appeal court held that the royalty expenditure was closely linked to the company's income-earning operations. It declared those amounts tax deductible and directed that the South African Revenue Service alter the assessments for each of the tax years concerned.

Cases such as these have led some tax practitioners to call for SA to follow the example of France, Thailand and the US, which all have specialised tax courts where the judges are tax law specialists. Others, however, have questioned the need for specialist tax judges in SA when there are few specialised judges in other areas of law - labour and land claims being the exceptions.

All types of tax cases - foreign tax issues, pension cases, estate and gift taxes, income tax issues, accounting issues, employment tax cases, and interest cases - are heard in our tax courts.

"Each of these cases is like a box of chocolates," says one tax analyst. "The judge never knows which case he is going to hear."

There are about 400 cases on the tax roll waiting to be heard and some say this is due to the time it takes nonspecialised judges to hear cases.But national justice department spokesman Zolile Nqayi says there are other reasons for the backlog.

"Many of these can be attributed to postponements of cases, and changes in representation of counsel."

There are similar delays in criminal courts, he says.

"In SA, judges are generalists, rather than specialists in various fields of law, such as tax," Nqayi says. He says this position is unlikely to change and that no complaint has been forwarded to the department about judges lacking expertise or skills.

However, Prof Bob Williams, a tax expert at the University of KwaZulu-Natal, says tax court judges do need to be specialists and experts in tax law. They should have some background in tax before presiding in such cases, Williams says. The changes that are taking place in tax legislation are at such a rapid pace, they are unlike those of any other area of the law, he says.

"South African judges tend to look at tax law as though it were a crossword puzzle. They often get their clues from the Income Tax Act. There is too much disparity between commercial reality and tax law."

Williams says that in Australia, the judiciary tends to bring tax law into harmony with good commercial practice.

The downside of South African tax legislation, Williams says, is that the Income Tax Act tends to lay down too many rigid rules.

Emil Brincker, a tax director at Edward Nathan Sonnenbergs, who has assisted in the tax courts, says: "A judge should have some grounding in tax law. It requires someone who deals with tax law and business on a daily basis."

In addition to being an advocate, attorney or accountant, they should have obtained a diploma or masters degree in tax studies, Brincker says.

Ernie Lai King, head of Deneys Reitz Tax Services, says that because judges are assisted by an accountant of not less than 10 years' standing and a representative of the business community, specialisation in tax law is not essential.

"However, specialisation in any field is always more desirable," Lai King says.

Charles de Wet, a tax partner at PricewaterhouseCoopers, says tax is different from other areas of the law, such as company law.

"Taxpayers want certainty. A judge who is a generalist doesn't necessarily understand the principles involved in a tax case.

"Given the frequency with which businesses and individuals come into contact with the tax authorities, it is important that such contact be seen as professional and fair, De Wet says.

He says the benefits of specialisation include a reduction in caseload congestion (as hearings would be quicker), and more uniform and predictable decisions.

However, he is quick to point out that this does not mean that SA has not had its share of excellent judgments handed down by some "brilliant legal minds" in the tax courts.

Beric Croome, a tax director at Edward Nathan Sonnenbergs, does not believe that judges have to be specialised in the field of tax. "There are some good judges out there. I cannot say that I haven't come across a really lousy judgment," Croome says.

"The difficulty is that tax is a complicated area of the law."

This article was first published on



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