SARS is coming after these taxpayers – and their advisors

 ·22 Nov 2022

While the South African Revenue Service (SARS) is in court with billionaire Christo Wiese, the High Court paints a gloomy picture for high net-worth individuals and some tax advisors in South Africa, says Tax Consulting SA.

Legal experts Natasha Wilkinson and Colleen Kaufmann from Tax Consulting SA said that the court is showing very little sympathy for taxpayers adopting a hide-and-seek strategy in their tax affairs.

This relates to any case where SARS’ investigative powers are in any way being curtailed, the experts said.

SARS is attacking non-compliance by obtaining its own information on what the wealthy are doing with their money.

Notably, with SARS taking on the billionaire, it shows that it is not afraid to take on South Africa’s most wealthy in their personal capacity, even if they are respected businesspersons with ties to South Africa’s largest law firms.

According to Tax Consulting SA, this case also contains a serious warning for tax advisors and possibly showcases a strategic shift by SARS in enforcing tax collection by holding these advisors to account.

The case

This tax battle is vastly different compared to a traditional tax issue, said Tax Consulting SA.

Usually, the taxpayer would approach SARS in terms of the Tax Adminstration Act of 2011 (TAA), which prescribes that the taxpayer bears the onus of proof to defend any assessments raised by SARS.

The Wiese case followed a completely different path, said the legal experts.

SARS was the one that approached the High Court for an order in terms of section 183 of the TAA on the basis that the defendants knowingly assisted Energy Africa (the taxpayer in this case) in dissipating its sole asset to obstruct the collection of an R216 million tax debt owed to SARS.

SARS also approached the court for an inquiry order regarding section 50 of the TAA to rely upon evidence tendered by the defendants at an inquiry held in 2015 and 2016.

The case concerned itself with the defendants arguing that reliance upon section 183 of the TAA is dependent on a “tax debt” – with a “tax debt” not coming into existence until SARS issues an assessment setting out an amount of tax that is owed.

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On this basis, they argued that there was no “tax debt” as the taxpayer’s assessment was only issued on 21 August 2013, after the dissipation of the loan claim on 19 April 2013, said Tax Consulting SA.

In addition, the defendants argued that SARS is not permitted to use the evidence obtained at the inquiry against the defendants or the taxpayer in future proceedings.

“The High Court found that it would be ‘unbusinesslike but will also emasculate the very purpose of the TAA as a whole’ on the technicality that an assessment must first be issued before there is a ‘tax debt’ for purposes of section 183 of TAA,” said Tax Consulting SA.

“This would mean that a third party could knowingly assist a taxpayer in dissipating their assets until the day before an assessment is issued by SARS. The High Court’s findings can only be applauded as good law.”

Concerning the inquiry order, according to Tax Consulting SA, the High Court held that the Tax Adminstration Act allows for evidence given by one person at an inquiry to be used in a subsequent proceeding involving the person or another person.

Notwithstanding, it is well known that the provisions of the TAA further empower SARS with a variety of mechanisms to collect information in order to collect taxes, said the experts.

As such, to conclude (as suggested by the defendants) that information obtained by SARS is inadmissible and cannot be relied upon “is simply untenable as it would mean that these inquiries would serve little purpose”.

Read: SARS is making 2 changes that taxpayers should know about

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