When Does A Bank Become A Collecting Agent For SARS
01 July 2010
Posted by: Author: Advocate C. Louw
When Does A Bank Become A Collecting Agent For SARS
Section 99 of the Income Tax Act 58 of 1962 (the Act) provides that the Commissioner for the South African Revenue Service (the Commissioner or SARS)may declare any person to be the agent of any other person.The person so declared an agent shall be the agent for purposes of the Act and may be required to make payment of any tax,interest or penalty due to SARS by the person in respect of which he has been appointed as agent.The payment may be made from any monies which may be held by the person,being appointed as agent,or due by him to the person whose agent he has been declared.
An agent appointed in terms of section 99 of the Act is regarded as a representative taxpayer as defined in section 1 of the Act.A representative taxpayer is personally liable for any tax payable by him in his representative capacity if while the tax remains unpaid–
(a)He alienates,charges or disposes of the income in respect of which the tax is chargeable; or
(b)He disposes of or parts with any fund or money,which is in his possession or comes to him after the tax is payable,if the tax could legally have been paid from or out of such fund or money.(See section 79 of the Act.)
In many instances,banks are appointed by SARS as agents in respect of their clients, which are indebted or allegedly indebted to SARS.Most banks have a head office and several branches countrywide.The question arises whether it is the head office or a specific branch that needs to be appointed as agent for purposes of section 99 of the Act.A related question is whether, when a bank’s head office is appointed as agent,the branch where the account is held,is simultaneously appointed. These issues were the subject of the recently reported matter of Nedbank Ltd v Pestana 2009 (2) SA 189 (SCA).The relevant facts in nedbank lTd v PesTana
•On 4 March 2006,Pestana (taxpayer)had a current account with Nedbank Carletonville,which had a credit balance of approximately R500 000.
•On 4 Ma rch 2006, at 08h33,the Commissioner telefaxed an instruction to Nedbank’s head office in terms of section 99 of the Act, in respect of the taxpayer’s account–appointing Nedbank as the Commissioner’s agent and directing them to pay the amount, in the account, to the Commissioner.
•On 4 March 2006, at 10h00, the taxpayer approached Nedbank’s Carletonville branch and instructed it to transfer the R500 000 from his account to the account of his cousin, also Pestana (plaintiff).
•At 11h33, on the same day,Nedbank Carletonville carried out the taxpayer’s instruction by crediting the amount of R500 000 to the account of plaintiff.
•Nedbank Carletonville was notified of its appointment as SARS’ agent in terms of section 99 at 16h00 on the same day(4/3/2006), after it already transferred the amount of R500 000 to plaintiff’s account.
•When Nedbank Carletonville received the instruction from its head office,it reversed the transaction(in other words transferred the money back to the taxpayer’s account),and paid it to the Commissioner.
Question of law
The trial court was requested to answer the following question of law. Was Nedbank,and having regard to its appointment in terms of section 99 of the Act,entitled to reverse the payment without authority from the plaintiff?
The Trial court and The full bench trial court found that Nedbank was entitled to reverse the payment to plaintiff.On appeal to the full bench (court a quo),it disagreed with the trial court.In essence,the court a quo held that a completed and unconditional payment had been effected when the bank credited plaintiff’s account,with the result that Nedbank could not unilaterally reverse the credit.The court a quo found that there were two things that the section 99 notice in issue did not do:
(i)It did not freeze the taxpayer’s account.
(ii)It did not transfer or effect a cession of the funds in the taxpayer’s account to SARS.
The supreme court of appeal
Before the Supreme Court of Appeal counsel for Nedbank submitted that it was common cause that Nedbank’s head office, being the directing mind of the bank, intended to comply with its appointment in terms of section 99.The court accepted, for purposes of this argument, that it was indeed the bank’s intention at head office level.From this premise,counsel for Nedbank sought to conclude that the decision by the branch to effect the credit entry (without knowledge of the section 99 appointment) is not relevant in law –it was not a decision made by the bank, i.e. by its relevant organ.The court held that this argument amounts to a non sequitur for the following reasons:
(i) Whereas the section 99 notice through Nedbank’s head office may be regarded as effective notice by SARS to the bank as a single corporate entity,it does not follow that it must at the same time be regarded as constructive notice to each branch of the bank.It was incumbent upon the bank to ensure that the notice of appointment reaches the relevant branch as soon as possible.
(ii)Until such time as it receives actual notice of the bank’s appointment as agent in terms of section 99 and the head office’s intention, the branch was entitled to continue its ordinary everyday banking functions.Thus it was entitled to accept a valid and lawful mandate from its client, the taxpayer, to transfer money from his account to that of the plaintiff.The Supreme Court of Appeal further held that the fact that the branch subsequently changed its mind and tried to reverse the transaction,cannot undo the validity of the completed transaction.It found that once the debit and credit occurred as it did,it constituted a completed juristic act independent of any underlying iusta causa.
From the above,it appears that an appointment as agent, in terms of section 99 of the Act,does not have the effect of freezing a taxpayer ’s account.Neither does such appointment have the effect of automatically transferring the funds of a taxpayer,from its bank account,to SARS.Section 99 is merely a mechanism to collect taxes due to SARS.
Furthermore,until such time as the specific branch,where the account is held, has been informed of the appointment in terms of section 99, the branch is entitled to accept instructions from its clients in the ordinary course of business.Lastly,the Commissioner cannot declare a bank as agent,for a client of the bank,if the flow of funds has already taken place.
Source:By Advocate C. Louw (TaxTALK)