A tax debt exists despite no assessment yet and admissibility of tax inquiry evidence

Norton Rose Fulbright has successfully represented SARS in an appeal to the Supreme Court of Appeal by four appellants, Wiese, Visage, Viljoen and Hoffmeyer. The appeal was dismissed with costs on 12 July 2024.

SARS instituted action against the appellants in terms of section 183 of the Tax Administration Act, 2011 (TAA) for payment of R216.6 million. Section 183 creates lability for any person who assists in dissipating a taxpayer’s asset in order to obstruct collection of a tax debt. SARS alleges that the appellants caused or assisted a company, Energy Africa Propriety Limited to dissipate its assets to obstruct SARS from collecting a tax debt. SARS contends that the dissipation occurred when Energy Africa transferred a loan account claim which it held as a dividend in specie to its holding company despite owing money to SARS to the knowledge of the appellants.

In November 2012, SARS notified Energy Africa that it intended to make certain adjustments to the 2007 income tax assessment, which would result in the inclusion of capital gains tax and secondary tax on companies in the assessment. On 15 April 2013, the appellants disputed SARS’s audited finding. On 19 April 2013, Energy Africa disposed of the loan account by declaring a dividend in specie in favour of its holding company. On 21 August 2013, SARS communicated its finalisation of the audit finding and issued assessments for CGT and STC. Energy Africa did not dispute the assessments but was liquidated in April 2016.

The issue on appeal was whether a “tax debt” as required by section 183 of the TAA existed at the time of the dissipation by Energy Africa of its loan account on 19 April 2013 or whether the tax debt only arose on the assessment by SARS on 21 August 2013.

The appellants argued that: in order to establish liability under s183, the person concerned must have knowingly assisted in the dissipation of assets in order to obstruct the collection of a tax debt; a tax debt must necessarily exist at the time of the alleged dissipation, and the person concerned must know that the tax debt exists; a tax debt is an amount which is due and payable, as the ordinary meaning of the term suggests, which in this instance only arose upon notice of assessment.

In dismissing the appeal, the SCA found that:

1. A tax debt exists with or without an assessment. An assessment merely determines the tax debt and renders it recoverable in accordance with the recovery mechanisms provided by the TAA.
2. The purpose of section 183 is to establish the liability of a third party to pay a tax debt when the culpable conduct of the third party results in the obstruction of the collection of tax from the taxpayer.
3. To hold that section 183 requires that at the time of the dissipation, the taxpayer’s obligation should be liquidated and immediately claimable would defeat the purpose of the section. It would also give rise to an absurdity in that a party who intentionally assists a taxpayer to dissipate assets could escape liability simply on the basis that an anticipated assessment had not yet been issued.

The question whether the third party had the requisite intention of knowingly assisting in a dissipation for the purpose of obstructing a tax debt is matter dependent on the facts of each case. Those aspects were not before the SCA.

The judgment also addressed a secondary issue of whether in an upcoming trial, SARS is entitled to rely on evidence obtained during an inquiry in terms of section 50 of the TAA. The appellants argued that on proper interpretation, the use of the transcript is limited to subsequent proceedings in terms of the TAA and cannot be used in civil proceedings.

In dismissing this argument, the SCA commented that the appellants’ construction would require reading in the words “tax proceeding” into the TAA. Not only was this not necessary to make the TAA workable but such a finding would frustrate the purpose of the inquiry. The evidence obtained in the inquiry serves a legitimate purpose of enabling SARS to execute its statutory duty to recover tax debts due to the fiscus.

In response to an argument that the use of the transcript may impact adversely on the rights of the appellants, the SCA commented that the trial court was primarily responsible to ensure the fairness of any trial and to determine the evidential value and weight to be given to the information in the transcript.

Norton Rose Fulbright successfully represented SARS in this appeal.