REPUBLIC OF SOUTH AFRICA
IN THE TAX COURT OF SOUTH AFRICA
(HELD AT JOHANNESBURG)
Case No.: IT 77034
In the matter between:
MUK (PROPRIETARY) LIMITED APPELLANT
and
THE COMMISSIONER FOR THE RESPONDENT
SOUTH AFRICAN REVENUE SERVICE
JUDGMENT
This judgment has been handed down remotely and shall be circulated to the parties by
way of email / uploading on Caselines. The date of hand down shall be deemed to be
13 January 2026.
(1) REPORTABLE: YES / NO
(2) OF INTEREST TO OTHER JUDGES: YES / NO
(3) REVISED.
13 January 2026 _________________
DATE SIGNATURE
2
Bam J
Introduction
[1] This is an application to strike out certain passages in the respondent’s rule 31 statement,
(statement) on the basis that they are wholly scandalous, vexatious, and/or irrelevant. The
application is brought by the appellant in terms of Uniform Rule 23(2)(b) read with the Tax Court
Rule (Rule) 42(1)1 and is opposed by the respondent mainly, on the basis that the founding
affidavit makes no case for striking out the identified passages/paragraphs.
[2] In terms of its notice of motion, the appellant seeks the following relief:
(1) That the late filing of its notice in terms of rule 23(2) (a) of the Uniform Rules read
with rule 42(1) be condoned.
(2) That the following averments be struck out on the basis that they are scandalous,
vexatious, and/or irrelevant:
2.1 Paragraph 345.9 in its entirety, which reads:
“Alternatively, MUK’s omission to account for the notional arm’s length income
constitutes a willful default, in which case there is no 5-year time bar to SARS
raising an additional assessment.”
2.2 Paragraph 353 in its entirety, which reads,
“In the event that the court finds that the raising of the additional assessment does
constitute a ‘change of profits’, it is the Commissioner’s submission that it was
entitled to do so because of the willful default of MUK to account for the notional
arm’s length consideration at the time when the transactions were effected.”
2.3 The words “managed or” where they appear in paragraph 37 of the rule 31
statement.
[3] It is convenient to first introduce the parties and thereafter set a sketch of the background
facts.
1 (1) If these rules do not provide for a procedure in the tax court, then the most appropriate rule under
the Rules for the High Court made in accordance with the Rules Board for Courts of Law Act and to the
extent consistent with the Act and these rules, may be utilised by a party or the tax court.
3
Parties
[4] Appellant is MUK, a private company duly incorporated and registered in terms of South
African laws, with its principal place of business situated at Office xxx, one Boulevard,
Johannesburg, Gauteng.
[5] The respondent is the Commissioner for the South African Revenue Service. Their
address is situated at Lehae La SARS, 299 Bronkhorst Street, Nieuw Muckleneuk, Pretoria,
Gauteng. The Commissioner is charged with, amongst others, the enforcement of the Income
Tax Act.2
Background
[6] The present application arises against the background of an appeal which seeks to
challenge the additional assessments made by the Commissioner in January 2020, following a
transfer pricing analysis. The words transfer pricing are conversational words which refer to the
more technical Base erosion and profit shifting (BEPS). The OECD Guidelines3 define domestic
tax base erosion and profit shifting (BEPS) as tax planning strategies used by multinational
entities in exploiting loopholes in tax rules to artificially shift profits to low or no-tax locations to
avoid paying tax.
[7] As to how the additional assessments arose, the following is relevant: On 24 March 2017,
the Commissioner initiated an Income Tax audit of the appellant, in respect of 2011-2013 years
of assessment. Arising from the audit, the Commissioner issued a Letter of audit findings, LOF,
asserting that the provisions of section 31(2) were applicable to four transactions in which various
non-resident entities connected to the appellant did not earn an arms’ length return. In its notice
of appeal, the appellant raised, inter alia, two points in limine. For present purposes, only the
second point in limine is relevant. In that point, appellant asserted that the additional assessments
were unlawful in terms of Article 9(3) of the Convention Between the Republic of South Africa and
the Swiss Confederation for the Avoidance of Double Taxation with respect to Taxes on Income,
the Swiss Confederation for the Avoidance of Double Taxation with respect to Taxes on Income,
2009, (DTA). The present application attacks certain passages contained in the respondent’s
statement.
