We analyse below the manner in which the Tax Administration Act 28 of 2011 ("TAA") will apply to the recovery of tax by the South African Revenue Service ("SARS") from a taxpayer that is a company.
- Tax Administration Act
The relevant provisions of the TAA to the recovery of tax are as follows:
1.1 Chapter 10 of the TAA deals with tax liability and payment; and
1.2 Chapter 11 of the TAA deals with recovery of tax.
- Tax liability and payment in relation to a company
2.1 Chapter 10 of the TAA sets out which persons are liable to tax, and the capacity in which they may be liable for tax debts. A distinction is made between a person who is originally chargeable to tax and the person's representative, a withholding agent, and a responsible third party.
2.2. Specifically, section 151 of the TAA defines a "taxpayers, for the purposes of the TAA, as:
2.2.1. a person chargeable to tax;
2.2.2. a representative taxpayer;
2.2.3. a withholding agent;
2.2.4. a responsible third party; or
2.2.5. a person who is the subject of a request to provide assistance under an international tax agreement.
2.3. In certain circumstances (set out in section 161 of the TAA) a senior SARS official may require security from a taxpayer to safeguard the collection of tax by SARS. However, it does not appear that section 161 of the TAA is applicable to the current enquiry.
2.4. Section 154(1) of the TAA sets out the liability of a representative taxpayer and states that, as regards:
2.4.1. the income to which the representative taxpayer is entitled;
2.4.2. moneys to which the representative taxpayer is entitled or has the management or control;
2.4.3. transactions concluded by the representative taxpayer; and
2.4.4. anything else done by the representative taxpayer,
in such capacity as a representative taxpayer, such person is:
2.4.5. subject to the duties, responsibilities and liabilities of the taxpayer represented;
2.4.6. entitled to any abatement, deduction, exemption, right to set off a loss, and other items that could be claimed by the person represented; and
2.4.7. liable for the amount of tax specified by a tax Act.
2.5. Section 155(1) governs the personal liability of a representative taxpayer and states that a representative taxpayer will be personally liable for tax payable in the representative taxpayer’s representative capacity, if, while it remains unpaid:
2.5.1. the representative taxpayer alienates, charges or disposes of amounts in respect of which the tax is chargeable; or
2.5.2. the representative taxpayer disposes of or parts with funds or moneys, which are in the representative taxpayer’s possession or come to the representative taxpayer after the tax is payable, if the tax could legally have been paid from or out of the funds or moneys.
2.6. A "representative taxpayer" is defined in section 153(1)(a) of the TAA, for the purposes of the TAA, as a person who is responsible for paying the tax liability of another person as an agent, other than as a withholding agent, and includes a person who is a representative taxpayer in terms of the Income Tax Act 58 of 1962 ("ITA").
2.7. As from 01 October 2012, a "representative taxpayer" is defined in section 1 of the ITA as a natural person who resides in the Republic and, in respect of the income of a company, means the public officer thereof.
2.8. Therefore, for the purposes of the TAA, a public officer of a company is a representative taxpayer and is thus liable for the amount of tax specified by a tax Act in relation to the company of which that person is a public officer, within the parameters of sections 154 and 155 of the TAA.
2.9. In terms of section 156 of the TAA, "withholding agent" means a person who must, under a tax Act, withhold an amount of tax and pay it to SARS.
2.10. Section 157(1) of the TAA states that a withholding agent is personally liable for an amount of tax that was:
2.10.1. withheld and not paid to SARS; or
2.10.2. which should have been withheld under a tax Act but was not so withheld.
Responsible third party
2.11. A "responsible third party" is defined in section 158 of the TAA as a person who becomes otherwise liable for the tax liability of another person, other than as a representative taxpayer or as a withholding agent, whether in a personal or representative capacity.
2.12. In terms of section 159 of the TAA, a third party is personally liable to the extent described in Part D of Chapter 11.
2.13. Part D of Chapter 11 of the TAA provides that the following persons constitute liable third parties in certain circumstances:
2.13.1. a third party appointed to satisfy tax debts;
2.13.2. financial management;
2.13.4. a transferee; and
2.13.5. a person assisting in dissipation of assets.
Third party appointed to satisfy tax debts
2.14. In terms of section 179(1) of the Act, a senior SARS official may by notice to a person who holds or owes or will hold or owe any money, including a pension, salary, wage or other remuneration, for or to a taxpayer, require the person to pay the money to SARS in satisfaction of the taxpayer’s tax debt.
2.15. A person receiving the notice must pay the money in accordance with the notice and, if the person parts with the money contrary to the notice, section 179(3) stipulates that such person is personally liable for the money.
