Abuse of legal personality to avoid tax: Piercing the corporate veil as remedy in case of the abuse of legal personality for tax purposes

[摘要] ENGLISH ABSTRACT : Companies are legal persons and as much part of commercial traffic as thenatural persons owning and controlling them. Compared to one another,companies and natural persons nevertheless have very different legal abilitiesand characteristics. It is therefore not unexpected that they are treated differentlyfor purposes of the law of taxation. As a result it may often be more beneficial tohave the profits generated by a business enterprise taxed in a company ratherthan in the hands of a natural person, especially in instances where a shareholderwould be commercially indifferent to whether those profits are generated in acompany or not.By using the separate legal personality of a company shareholders may oftenperpetrate an abuse of that separate legal personality. Such abuse of legalpersonality can also take place when legal personality is employed primarily fortax reasons.While a limited form of abuse of the corporate veil is tolerated, whether the useof separate legal personality for tax reasons amounts to an abuse thereof beyondwhat is permitted in South Africa can be determined in terms of three tests. Thesetests are the traditional 'piercing of the corporate veil judgments forming part ofthe common law, section 20(9) of the Companies Act 71 of 2008 and the GeneralAnti-Avoidance Rules ('GAARs) (and other specific provisions) in the IncomeTax Act 58 of 1962. This dissertation considers when any of these various testswill dictate that the separate personality of a company be ignored (or 'pierced)for purposes of taxes levied in terms of the Income Tax Act.Through critical analysis of both the South African rules on piercing as appliedfor tax purposes as well as the circumstances under which selected otherjurisdictions provide for piercing for tax reasons the dissertation formulates whatbest practice and desired policy for piercing for tax reasons are.

[发布机构] Stellenbosch University