Interpretation notes play an important role in the South African tax system, but they are often misunderstood. Businesses regularly encounter them when planning transactions or responding to queries from SARS, and the natural question is to what extent these documents should be followed.
The starting point is that interpretation notes are not law. They are not passed by Parliament, and they do not have the force of legislation. They represent SARS’ view of how they understand and apply particular provisions of the tax Acts. South African courts, including the Constitutional Court, have repeatedly cautioned against treating interpretation notes as binding, emphasising that only Parliament makes tax law and only the courts finally determine what that law means.
That does not mean, however, that interpretation notes should be ignored. From a practical business perspective, they can be highly relevant. Interpretation notes often reflect what the Tax Administration Act (TA Act) refers to as “practice generally prevailing”, namely the way SARS applies the law in its day-to-day administration. For a business, following an interpretation note usually means operating within a certain degree of comfort, knowing that the note does not represent the only legally possible interpretation.
There is also an important prescription aspect that is often overlooked. The TA Act limits SARS’ ability to reassess where a taxpayer relied on practice generally prevailing at the time. Interpretation notes are often the clearest public indication of what that prevailing practice was.
From a commercial perspective, interpretation notes therefore offer certainty. Aligning with them reduces the likelihood of disputes, makes outcomes more predictable, and assists with cash-flow planning by lowering the risk of unexpected assessments. Many businesses sensibly choose this certainty over taking aggressive substantive positions that may only be resolved after lengthy and costly litigation.
There will, of course, be cases where a business decides not to follow an interpretation note, particularly where it clearly conflicts with the wording of an Act or established court decisions. In those situations, the issue should be treated as a managed tax risk, supported by professional advice and full disclosure.
In the end, interpretation notes occupy a middle ground. They are not law, and they do not determine a taxpayer’s legal rights and obligations. Yet they are more than mere opinion. Properly understood, they are practical tools that help businesses manage tax.
The key is to respect their value without losing sight of their limits.
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