Pertinently, SARS approached the High Court for an order declaring four defendants (“the defendants”), including billionaire Dr Wiese and a former Edward Nathan Sonnenberg (“ENS”) executive, jointly and severally liable to pay SARS R216 million in accordance with section 183 of the Tax Administration Act, No. 28 of 2011 (“the TAA”). Section 183 of the TAA reads as follows:
“183. Liability of person assisting in dissipation of assets.—If a person knowingly assists in dissipating a taxpayer’s assets in order to obstruct the collection of a tax debt of the taxpayer, 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.”
The court order was sought by SARS on the basis that the defendants knowingly assisted a taxpayer, Energy Africa (Pty) Ltd (“the taxpayer”) in dissipating its sole asset (a loan claim) on 19 April 2013 to its holding company. The dissipation of the sole asset on 19 April 2013 occurred after the taxpayer and its tax advisors were informed by SARS on 16 November 2012 that it would be issuing assessments for the 2007 tax period, to recover taxes that were not paid (“the tax debt”). On 21 August 2013, SARS issued the promised additional assessments to include the tax debt; which consists of capital gains tax totalling R453 126 518 (“CGT debt”) and secondary tax on companies totalling R487 205 316 (“the STC debt”) plus interest and penalties.
In September 2013, SARS was informed that the taxpayer has no funds to make payment of the tax debt. On 29 May 2014, a promise was made to SARS that there would be no further dispute by way of appeal (and therefore the assessment was accepted as correct). In April 2016, the taxpayer was liquidated and ceased to exist.
It was agreed that it would first be decided whether there is a “tax debt” for purposes of section 183, before the defendants’ liability to pay was finally decided. The defendants argued that reliance upon section 183 of the TAA is dependent on there being a “tax debt”; with a “tax debt” not coming into existence until SARS issues an assessment setting out an amount of tax that is owing. Flowing from this and as the assessment was only issued on 21 August 2013 (and, therefore, after the dissipation on 19 April 2013), the defendants argued that there was no “tax debt”.
The High Court ruled that, for purposes of section 183 of the TAA, the phrase “tax debt” has a broad meaning of “an amount of tax due or payable”. The CGT debt and STC debt should have been paid during the 2007 tax period and so a tax debt already existed since that obligation to pay arose during the 2007 tax period.
The SCA held that an assessment does not establish or impose a tax liability, because the tax liability exists by operation of law; and regardless of whether or not it has been assessed by way of an assessment. Further, the purpose of section 183 is to impose liability on a third party who deliberately obstructs SARS from collecting a tax debt.
As this judgment only sheds light on the meaning of “tax debt”, a court must still rule on whether the defendants knowingly and deliberately assisted the taxpayer in the dissipation of assets, in order to obstruct the collection of a tax debt. If this is the case, section 183 will apply and the defendants will jointly pay the tax debt to SARS.
For purposes of a third party’s liability to pay a tax debt under section 183, a tax debt exists regardless of there being an assessment. An assessment merely determines the tax liability and makes it recoverable. As soon as it is proven that there is a tax debt which any third party has deliberately impeded collection of the tax debt by dissipating assets, that third party cannot avoid paying the tax debt by arguing that an assessment was not issued yet.
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