What this billionaire SARS case means for you
A recent case involving the South African Revenue Service (SARS), South African billionaire Christo Wiese and tax debt of R216.6 million has raised eyebrows about what actually constitutes tax debt in South Africa.
Tax experts at financial services firm PwC, Kyle Mandy and Elle-Sara Rossato, in the latest monthly journal on tax legislation and developments within the tax world, have unpacked the case and what it means for businesses and taxpayers across the country.
PwC said that on 9 September 2022, the Western Cape High Court delivered a judgment on the case of The Commissioner for the South African Revenue Service v Wiese and Others, where it pronounced significant issues, one specifically focused on whether the secondary tax on companies and capital gains tax constitutes a ‘tax debt’ for purposes of section 183 of the Tax Adminstration Act (TAA).
What was primarily drawn from the case is that a tax debt may exist even without a tax assessment for purposes of section 183 of the TAA. Even if a sum of money is moved between companies and is not assessed, it is still liable to a tax debt under SARS.
PwC said that tax becomes payable on that date, notwithstanding that an amount may not yet be due for payment. The case involving Wiese also underlined the use of contextual interpretation by the courts in ensuring that the overall mandate of ensuring tax compliance is kept even if certain procedural elements are not entirely precise.
Facts
The case involved Energy Africa, a company that Christo Wiese ultimately owned. Energy Africa’s only asset was a loan claim of R216.6 million owed by another company in the Titan group, Titan Share Dealers, which Energy Africa passed on to its shareholder in anticipation of Energy Africa being assessed by SARS for capital gains tax and secondary tax on companies.
The fundamental concern for the court was whether there existed a tax debt on the loan claim; Wiese argued that because SARS had not initiated an assessment prior to the loan being distributed, he argued that therefore there was no tax debt as it was only due once SARS has made an assessment.
PwC said that as a preliminary issue, the parties agreed that the definition of the term “tax debt”, as defined in section 1 of the TAA, should be that which applied prior to its retrospective amendment in 2014.
Prior to the amendment, the definition of “tax debt” in section 1 of the TAA stated that:
“Tax debt’ means an amount of tax due by a person in terms of a tax Act.”
After the amendment, section 1 of the TAA defined “tax debt” as an amount referred to in section 169(1) of the TAA, which states (and had so stated at the relevant time):
“A debt due to SARS. – (1) an amount of tax due or payable in terms of a tax Act is a tax debt due to SARS for the benefit of the national revenue fund.”
Section 183 of the TAA provides:
“If a person knowingly assists in dissipating a taxpayer’s assets in order to obstruct the collection of a tax debt, the person is jointly and severally liable with the taxpayer for the tax debt to the extent that the person’s assistance reduces the assets available to pay the taxpayer’s tax debt.”
Wiese’s argument was that in order for there to be a ‘tax debt’, SARS was required first to issue an assessment to the taxpayer before it could invoke the provisions of section 183 of the TAA, said PwC.
SARS argued that section 183 had to be read in context, thus being applicable when an assessment is anticipated and not whether the tax debt is in existence. The taxman went on to note the view of Wiese would negate or seriously undermine the purpose of the section itself.
The judgment
“The court held that it is clear under section 183 that it had a particular objective and purpose, which was to hold a person(s) jointly and severally liable for knowingly assisting with dissipating a taxpayer’s assets to obstruct the collection of a tax debt,” said PwC.
The court reaffirmed that it was important to interpret the provisions in light of the context of the situation, including the definition of the tax debt under section 1 of the TAA.
It further found that, viewed in the context of section 183 of the TAA, the word “tax debt” has a distinct connotation. A tax debt could include an amount that the taxpayer thinks will become owing as a result of a SARS assessment when it is included in section 183 of the TAA.
In conclusion, the Court held that the defendants (Wiese and others) who arranged the declaration of the dividend in specie could be held liable in terms of section 183 of the TAA in the absence of
an assessment at the time of the dissipation said PwC.
Read: SARS is not pulling its punches – not even your bank account is safe
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