As the largest independent tax specialist firm, we operate daily in two parallel universes: on the one hand, we see examples of dubious tax advice being dished out for enormous fees. Whilst we also see innocent taxpayers approach us who are victims of incorrect tax advice or compliance failures, as they find themselves in deep trouble with SARS, and mostly ill prepared for a SARS precision audit.
Whilst the recent well-publicised case of Wiese (Commissioner of the South African Revenue Service v Dr Christoffel Hendrik Wiese and 3 others) still has to play out, as there is yet to be a verdict as to whether there was wrongdoing by the taxpayer or advisor, the High Court decision clearly sets out the dark clouds ahead. It was probably the first salvo of what has all the makings of the tax battle of the decade. This is a clear warning for aggressive tax advisors, high net worth individuals and those with complex and international tax matters.
SARS as the Predator
Tax battles in the Tax Court and High Court generally start with an appeal or other approach by the taxpayer against SARS. This is engrained in the relevant onus of proof provisions in the Tax Administration Act,2011 (“TAA”), meaning that the taxpayer bears the onus of proof to defend against any assessments raised by SARS.
However, the Wiese case followed a completely different path. SARS is the dominus litis and approached the High Court for an order in terms of section 183 of the TAA on the basis that that the defendants knowingly assisted Energy Africa (Pty) Ltd (“the taxpayer”) in dissipating its sole asset, to obstruct the collection of a R216 million tax debt owed to SARS, as well as an inquiry order in terms of section 50 of the TAA to rely upon evidence tendered by the defendants at an inquiry held in 2015 and 2016.
The Court will not shield a taxpayer against data collected by SARS
It is well publicized that SARS is attacking non-compliance by obtaining its own information on what the wealthy are doing with their money. The Court appears to have very little sympathy for taxpayers adopting a hide-and-seek strategy, in other words where SARS investigative powers are in any way being curtailed.
The defendants in the Wiese case 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. 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. In addition, the defendants argued that SARS is not permitted to use the evidence obtained at the inquiry during 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. This would mean that a third party could knowingly assist a taxpayer to dissipate their assets until the day before an assessment is issued by SARS. The High Court’s findings can only be applauded as good law.
With regard to the inquiry order, the High Court held that section 56(4) read with section 57(2) of the TAA specifically allows for evidence given by one person at an inquiry to be used in a subsequent proceeding (not being a criminal proceeding) involving the person or another person. Notwithstanding, it is well known that SARS is further empowered by the provisions of the TAA with a variety of mechanisms to collect information, in order to collect taxes. 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”.
Is Wiese being attacked, or is SARS’s true target the alleged tax advisors?
This is the first case of its kind where SARS has joined 3 other defendants to the case, appearing to be those who advised on the alleged dissipating of assets, being: Isak Hendrik Johannes Visagie, Gert Christiaan Viljoen and Frederik Rauten Hofmeyer.
As one of the largest and most respected law firms, Edward Nathan Sonnenberg (“ENS”) is involved with the defence of the Wiese Case as evidenced in the detailed court papers. There further appears to be deeper ties between one of the co-defendants and ENS.
Kieswetter is definitely not afraid
The logical derivate is that SARS is not afraid to not only take on of South Africa’s most wealthy individuals in their personal capacity, but also respected persons with ties to one of South Africa’s largest law firms. This contains a serious warning for tax advisors, and possibly showcases a strategic shift by SARS in enforcing tax collection by holding the advisors to account.