Commissioner of SARS v Mark Krok (HC 1319/2013 NG)
05 February 2014
Posted by: Author: SARS Legal and Policy
Author: SARS Legal and Policy
Judgment was delivered in the Gauteng North High Court confirming a preservation order granted to the South African Revenue Service (SARS) over the South African assets of Mr Mark Krok (the respondent).
The respondents were also ordered to pay the costs of two counsel for SARS.
This action is the first mutual collection of taxes action between South Africa and Australia in terms of Article 25A of a Double Taxation Agreement between the two countries and an initial step to combating non-payment of taxes and strengthening the working relationship between South Africa and Australia.
SARS welcomes the Gauteng North High Court judgment as it confirms an important legal principle of mutual assistance and cooperation amongst revenue authorities in different countries. SARS believes the judgment will advance the capability of revenue authorities to combat cross border tax evasion and attempts to conceal or dissipate assets, particularly by high-net worth individuals.
SARS has, in terms of section 185(1)(b) of the Tax Administration (TA) Act, called upon Mr Krok to state whether or not he admits liability for the amount of R235 million or for a lesser amount of debt owed to the Australian Tax Office (ATO). Should Mr Krok fail to respond or comply with the provisions of Section 185 of TA Act, SARS will demand payment of the full outstanding amount of the said tax, which may result in immediate collection steps being instituted by SARS.
During January 2012, SARS received a request in terms of Article 25A of the Agreement between the Government of Australia (represented by the Australian Tax Office – "the ATO”) and the Government of the Republic of South Africa, to provide assistance in the collection of taxes between the respective countries. The purpose of this agreement was to avoid double taxation and the prevention of fiscal evasion in respect of taxes. The request from the ATO indicated that there was a risk of dissipation or concealment of assets by Mr Mark Krok.
The agreement was entered into on 1 July 1999 and amended by a Protocol on 31 March 2008. The Agreement and the Protocol were entered into by the South African Government in terms of s.108(2) of the Income Tax Act, No. 58 of 1962 read with s.231(4) of the Constitution 108 of 1996. The agreement and Protocol became part of South African Law in terms of the Constitution of the Republic, as they were approved by Parliament in terms of s.231(2) of the Constitution and the arrangement was duly published in the Government Gazette of 23 December 2008.
Request from ATO
The request from the ATO to SARS was thus for the tax collection and conservancy of the assets of Mr Mark Krok in South Africa, pending the collection of the amount alleged to be due by Mr Krok under the tax laws of Australia. The request was also accompanied by a formal certificate issued by the ATO stating that Mr Krok owed taxes to the ATO in the amount of AU$ 25,361,875.79 (R235,875,169.19 at the time).
SARS agreed to lend assistance and successfully obtained a provisional preservation order and appointed a curator bonis to take control of the South African assets of Mr Krok, in terms of Section 163 of the Tax Administration Acton 18 February 2013. The order effectively secured all assets of Mr Krok to the value of R297 million (including a R40 million property purchased in Clifton) for the collection of the outstanding tax debt of R249 million owed to the ATO, whilst allowing some grace for the release of funds for living and legal expenses.
A further challenge was the intervention of a second party, being Jucool Enterprises Inc. ("Jucool”), a company registered in the British Virgin Islands. Jucool asserted that they were the beneficial owner of the assets forming the subject of the preservation order. SARS argued that Jucool failed to prove its alleged beneficial ownership.
The following two main topics were argued before Gauteng North High Court, on which the court ruled today:
- The issue regarding retrospectivity - whether taxes raised before the amendment of the Protocol and newly inserted Article 25A could be collected. SARS argued that Article 25A had no temporal limitation, i.e. that there is no specification in regard to the period for which taxes are owed. The judge agreed with SARS argument that all taxes due since 1999 could be collected via the new Protocol.
- Whether the assets were transferred from Mr Krok to Jucool in terms of South African Law -questioning whether the transaction was made in order to hide the assets from tax collection by the Australian and South African tax authorities. The Gauteng North High Court found that there was no immediate transfer of rights to Jucool and that Krok intended to create personal rights in favour of Jucool, pending consent being granted.
Click here to access the judgement.
This article first appeared on sars.gov.za.