Don’t be afraid of SARS if you’ve done all you can to comply
21 November 2014
Posted by: Author: Lesedi Seforo
Author: Lesedi Seforo (SAIT Technical)
It’s not everyday that a court case captures the public’s
imagination but the judgement issued by Judge Masipa in the Oscar Pistorius
trial proved just how "into it” we all can get when it comes to court
proceedings, as evidenced by everyone’s sudden recent use of the term "I put it
to you”. Well, I would also like to put it to you that as interested as
everyone was in the Pistorius case, business owners should also have an equally
keen interest in the tax matters that are addressed in our courtrooms.
Unfortunately most of these judgements tend to be rather esoteric and can only
really be understood by tax advisors. I mean seriously, who has the time to
read a 40 page technical judgement on some obscure term found in the Tax
A lot of these judgements address really important issues
that, if taxpayers knew about, would make them feel less intimidated by
SARS. You would be surprised by how many times courts have rebuked SARS for
some serious infractions against taxpayers. Granted, when you read some of
these cases, it is like watching an important game where the referee gives a
gives a mind-bogglingly bad decision. Fortunately, some of these cases read
like a Cinderella story, where the taxpayer lives happily ever after when
justice is done.
The Tradex case
Which brings me to the recent High Court case of the Commissioner of the South African Revenue
Service v Tradex (Pty) Ltd & Two Others. In that case, SARS sought the
confirmation of a provisional preservation order previously obtained against the
taxpayer and two other connected parties.
A preservation order is essentially a declaration issued by
a court, which forbids a person from disposing of specified assets. It is usually
sought by SARS where the revenue service fears that a taxpayer who owes (or is
about to owe) them a large amount of money will try to quickly sell his/her/its
assets and then to claim that there is no money to pay the tax.
Many business owners will be able to relate to the series of
events that occurred in this case.
After starting two businesses, a certain Mrs Wigget hired a
full-time financial manager to help her with the accounting and tax compliance
for her two companies. Unfortunately he failed to comply with his duties and
was eventually fired after a disciplinary hearing. She then hired a new
financial manager and a bookkeeper who also let her down (the person eventually
completely absconded). Naturally, the accounting and tax affairs of her two
companies was a complete mess for a number of years because of those two
After a succession of meetings with SARS officials, she presented
an action plan as well as a payment plan of how the tax debt of her two
companies would be paid. Thereafter, she hired a firm of auditors to
reconstruct the companies’ financial records for a number of years. When that firm
took too long to finish, she hired a new firm and an experienced tax consultant
to finish the financial statements and submit the tax returns. The tax
consultant worked tirelessly with other staff members, including over weekends
and public holidays, to help complete the financial records and the tax
returns, while regularly keeping SARS informed of her progress. This took place
over a number of months and even though Mrs Wigget kept SARS informed of all
developments, they started getting impatient and eventually applied to the High
Court for a provisional preservation order, which succeeded.
The appointment of a curator
The provisional preservation order had a very intrusive
element to it. It provided for the appointment of a curator with the right to
immediately take control of company assets and have the shareholding in the
companies transferred to him. Mrs Wigget was also ordered to:
- deliver her company’s books and records to the
- act in accordance with his instructions;
- subject herself to interviews; and
- furnish the curator with details of her
He was further given the power to sell of certain assets in
order to settle the companies’ anticipated tax liabilities. Because the
financial statements were still being finalised, the final tax debt was unknown
at the time.
This was the background to SARS’ application to have the
provisional preservation order finalised.
What did the court decide?
After making it clear that the purpose of a preservation
order is to ensure assets are not disposed of (in other words, to make sure
they are preserved), as opposed to collecting tax, the court had the following
to say regarding the relationship between uninspiring tax compliance and a
the conduct of a taxpayer’s tax affairs may in appropriate circumstances be
part of the material from which one could infer that there is an appreciable
risk that assets available for collection of tax will be diminished. There is,
however, no automatic connection between the two. A person may be disorganised
and late in regard to its tax administration without there being any
appreciable danger that its assets will be diminished by the time tax comes to
What is also interesting is the court’s observation
regarding SARS’ tactics in seeking the preservation order:
"One gains the
distinct impression that SARS launched the application not so much because apreservation of the respondents’ assets
was required but in order to bring matters to a head by placing legal pressure
on the respondents…While I can understand SARS’ frustration, that is not the
purpose of the preservation application.”
It was also decided that there was no need for the curator
to have been appointed, seeing that there was not that much risk of Mrs Wigget’s
companies being less able to pay the soon-to-be determined taxes without the
curator’s appointment than with it. Furthermore, the court was sympathetic to
the fact that having to account to the curator for every business decision
would make it difficult for business operations to continue smoothly.
It also helped that Mrs Wigget had essentially provided some
of her companies’ assets as security for the tax debts. These included the
cession of Tradex’s book debts as well as Mrs Wigget’s personal suretyship for
the debts of her two companies.
SARS’ application for the finalisation of the provisional
preservation order thus failed.
Like all fairy tales, there needs to be a moral to this
story. In this case, it is the simple fact that SARS is not always correct in
its application of the law, and courts are willing to rule in favour of taxpayers
in instances where SARS did something it was not supposed to do.
In this regard, it is extremely important to consult with a SAIT
registered tax professional and an attorney, should SARS lodge an application
for a preservation order.