Are You a SARS Agent?
30 August 2011
Posted by: Author: Ntombikayise Baepi
Are You a SARS Agent?
Section 99 of the Income Tax Act No. 58 of 1962, provides that the Commissioner of the South African Revenue Service may, if he thinks necessary, declare any person to be an agent of any other person, and once so declared that person shall be an agent for purposes of the Act and may be required to make payment of any tax, interest or penalty due from any moneys including pensions, salary, wages or any other remuneration, which may be held by him or due by him to the person whose agent he has been declared to be.
This Section empowers the Commissioner to appoint banks,employers, pension funds, or similar persons as agents in respect of their clients, members, or employees, where such entities hold funds on behalf of a taxpayer to the extent that there are taxes, penalties or interest due by that taxpayer to SARS.
Once appointed by the Commissioner, the agent becomes a representative taxpayer in relation to the person whose funds are under his management or control, but only in respect of those funds.This means that in respect of the income under his management or control the agent will be subject to all of the duties and obligations of a representative taxpayer as contained in Part V of Chapter III of the Act.
While the power granted to the Commissioner under Section 99, is discretionary—and, unlike other discretionary powers, not subject to objection or appeal. However, a taxpayer may seek judicial review of any declaration made by the Commissioner in terms of Section99.
There have been some challenges to the constitutionality of Section 99 of the Act (and to the equivalent provision in Section 47of the Value Added Tax Act No. 89of 1991). One of these cases is that of Hindry v Nedcor Bank Ltd And Another 61 SATC 163, in which it was contended by the taxpayer that Section 99 of the Act was unconstitutional as it infringed on the right to privacy (Section 14),right to administrative justice(Section 33), and right to access to the courts (Section 34) as contained in the Constitution of the Republic of South Africa, Act No. 108 of 1996.
The court in Hindry found that any limitation of constitutional rights implicit in Section 99 is reasonable and necessary in an open and democratic society. In addition, it held that Section 99 could be applied by the Commissioner not only to recover taxes that are due, but also to recover refunds which are erroneously paid to a taxpayer.
Furthermore, the court rejected the argument that Section 99 of the Act violates the contractual relationship between a taxpayer and bank, finding that it does not infringe on the confidential nature of this relationship.
In the recent case of the Oceanic Trust Co. Ltd NO v Commissioner:SARS (Case number: 22556/09, as yet unreported), the Western Cape High Court had an opportunity to consider, among other issues, the application of Section 99 of the Act. In this case, the Commissioner had relied on Section 99 of the Act to appoint Standard Bank as the agent of the taxpayer in relation to R20 million held by it on behalf of the Oceanic Trust.
One of the issues to be decided by the court in relation to Section 99 of the Act was whether at the time that Standard Bank transferred the funds to the Commissioner, the taxes and/or interest and penalty were due and payable by the taxpayer. It was argued on behalf of the Commissioner that the word "due” as used in Section 99 of the Act means owing and does not mean payable.
In Oceanic Trust, the court stated that the meaning of the word"due” depends on the context in which it is used in the Act.The court held that the context of Section 99 of the Act is that it constitutes a permissible method that the Commissioner may use to recover tax and other amounts owing by the taxpayer. Thus, the court found that, logically, since a money debt can generally only been forced once it is payable, the tax reflected as owing can only be recovered by the Commissioner once it is payable.
The court stated further that, on a purposive construction of Section99 of the Act, the legislature cannot be held to have intended that the Commissioner fix a date for payment in an assessment, but then be entitled in terms of Section 99 of the Act, to proceed to collect some or all of the assessed tax before the arrival of the date for payment set in the assessment.
The court in the Oceanic Trust case held that while the recovery by the Commissioner of the amount through the mechanism of Section 99 prior to it becoming due was premature and not lawful.However, on the facts, by the time the matter came before the court,the full amount of assessed tax had fallen due for payment, and therefore the court found that it would serve no purpose to order the Commissioner to repay the amount prematurely transferred to SARS through the use of Section 99 of the Act.
Some lessons can be learned from the case law on Section 99 of the Act, namely that whenever this section is invoked by the Commissioner, the taxpayer must ascertain whether there is a tax debt and whether the debt in respect which the Section is sought to be invoked is in fact due and payable. For the person who is appointed as an agent, it must be established whether there are in fact funds held by such person on behalf of the taxpayer.
Both the agent and the tax payer should keep in mind that while a decision made by the Commissioner in terms of Section 99 of the Act is not subject to objection and appeal, judicial review of the Commissioner's decision to use Section 99 is possible.
Source: By Ntombikayise Baepi (Tax breaks)