By Amanda Visser.
The Supreme Court of Appeal (SCA) has now drawn a line in the sand between well-known businessman Christo Wiese, his business associates and the South African Revenue Service (Sars).
It deals with a case against Wiese and former directors, in which Sars is holding them personally liable for their alleged involvement in the dissipation of an asset held by Energy Africa to avoid tax.
The company had a tax debt of around R940 million, and Sars claims that its only asset, a loan account claim to the value of R217 million it held in another company, was dissipated to obstruct the collection of the tax debt due to Sars.
The case against Wiese and his former advisors and directors boils down to a provision in the Tax Administration Act (Section 183) that can hold someone liable if they are aware of a potential tax owed to the fiscus and still dissipate assets to frustrate the debt collection.
Sars argues that a tax debt could not exist without a tax assessment and that Sars can invoke the provisions of Section 183 only after an assessment.
The transaction
The matter arose from the restructuring of the Tullow Oil company around 2007 when Energy Africa (part of its African operations) sold its shares in a subsidiary company to Tullow Overseas Holdings. Wiese subsequently bought Energy Africa.
In 2012, Sars audited the 2007 transaction and alerted Energy Africa that it intended to amend that year’s income tax assessment. The amendment resulted in the inclusion of a capital gains tax of approximately R453 million and a secondary tax on companies (now called a dividend withholding tax) of R487 million.
Wiese and his former directors disputed the audit findings on 15 April 2013. On 19 April 2013, Energy Africa disposed of its sole asset, the loan account claim, by declaring a dividend in specie to the value of the loan account in favour of Elandspad. This happened before Sars raised the assessment.
The assessment
Sars issued an additional assessment in August 2013 and levied understatement penalties on the capital gains tax and secondary tax on companies at the rate of 150%. The company objected to the assessment and the penalties. Sars reduced the penalties to 100% but dismissed the objections to the tax assessment.
By the time Sars issued a final demand in 2014, it was informed that Energy Africa was dormant. In 2015, it initiated an inquiry into the matter. The transcript of that inquiry also became the subject of the dispute between Sars and Wiese. The SCA has also found that the transcript is admissible in future proceedings between the parties.
In 2016, Sars sent notices of personal liability under Section 183 for R217 million against Wiese and former director Isak Visagie.
The notices stated that they “knowingly assisted” Energy Africa in dissipating its only asset of value to obstruct the collection of tax debt.
Wiese and Visagie maintained that the asset’s dissipation occurred prior to the tax assessments being raised, and there was no tax debt at the time. The SCA held that a tax debt did not depend on whether there was an assessment.
Nina Keyser, partner at Webber Wentzel, says the SCA judgment is only another step in a long process that must still be followed. The Western Cape High Court and the SCA only had to decide on what constitutes a tax debt and whether the 2015-2016 inquiry transcript was admissible in future proceedings.
Onerous requirements
However, the SCA clearly states that Sars has the burden of proof to show that someone can be held personally liable under the TAA for helping a taxpayer dodge his tax liability.
The SCA stated in its judgment that the third party must “knowingly” have assisted in a dissipation to obstruct the collection of a tax debt. That requirement and the requisite intention will depend upon each case’s facts.
“These aspects are not before us. No doubt they will feature in the continuation of the trial of the matter in due course,” the SCA notes in its judgment.
Keyser says Sars must still prove that Wiese and his associates “knowingly assisted” in dissipating the asset and that the purpose or intent was to obstruct the collection of a tax debt.
“The SCA decision is just the next step on a long road,” she adds.