Obstructing the collection of tax debt? Accomplices will be charged

9 Oct 2024

Section 183 of the Tax Administration Act, 2011 allows the South African Revenue Service (Sars) to hold a person jointly and severally liable with a taxpayer for a tax debt if that person knowingly assisted in dissipating a taxpayer’s assets to obstruct the collection of a tax debt of the taxpayer and such assistance reduced the assets available to pay the taxpayer’s tax debt.

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In Christoffel Hendrik Wiese and Others v CSars, the Commissioner instituted action against Christo Wiese and others for payment of R216m claiming they assisted Energy Africa (Pty) Ltd (the taxpayer) to dissipate its assets to obstruct the collection of a tax debt.

The taxpayer’s tax debt arose following a group restructure. Sars conducted an audit and assessments were raised in the amounts of R453m for STC, R488m for CGT, 150% penalties, and interest. An objection to the assessment was partially allowed reducing the penalties from 150% to 100%. No appeal was filed by the taxpayer.

The alleged dissipation was the transfer of a loan account claim held by the taxpayer in Titan Share Dealers (Pty) Ltd as a dividend in specie to its holding company, Elandspad Investments (Pty) Ltd. The loan account claim was the taxpayer’s only asset and it was therefore left unable to pay its tax debt.

After being unsuccessful in the High Court, Wiese appealed to the Supreme Court of Appeal (SCA). Wiese’s argument in the SCA was that, to establish liability under section 183, the person must have knowingly assisted in the dissipation to obstruct the collection of a tax debt.

A tax debt must exist at the time of the alleged dissipation and the person concerned must know that the tax debt exists. Wiese argued that a tax debt only arises upon notice of assessment. In this instance the assessments were only raised after the alleged dissipation occurred.

The SCA considered the meaning of the term “tax debt” and concluded that while an assessment determines the amount of the tax due to Sars, it does not establish or impose liability. Liability for tax exits by operation of law, whether or not there has been an assessment. A tax debt, according to the SCA, exists with or without an assessment. An assessment merely determines the tax debt and renders it recoverable.

Existence of tax debt

The court pointed out that the term “tax debt” in section 183 refers to a recoverable tax debt insofar as it permits recovery from a third party. But this, the court held, was not the exclusive meaning.

The term also encompasses the amount the taxpayer is liable to pay Sars. If a taxpayer is chargeable to tax, the taxpayer is indebted even if the amount has not yet been determined. A tax debt exists in the absence of an assessment of the tax debt.

If Wiese’s interpretation of section 183 was applied, it would defeat the purpose of the section and give rise to an absurdity. It would allow a culpable third party who intentionally assists a taxpayer to dissipate assets to escape liability because an anticipated assessment had not yet been issued.

The SCA concluded that section 183 does not require that the taxpayer’s liability to pay tax to Sars should have been determined by assessment at the time that the dissipation of the assets occurred. Wiese’s appeal was therefore dismissed with costs.