2.16. A person is personally liable in terms of section 180 of the TAA for any tax debt of the taxpayer to the extent that the person’s negligence or fraud resulted in the failure to pay the tax debt if:
2.16.1. the person controls or is regularly involved in the management of the overall financial affairs of a taxpayer; and
2.16.2. a senior SARS official is satisfied that the person is or was negligent or fraudulent in respect of the payment of the tax debts of the taxpayer.
2.17. Where a company is wound up other than by means of an involuntary liquidation without having satisfied its tax debt, including its liability as a responsible third party, withholding agent, or a representative taxpayer, employer or vendor, section 181 of the TAA is applicable.
2.18. Section 181(2) of the TAA states that the persons who are shareholders of the company within one year prior to its winding up are jointly and severally liable to pay the unpaid tax to the extent that:
2.18.1. they receive assets of the company in their capacity as shareholders within one year prior to its winding-up; and
2.18.2. the tax debt existed at the time of the receipt of the assets or would have existed had the company complied with its obligations under a tax Act.
2.19. However, in terms of section 181(3) of the TAA, the liability of the shareholders is secondary to the liability of the company.
2.20. Section 181(4) of the TAA states that persons who are liable for the tax of a company under section 181 may avail themselves of any rights against SARS as would have been available to the company.
2.21. In terms of section 181(5) of the TAA, section 181 does not apply in respect of a ‘‘listed company’’ within the meaning of the ITA, or a shareholder of such a listed company.
2.22. A "listed company" is defined in section 1 of the ITA to mean a company where its shares or depository receipts in respect of its shares are listed on:
2.22.1. an exchange as defined in section 1 of the Securities Services Act, 2004 (Act No. 36 of 2004), and licensed under section 10 of that Act; or
2.22.2. a stock exchange in a country other than the Republic which has been recognised by the Minister as contemplated in paragraph (c) of the definition of "recognised exchange" in paragraph 1 of the Eighth Schedule.
2.23. In terms of section 181(1), a "transferee" is a person who receives an asset from a taxpayer who is a connected person in relation to the transferee without consideration or for consideration below the fair market value of the asset.
2.24. Such a transferee is liable for the tax debt of the taxpayer (section 181(1)), but only in relation to an asset received by the transferee within one year before SARS notifies the transferee of liability under section 181 (section 181(3)).
2.25. Section 182(2) stipulates that a transferee is liable for the tax debt of a taxpayer to the lesser of:2.25. Section 182(2) stipulates that a transferee is liable for the tax debt of a taxpayer to the lesser of:
2.25.1. the tax debt that existed at the time of the receipt of the asset or would have existed had the transferor complied with the transferor’s obligations under a tax Act; and
2.25.2. the fair market value of the asset at the time of the transfer, reduced by the fair market value of any consideration paid, at the time of payment.
Person assisting in dissipation of assets
2.26. Section 183 provides that, if a person knowingly assists in dissipating a taxpayer’s assets in order to obstruct the collection of a tax debt of the taxpayer, such 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.
- Recovery of tax
3.1. In terms of section 169(1) of the TAA, 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.
3.2. Section 169(2) of the TAA states that a tax debt due to SARS is recoverable by SARS under Chapter 11, and sets out the persons from whom SARS may recover such amount, namely:
3.2.1. in the case of a representative taxpayer who is not personally liable under section 155 of the TAA, any assets belonging to the person represented which are in the representative taxpayer’s possession or under his or her management or control; or
3.2.2. in any other case, any assets of the taxpayer.
3.3. SARS is regarded as the creditor for the purposes of a tax debt due, in terms of section 169(3) of the TAA.
3.4. Section 171 of the TAA prevents proceedings for recovery of a tax debt from being initiated after the expiration of 15 years from the date of the assessment of tax.
3.5. In terms of section 184(1) of the TAA, SARS has the same powers of recovery against the assets of a person referred to in Chapter 11 (i.e. a responsible third party) as SARS has against the assets of the taxpayer, and that person has the same rights and remedies as the taxpayer has against such powers of recovery.
3.6. SARS must provide a responsible third party with an opportunity to make representations:
3.6.1. before the responsible third party is held liable for the tax debt of the taxpayer in terms of section 180, 181, 182 or 183 of the TAA, if this will not place the collection of tax in jeopardy; or
3.6.2. as soon as practical after the responsible third party is held liable for the tax debt of the taxpayer in terms of section 180, 181, 182 or 183 of the TAA.
Application for civil judgment for recovery of tax
3.7. In terms of section 172(1) of the TAA, if a person fails to pay tax when it is payable, SARS may, after giving the person at least 10 business days notice, file with the clerk or registrar of a competent court a certified statement setting out the amount of tax payable and certified by SARS as correct.
3.8. SARS is not required to give the taxpayer prior notice if SARS is satisfied that giving notice would prejudice the collection of the tax (section 172(3)).
