Christo Wiese case gives clarity on tax debts

Kyle Fyfe Werksmans

In a judgment of the high court ina claimfor declaratory reliefagainst Christo Wiese to declare him liable to pay an amountof R216.6m, the courtinterpreted the meaningof theterm “tax debt” whenused inthe contextofthe provisionsforthe recovery of taxdebts from third parties inPart D of Chapter 11 of the Tax Administration Act, 2011 (TAA). The taxpayer,Energy

Africa, was acompany that was ultimatelyowned by Titan Premier Investments (TPI).Itsonlyassetwasaloan claim of R216.6mowing by another company in the Titan group, TitanShare Dealers, which EnergyAfrica distributed to itsshareholder in anticipation ofEnergy Africa being assessedby theSA Revenue Service(Sars) for capitalgains taxandsecondary taxon companies, which assessmentswere not disputed beyondthe objection stage and became final.

Themain issueindispute betweenSars and Wiese was that, at thetime that Energy Africa distributedthe loan claimofR216.6mtoitsshareholder, noassessment had been made bySars and there was no “tax debt” in existence. A “tax debt” is defined in section 169(1) ofthe TAA as an amount which is due or payable to Sars interms of a taxact. Putdifferently,he arguedthat ataxdebt becomes due only once an assessment hasbeen made by Sars.

The courtrejected this argument, holdingthat the term “tax debt” carries a different meaningwhen considered in the context of section 183 ofthe TAA. When referredto insection 183of the TAA, a tax debt could include an amount which the taxpayer anticipates will become duebecause ofan assessment thatwill be issued bySars. Subsequent events (eg the assessment or a decision of thetax court if there isa dispute)would establish thatthe taxpayer paidless thanthe fullamount oftaxthatwasdueatthetime when the return was filed.

The court heldthat a contrary interpretationwould also frustratethe intended purpose of section183 of the TAA, whichis toprevent taxpayers fromdissipating their assets to obstructthecollection oftax bySars, because taxpayers would then be free torid themselvesoftheir assetsrightuptothedatethat Sars makesan additional assessment for tax.

Ontheotherhand,itcould be argued that the proper approach, whichis intended bythe TAA,isfor Sarsto applyforapreservationorder interms ofsection163 ofthe TAA to preventthedissipation ofassets onthe grounds thatsuchan ordermaybe obtained ifSarshas reasonablegrounds tobelieve thata tax debt may be due.

The judgmenthas been appealed tothe Supreme Courtof Appeal,but itseems unlikely to succeed considering thecompelling points made by the high court.