Are Shareholders liable for tax debts of a company?
29 May 2014
Posted by: Author: Beric Croome
Author: Beric Croome (ENS)
as long as most of us can remember the debts of a company were not regarded as
the debts of its shareholders. This was
in line with the principles set out in the Companies Act. . It may be a surprise to some that
this principle does not apply to certain tax debts thanks to the Tax
has indicated that its intention is not to punish shareholders, but to
discourage them from asset or dividend stripping the company while it still
owes taxes to SARS. This article will consider the circumstances in which a
shareholder will be held liable for the debts of a company.
is a shareholder?’
meaning of shareholder is worth considering.
This is due to the fact that there may be those who doe not consider
themselves shareholders, not knowing that they actually are.. Conversely, there
may be others who believe they are shareholders while they are actually not.
are persons who hold a beneficial interest in a company. A beneficial interest
exists where the rights of full ownership of any property are split into those
of enjoying its use, fruits, or income. Please keep in mind that the members of close corporations
and co-operatives are also regarded as shareholders. Shareholders
do not necessarily have to own shares in the company. Even if they have a beneficial interest in
the company they may be regarded as shareholders. These shareholders are not excluded just
because they do not have shares and may also be liable for the tax debts of a
registered shareholder who act in a nominee capacity would not be regarded as a
shareholder for the purposes of this part of the Tax Administration Act because
they do not receive any dividends in their personal capacity as, but on behalf
of ‘true’ shareholders.
of companies listed on the local or foreign stock exchanges recognised by the
Minister of Finance are also no liable for the tax debts of the company.
in which shareholders will be liable for company tax debt
1. The company must be
undergoing voluntary (not compulsory) liquidation
winding-up of a company begins when a (special) resolution of the company is
filed with the Companies and Intellectual Property Commission.
2. The company must have not satisfied an outstanding tax debt with
company must have been wound-up without having satisfied its outstanding
tax debt. A tax debt is an amount of tax due
or payable in
terms of any tax act, but excludes customs duty.
SARS have mistakenly refunded PAYE to a company, this is also considered a tax
debt because the ‘mistakenly’ paid tax must be refunded back to SARS by the
3. Only shareholders who receive company assets within one year
prior to its winding-up are affected.
Besides regular assets, intangible assets
such as trademarks and other intellectual property is also included.
Earlier it was mentioned that the
government only wants to target those shareholders which strip a company of its
assets while that company owes taxes to SARS. This requirement gives
credibility to that fact.
To summarise, where there is
a voluntary liquidation of an unlisted company with an outstanding tax debt and
its shareholders received any company assets within one year prior to its
winding up, then those shareholders are liable for the tax debts of the
company. It is clear that there are numerous restrictions that narrow the
application of this section to a ‘targeted group’ of shareholders. Taxpayers
must still be aware of circumstances that may be perceived as asset or dividend
stripping by SARS, for example a ‘friendly’ liquidation of an unlisted company
and consider, before the special resolution is filed, whether the company
has any outstanding tax debts.