2 Act 51 of 1968.
3 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, 2017,
https://www.oecd.org/content/dam/oecd/en/publications/reports/2017/07/oecd-transfer-pricing-
guidelines-for-multinational-enterprises-and-tax-administrations-2017_g1g71100/tpg-2017-en.pdf :
accessed on 27 December 2025.
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Condonation
[8] I digress to consider the issue of condonation. The appellant seeks condonation for the
late filing of its notice in terms of rule 23(2)(a). The appellant has set out the reasons for the delay
in issuing the notice in terms of rule 23(2)(a). I am of the view that it is in the interests of justice to
grant condonation to the applicant.
[9] The next issue to consider is whether the respondent’s answering affidavit is properly
before this court. The answering affidavit was due on 6 February 2025, but it was delivered on 24
June 2025. As the appellant points out, the respondent says nothing about condonation in its
answering affidavit, much less setting out its reasons for the delay. On this basis, the appellant
urged me to treat the answering affidavit as pro non scripto. The appellant further says it was
prejudiced by SARS’s delay.
[10] While I agree that the rules governing court proceedings cannot be disregarded, courts,
as was said in Eke v Parsons, should not be detained by the rules –
“to a point where they are hamstrung in the performance of the core function of dispensing justice.
Put differently, rules should not be observed for their own sake. Where the interests of justice so
dictate, courts may depart from a strict observance of the rules”.4
[11] I have reflected on the circumstances of this case, and I am satisfied that the interests of
justice will be better served with allowing the respondent’s answering affidavit. Therefore, in the
exercise of my discretion, I grant condonation to the respondent for the late filing of their affidavit.
Applicable legal principles
[12] Rule 23(2) of the Uniform Rules reads:
“Where any pleading contains averments which are scandalous, vexatious, or irrelevant, the
opposite party may, within the period allowed for filing any subsequent pleading, apply for the
striking out of the aforesaid matter ... Provided that —
(a) the party intending to make an application to strike out shall, by notice delivered
(a) the party intending to make an application to strike out shall, by notice delivered
within 10 days of receipt of the pleading, afford the party delivering the pleading an
opportunity to remove the cause of complaint within 15 days of delivery of the notice
of intention to strike out; and
4 (CCT214/14) [2015] ZACC 30; 2015 (11) BCLR 1319 (CC); 2016 (3) SA 37 (CC) (29 September 2015),
paragraph 39.
5
(b) the court shall not grant the application unless it is satisfied that the applicant will
be prejudiced in the conduct of any claim or defence if the application is not
granted.”
Scandalous, vexatious or irrelevant
[13] The concepts of scandalous, vexatious and irrelevant were pronounced upon by the
Constitutional Court in Helen Suzman Foundation v President of the Republic of South Africa and
Others; Glenister v President of the Republic of South Africa and Others, where the court said:
“ ‘Scandalous’ allegations are those which may or may not be relevant but which are so worded as
to be abusive or defamatory; a “vexatious” matter refers to allegations which may or may not be
relevant but are so worded as to convey an intention to harass or annoy; and “irrelevant” allegations
do not apply to the matter in hand and do not contribute one way or the other to a decision of that
matter. The test for determining relevance is whether the evidence objected to is relevant to an
issue in the litigation.”5
[14] Article 9 deals with Associated Enterprises and it reads:
“Associated Enterprises
1. Where
a) an enterprise of a Contracting State participates directly or indirectly in the
management, control or capital of an enterprise of the other Contracting State, or
b) the same persons participate directly or indirectly in the management, control or
capital of an enterprise of a Contracting State and an enterprise of the other
Contracting State, and in either case conditions are made or imposed between the
two enterprises in their commercial or financial relations which differ from those
which would be made between independent enterprises, then any profits which
would, but for those conditions, have accrued to one of the enterprises, but, by
reason of those conditions, have not so accrued, may be included in the profits of
that enterprise and taxed accordingly.”