3.9. Section 173 of the Act permits the certified statement to be filed with the clerk of the Magistrate’s Court that has jurisdiction over the taxpayer named in the statement.
3.10. In terms of section 174 of the TAA, a certified statement filed under section 172 of the TAA must be treated as a civil judgment lawfully given in the relevant court in favour of SARS for a liquid debt for the amount specified in the statement.
Institution of sequestration, liquidation or winding-up proceedings
3.11. SARS is granted authority to institute proceedings for the sequestration, liquidation or winding-up of a person for a tax debt, in terms of section 177 of the TAA.
3.12. Section 177(2) permits SARS to institute such proceedings whether or not the person is present in the Republic or has assets in the Republic.
3.13. If the tax debt is subject to an objection or appeal under Chapter 9 of the TAA, or a further appeal against a decision by the tax court under section 129 of the TAA, section 177(3) of the TAA stipulates that the proceedings may only be instituted with leave of the court before which the proceedings are brought.
3.14. In terms of section 178 of the TAA, a proceeding referred to in section 177 of the TAA may be instituted in any competent court and that court may grant an order that SARS requests, whether or not the taxpayer is registered, resident or domiciled, or has a place of effective management or a place of business, in the Republic.
Collection of tax debt from third parties
3.15. As noted above, section 159 of the TAA states that a third party is personally liable to the extent described in Part D of Chapter 11, which Part sets out those persons who constitute responsible third parties.
3.16. Section 184 of the TAA deals with the recovery of tax debts from these responsible third parties and grants SARS the same powers of recovery against the assets of a person referred to in Part D of Chapter 11 of the TAA as SARS has against the assets of the taxpayer. Section 184 also grants the responsible third party the same rights and remedies as the taxpayer against such powers of recovery by SARS.
3.17. A senior SARS official may, in accordance with section 197, authorise the permanent "write off" of an amount of a tax debt, to the extent that the tax debt is irrecoverable at law as referred to in section 198 of the TAA, or if the debt is "compromised" in terms of Part D of Chapter 14 of the TAA.
3.18. In terms of section 198 of the TAA, a tax debt is "irrecoverable at law" if:
3.18.1. it cannot be recovered by action and judgment of a court; or
3.18.2. it is owed by a "debtor" that is in liquidation or sequestration and it represents the balance outstanding after notice is given by the liquidator or trustee that no further dividend is to be paid or a final dividend has been paid to the creditors of the estate; or
3.19. Section 198(2) states that a tax debt is not irrecoverable at law if SARS has not first explored action against or recovery from the "assets" of the persons who may be liable for the debt under Part D of Chapter 11.
- Transitional provisions
4.1. In terms of the SARS Short Guide to the Administration Act, 2011 ("SARS Guide"), the transitional provisions contained in the TAA are intended to ensure a smooth transition from the (then) current law to the TAA. The applicable transitional rules are stated in the SARS Guide to be:
4.1.1. provisions that are deleted under the TAA remain applicable until the TAA commencement date;
4.1.2. thereafter the TAA applies (i.e. including ongoing audits, investigations, disputes and debt recovery), as the idea is to avoid "two systems" going forward.
4.2. The SARS Guide states that the exceptions to this rule are:
4.2.1. criminal prosecutions;
4.2.2. tax appeal proceedings before a court which commenced before the TAA came into operation.
4.3. Section 270(1) of the TAA states that, subject to Chapter 20 of the TAA ("Transitional Provisions") the TAA applies to an act, omission or proceeding taken, occurring or instituted before the commencement date of the TAA, but without prejudice to the action taken or proceedings conducted before the commencement date of the comparable provisions of the TAA.
4.4. Section 270(2) of the TAA sets out which actions or proceedings taken or instituted under the provisions of a tax Act repealed by the TAA, but not completed by the commencement date of the comparable provisions of the TAA, must be continued and concluded under the provisions of the TAA as if taken or instituted under the TAA. In terms of section 270(2)(g), this includes the recovery of a tax debt. In this regard, the SARS Guide (at page 71) specifically states that:
"A tax debt that arose before TA Act commences may be recovered in terms of the recovery provisions in TA Act".
4.5. Section 270(3) of the TAA states that a form, notice, demand or other document issued, given or received by a person or SARS under the provisions of a tax Act repealed by the TAA, must be regarded as issued, given or received in terms of any comparable provisions of the TAA, as from the date that the form, notice demand or other document was issued, given or received under the repealed provisions.
- Commencement date
5.1. In terms of Government Gazette Notice No. 51 contained in Government Gazette No. 35687 dated 14 September 2012, the TAA commences on 1 October 2012 save for certain provisions.
5.2. None of the excluded provisions fall within Chapters 10 or 11 of the TAA.