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Don’t be afraid of SARS if you’ve done all you can to comply

21 November 2014   (0 Comments)
Posted by: Author: Lesedi Seforo
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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 Administration Act? 

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 individuals.

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 curator;
  • act in accordance with his instructions;
  • subject herself to interviews; and 
  • furnish the curator with details of her companies’ assets. 

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 preservation order:

"Delinquency in 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 be collected.”

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.


Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.


The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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