[15] Article 9 mirrors the Authoritative Statement of the arm’s length principle which reads:
[15] Article 9 mirrors the Authoritative Statement of the arm’s length principle which reads:
“[Where] conditions are made or imposed between the two [associated] enterprises in their
commercial or financial relations which differ from those which would be made between
independent enterprises, then any profits which would, but for those conditions, have accrued to
5 (CCT 07/14, CCT 09/14) [2014] ZACC 32; 2015 (1) BCLR 1 (CC); 2015 (2) SA 1 (CC) (27 November 2014),
paragraph 27.
6
one of the enterprises, but, by reason of those conditions, have not so accrued, may be included
in the profits of that enterprise and taxed accordingly.”
Application
[16] In its founding affidavit, the appellant states that the new allegation [referring to the
allegation of willful default] in respondent’s statement falls foul of rule 31(3) because it constitutes
a new ground of assessment or basis for the partial disallowance of the objection and it constitutes
a novation of the whole of the factual and legal basis of the disputed assessments, alternatively,
it requires the issue of a revised assessment. The appellant concludes that the allegation of “willful
default”, where contained in the respondent’s statement is not allowable as it is scandalous,
vexatious, and/or irrelevant. In the circumstances, the appellant applies for striking out of
paragraphs 345.9 and 353 in their entirety.
[17] Similarly, in respect of the words ‘managed or’, as they appear in paragraph 37 of the
statement. The appellant states that the allegation falls foul of rule 31(3) because it constitutes a
new ground of assessment or basis for the partial disallowance of the objection and it constitutes
a novation of the whole of the factual and legal basis of the disputed assessments, alternatively,
it requires the issue of a revised assessment. The appellant concludes that the allegation is not
allowable as it is vexatious and/or irrelevant. In the circumstances, the appellant applies for
striking out of the words, managed or’ where they appear in paragraph 37 of the respondent’s
statement.
[18] In its Heads of Argument, the appellant narrows the basis of its complaint to the
irrelevance. In this regard, the appellant submits that the allegations are not allowable because
they are impermissible and are therefore irrelevant. I start this analysis with the allegation of ‘willful
default’. I will shortly set out to the extent necessary, the basis of the Commissioner’s additional
assessment or grounds of the additional assessment. To evaluate the relevance or otherwise of
the allegation, one must refer to the second point in limine taken by the appellant in its Notice of
Appeal. The point made is that the additional assessments are unlawful based on the time limit
imposed by Article 9 (3). Article 9(3) reads:
“A Contracting State shall not change the profits of an enterprise in the circumstances referred to
in paragraph 1 after the expiry of the time limits provided in its domestic law and, in any case, after
five years from the end of the year in which the profits which would be subject to such change
would have accrued to that enterprise. This paragraph shall not apply in the case of fraud or willful
default.”
7
[19] Responding to this challenge, the respondent alleged that the time limit does not apply
due to the appellant’s willful default. Whether the court entertaining the appeal agrees with the
respondent or not is not the issue for now. However, were the court to agree with the respondent,
that would mark the end of the appellant’s point in limine as a defence to the Commissioner’s
additional assessment. Bearing in mind that an irrelevant allegation is one that does not contribute
one way or the other to a decision of the issue at hand, the appellant’s contention that the
allegation is irrelevant is unsustainable and must fail. The allegation is relevant.
Managed or controlled
[20] The relevant paragraph in the respondent’s statement reads:
“RMI, being a connected person in relation to AMT and KT, managed or controlled MUK. Therefore,
MUK is a connected person in relation to AMT and KT in accordance with the provisions of
paragraph (d)(vA)(aa) of the connected person definition, because of the following:-
37.1 The phrase ‘any person’ is not explicitly defined in the connected person definition,
however, it is defined in Interpretation Note 67 (IN67) to the ITA.
