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CSARS v Van der Merwe GW and 21 others – HC 2013 WC – 28 February 2014

21 May 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: Lesedi Seforo (SAIT Technical)

Introduction

This case considers whether the provisional preservation orders which were granted ex parte by Rogers J against 22 respondents should be confirmed as final preservation orders. The orders were brought on application by the Commissioner for the South African Revenue Service (’the Commissioner’) in terms of section 163 of the Tax Administration Act 28 of 2011 ("the TAA”). 

In order to prevent any realisable assets from being disposed of, which may frustrate the collection of the full amount of tax that is either currently payable or there are reasonable grounds for SARS believing the tax may be due, section 163(1) of the TAA allows a SARS official to authorise an ex parte application to the High Court for an order for the preservation of any assets of a taxpayer or other person prohibiting any person, subject to the conditions and exceptions as may be specified in the preservation order, from dealing in any manner with the assets to which the order relates.

It was the application for confirmation of the provisional order specifically made against the second respondent, Candice-Jean van der Merwe, which was considered before the Western Cape High Court. This order prohibited her from disposing of, or removing from the country various luxury vehicles and monies held in her name or held in trust for her, in various bank accounts across the country.  

Please note that this case dealt with various other legal implications. For our purposes, only the tax aspects of the case will be considered.  

Facts  

In addition to other long running tax disputes between Mr. van der Merwe and the Commissioner, the latter contended that the former had been linked to several companies which fraudulently claimed VAT refunds, resulting in substantial amounts being incorrectly paid out to them. Criminal charges had also been instituted against him. The second respondent, Ms Van der Merwe, received two luxury vehicles and some $15 million from an account in Lebanon. The amount was a gift from a Mr. Rawas, whom she alleged to be a friend from oversees. She then transferred the monies to other accounts, purchased immovable properties and made other investments with her father’s help. Furthermore, she transferred money to Zonnekus, a company owned by a trust in which her father is a trustee and she is a beneficiary, along with her siblings. The company used this amount to settle a debt to a bank in order to avoid liquidation. 

The various cash transfers, as well as her father’s assistance in how it was spent, strengthened the Commissioner’s belief that the original $15 million was in reality from her father as well as other respondents. SARS believed Mr. van der Merwe was using his daughter and other respondents to hide his assets. They also believed she was allowing the other respondents to use her account in order to dissipate their assets.  

The Commissioner’s argument was that she may be held personally liable for the indebtedness of her father or the other respondents owing taxes to SARS in accordance with chapter 11, part D of the TAA, alternatively section 424 of the Companies Act 61 of 1973 and the corresponding provisions of the new Companies Act. 

A final preservation order was thus sought against her in order to secure assets that may be executed in respect of existing indebtedness to SARS, as well as indebtedness still to be established.The Commissioner’s request was that the order remain in force for as long as:

  • it was required to secure the collection of tax and until the tax debts of Van der Merwe and the respondents owing or found to be owing had been settled in full, and
  • pending finalisation of steps to be instituted in order to declare the assets of the other respondents executable for the tax debts or hold them personally liable.

Ms Van der Merwe argued that she has no interest in any of the business affairs of her father, neither does her father have any interest in her assets or funds. She found the Commissioner’s suggestion that the funds received ‘may not’ be her own, to be a speculation without foundation. She contended that section 163(3) of the TAA, which states that the basis on which a preservation order may be made is ‘if required to secure the collection of tax’, must be interpreted to require an objective standard for determining whether the assets would be disposed of. The fact that she imported money into the country, and invested it in immovable property, which is not going anywhere, is contrary to an intention of dissipation of the funds.

Held 

The court first highlighted that in preserving the assets of a person, the order neither divests a person of such assets, nor grants an order of forfeiture against the assets and the person against whom the order is made is not obliged by its terms to settle any tax debt. 

It was further held that necessity to prevent dissipation of assets cannot be read (by implication) into section 163(3), which states that the basis on which a preservation order may be made is ‘if required to secure the collection of tax’.

This is clear, Savage AJ stated at paragraph 41, given that:

"…there exists a clear distinction between the word ‘required’ and the requirement of necessity. As much is event from the Concise Oxford English dictionary definition of ‘required’ as ‘need or depend on, wished to have’, as opposed to ‘necessity’ which is defined as ‘an indispensible thing’.”

The court then held at paragraph 43: 

"…for a court to determine whether a preservation order is required to secure the collection of tax in terms of s 163(3), it does not need to be shown that the grant of the order is required as a matter of necessity, or to prevent dissipation of the assets…It is not required of the court to determine whether the tax is, as a matter of fact, due and payable by a taxpayer or other person contemplated in s163(1) which will be determined by later enquiry. Rather, at the preservation stage sufficient information is to be placed before the court to enable the court to determine whether such an order is required against the persons against whom it is sought.” 

In response to the respondent’s contention that the Commissioner must prove that the $15 million she received belonged to her father, the court held that the explanation put forth by her regarding how she obtained the money is so highly improbable that it cannot be accepted. 

The provisional preservation order was confirmed, with costs.

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