Check that letters of personal liability are lawful

Under Commissioner Edward Kieswetter’ s tenure, the SA Revenue Service (Sars) has made significant strides in reversing the breakdown in control, systems and enforcement that took place under Tom Moyane A division that has exceedingly improved in discharging its mandate is the criminal investigations and debt enforcement department Over the past few months, many tax practitioners who deal with corporate clients tax debts have received notices issued to company directors or senior financial management to indicate that Sars intends to hold those persons personally liable for the corporate taxpayer s debt

Such a personal liability is a statutory exception against the principle that company directors and shareholders cannot be held personally liable for company debt (apart from, of course, where the Companies Act specifically provides for such liability)

However, a closer reading of section 180 in the Tax Administration Act, No 28 of 2011, suggests that Sars may be overstepping and attempting to hold persons accountable where the necessary legislative requirements have not been adhered to

Principle to their overreach is that section 180 requires, before any personal liability, that a person acted negligently or fraudulently In terms of criminal law principles, the conduct of either negligence or fraud has different elements and tests Sars’ approach in their notices is to indicate that

“ person X has acted negligently and/or fraudulently” Such a statement is extremely vague and suggests that Sars has no evidence of a person s conduct Alleging negligence and/or fraud, as opposed to statutory negligence or fraud, is clearly an attempt to utilise a provision where the facts do not support such a case Sars cannot commit to a specific behaviour simply because they do not have the facts to support that behaviour Although in most instances, the burden of proof in tax matters is on the taxpayer, one can argue strongly that either negligence or fraud is a behaviour Sars must prove

Moreover, section 180 provides for the personal liability of a person who controls or is regularly involved in managing the overall financial affairs of a taxpayer Such liability can be attributed to a person only to the extent that any negligence or fraud by that person has resulted in the failure to pay a (taxpayer s) tax debt This suggests that if the mentioned behaviour is found to be present, some attribution would have to be made that links the behaviour to the failure to pay the tax debt

Another overreach is the information Sars requests as part of the personal liability notice Typically, these include financial statements, bank statements, management accounts and other similar company documents Those documents do not belong to the relevant individual to whom the notice was issued, and the individual would likely be in breach of contract with their employer should they divulge the information

The appropriate person Sars should request this information from is the relevant assigned public officer Sars confuses the principles as contained in section 46 of the TAA relating to the power to request relevant information from a taxpayer or another person, with those in section 184 relating to representations where Sars intends to hold another person responsible for the tax debts of a taxpayer

In terms of section 46(1), Sars may, for the purpose of administering a tax act in relation to a taxpayer, require the taxpayer or another person to, within a reasonable period, submit relevant material that Sars requires Section 46(3) provides that a request by Sars for relevant material from a person other than the taxpayer is limited to material maintained or kept

ONE CAN ARGUE STRONGLY THAT EITHER NEGLIGENCE OR FRAUD IS A BEHAVIOUR SARS MUST PROVE or that should reasonably be maintained or kept by the person in relation to the taxpayer

None of the information requested from the person is generally material that is maintained or kept or that should reasonably be maintained or kept by that person in their capacity

Accordingly, the request must be directed at the relevant taxpayer, not the person in their own name

Taxpayers and their representatives should carefully study letters of personal liability in the context of the provisions of the Tax Administration Act

While full compliance and assistance are always encouraged, it must be done in line with the relevant legislative requirements

● Pieter Janse van Rensburg is a director at AJM Tax He also serves as a nonexecutive director on the board of the South African Institute of Taxation