37.2 In terms of paragraph 3.5.3 of IN67, a person includes ‘any company incorporated
or registered as such under any law’.
37.3 Upon an analysis of the Shareholder and Subscription Agreement and the
Technical Services Agreement, RMI had de facto control over MUK.
38. MUK is therefore a connected person to RMI, AMT, and KT.”
[21] The respondent correctly argues that the allegation or the words ‘managed or’ as included
in paragraph 37 are relevant on the basis that in the event the court entertaining the appeal agrees
with it, the connection contended for by the Commissioner, which is at the heart of their grounds
of assessment, would be upheld.
[22] There is another reason why the appellant’s complaint of irrelevance against the words
[22] There is another reason why the appellant’s complaint of irrelevance against the words
‘managed or’ lacks merit. The attack lacks merit because it makes a mockery of our settled rules
of interpretation as set out in Natal Joint Municipal Pension Fund v Endumeni Municipality6. In
this regard, when interpreting any document, the language used is to be understood in the context
in which it is used, having regard to the purpose, all of which constitutes the unitary exercise of
interpretation.
6 Natal Joint Municipal Pension Fund v Endumeni Municipality (920/2010) [2012] ZASCA 13; [2012] 2 All
SA 262 (SCA); 2012 (4) SA 593 (SCA) (16 March 2012), paragraph 18.
8
[23] In Daniels v Scribante and Another, it was said that:
“The emerging trend in statutory construction is to have regard to the context in which the words
occur, even where the words to be construed are clear and unambiguous. Recently, in
Thoroughbred Breeders’ Association v Price Waterhouse, the SCA has reminded us that:
‘The days are long past when blinkered peering at an isolated provision in a statute was
thought to be the only legitimate technique in interpreting it if it seemed on the face of it to
have a readily discernible meaning.’ “7
[24] In paragraph 17 of this judgment, I set out the paragraph/s in which the words ‘managed
or’ appear in the respondent’s statement, to provide context. The words are taken directly from
paragraph(d)(vA) of the definition of connected person. It is plain from reading the paragraph that
the point being made is about control. On these bases, the appellant’s application cannot
succeed.
Bases/grounds of the Commissioner’s additional assessment
[25] Quite apart from the fact that alleged conflict with rule 31(3) is irrelevant and is not the test
on whether the targeted passage/s must be struck out, it is necessary to point out that the bases
or grounds on which the Commissioner relies for the additional assessments are and always have
been the connection or association between the appellant and the foreign entities, ie, RMI, AMT,
and KT, which resulted in the foreign entities earning profits they would not have earned, had the
entities been operating at arm’s length.
Respondent’s application to strike out
[26] Along with their answering affidavit, SARS filed a notice to strike out various paragraphs
of the appellant’s affidavit, on the basis that almost the entire founding affidavit contains legal
argument. Notwithstanding the complaint of prejudice raised by SARS, I am satisfied that SARS
has been able to respond to the appellant’s founding affidavit. On this basis, I can find no reason
to exercise my discretion in favor of the appellant. The application lacks merit.
Delay in handing down the judgment
[27] This judgment was delayed on account of my sudden illness. Regrettably, the period for
convalescing was much longer than originally estimated.
7 (CCT50/16) [2017] ZACC 13; 2017 (4) SA 341 (CC); 2017 (8) BCLR 949 (CC) (11 May 2017),
paragraph 28; CSARS v Marshall NO (816/2015) [2016] ZASCA 158 (3 October 2016), paragraph 24;
Capitec Bank Holdings Limited and Another v Coral Lagoon Investments 194 (Pty) Ltd and Others
(470/2020) [2021] ZASCA 99 (09 July 2021), paragraph 25.
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Order
1. The application to strike out various passages in the Respondent’s rule 31 statement is
dismissed with costs, including the costs of two counsels.
——————————————
BAM J
JUDGE OF THE HIGH COURT OF SOUTH
AFRICA, GAUTENG LOCAL DIVISION,
JOHANNESBURG
Date of Hearing: 24 July 2025
Date of Judgment: 13 January 2026