Page 806 - SAIT Compendium 2016 Volume1

CASE DIGEST 2014-2015
The taxpayer had submitted no income tax returns to SARS since the year 2000, BWA had outstanding income tax returns since its operations began and Tradex still needed to submit certain income tax and VAT returns from 2010 till 2013. The reason for the non-compliance in the case of Tradex was because the previous two nancial managers had not adequately ful lled their duties and were consequently dismissed.
From September 2012 to mid-2013 taxpayer met with senior SARS executives on a number of occasions to address the their tax issues and presented a payment plan for the tax liability demanded in respect of the periods for which the returns had been submitted.
In the meantime taxpayer engaged a rm of auditors in early 2013 to reconstruct the BWA and Tradex accounting records, which were in complete disarray from the 2007 to 2013 periods. SARS was kept informed of all developments, but nevertheless applied for and obtained an ex parte preservation order from the high court in August 2013. This order was to prevent the taxpayer from dissipating or dealing with their assets in a way that would cause a decrease in the value of their assets. It also called for the appointment of a curator bonis, in whom the assets of the taxpayer would vest.
By the end of April 2014, R4.7 million of the known tax liability of Tradex, BWA and taxpayer had been paid. In mid- 2014, BWA and Tradex completed their outstanding annual nancial statements (BWA’s showed losses) and submitted the relevant tax returns. All of taxpayers’ personal tax returns from the 2000 tax period were also submitted to SARS and assessed. Overall, Tradex’s estimated liability for income tax and VAT was approximately R7 million and taxpayers’ income tax liability was roughly R460 000.
The taxpayer offered the following assets as security in negotiations previously made with SARS: one of taxpayers’ property; the two immovable properties owned by BWA, and the cession in securitatem debiti by Tradex of book debts to the value of R10,5 million. The taxpayer alleged that the security, worth more than R18 million, was substantially in excess of any tax that might be found owing and therefore a preservation order was unnecessary.
SARS response was that the R7 million tax debt as claimed by the taxpayer had not yet been veri ed and that SARS had ignored Tradex’s potential liability for interest and penalties. The correctness of Tradex and BWA’s recently submitted nancial statements was also questioned. In respect of taxpayers’ personal tax affairs, SARS said that it still needed to verify its returns. Regarding the security offered by the taxpayers, SARS cast doubt in particular on the value of the book debts, referring to bad debts previously raised by Tradex.
Further, SARS contended that for the years 2007 to 2013 the taxpayers’ faced potential tax liabilities of R10.4 million. SARS therefore sought con rmation of the initial ex parte preservation order.
Outcome
The Supreme Court of Appeal rejected SARS application for preservation order.
Core Reasoning
Judge Rogers held that according to section 163(3), a preservation order may be made if required to secure the collection of tax. The court thus began with an analysis of what is meant by “required to secure the collection of tax”.
SARS based on this assertion was required, to show that there was a material risk that assets which would otherwise be available in satisfaction of tax would, in the absence of a preservation order, no longer be available. Unfortunately, SARS was unable to discharge this onus and the Judge held that section 163 is a procedure for preserving assets, not an execution mechanism.
Further, the Court held that SARS’ submission in seeking the con rmation of the preservation order seemed to have been solely based on the fact that the taxpayers’ had been very late in submitting their tax returns for the different periods. The court, however, held the a taxpayer 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. Therefore, the
preservation order was not found to be ‘required’ to secure the collection of tax within the meaning of s 163(3). Regarding the appointment of the curator, the court considered whether such action would achieve an appreciable advantage for SARS, in the sense that there would be a material risk of Tradex being in a worse position to meet its tax
liabilities if a curator was not appointed.
The Judge held that Tradex would not be managed better under the care of a curator bonis. The court also commented
on SARS’ standard practice to appoint a curator in terms of the provisional order, which the court noted was not only costly but a great intrusion on the taxpayer’s rights. Such appointment the court stated should only be done in provisional orders where, on the facts of the case, it is reasonably required.
In concluding remarks , the Judge noted that the taxpayers’ had made certain open tenders in good faith to SARS as a sign that they intended to settle whatever nal tax liabilities were found to be owing, irrespective of whatever the court’s ndings may be. These included the cession of Tradex’s book debts, the taxpayers’ personal suretyship for the debts of BWA and Tradex and the caveats over BWA’s two properties, but SARS continued with a preservation order with was unnecessary
27. AB (Pty) Limited v Commissioner for the South African Revenue Service GSJ HC Case No: VAT 1015 /2014 (29 September 2015) (SARS website)
Issue
INPUT VAT – Sections 1 and 17(2)(a) of the VAT Act 1 of the VAT Act: The issue for determination concerns the taxpayer entitlement to deduct input tax in respect of the accommodation and food provided to its employees by C Entity.
Posture of the case
The Tax Court sat as the court of rst instance with the taxpayer appealing SARS’s decision to reject his input claims. 798 SAIT CompendIum oF TAx LegISLATIon VoLume 1