SARS tax evasion warning

The South African Revenue Service (SARS) is targeting advisors who assist taxpayers in evading taxes, with some even being held liable for their clients’ debts.

Tax Consulting SA’s head of tax controversy and dispute resolution, André Daniels, said the Revenue Service’s efforts have been backed by the Supreme Court of Appeal (SCA).

“The SCA has backed Commissioner Kieswetter and issued a stern warning to all South Africans to refrain from assisting others in evading their tax obligations,” he said.

“Where you are caught, SARS will go after you personally. This is now settled law in South Africa, and directors or companies, tax advisors, lawyers, accountants, or even payroll professionals can find themselves on the hook.”

Daniels said the recent case involving billionaire Christo Wiese and his associates illustrates how the SCA enforces the regulations of the Tax Administration Act.

Wiese’s recent tax case in the SCA centred on his dispute with SARS regarding a R216 million tax debt from a company called Energy Africa. 

SARS argued that Wiese and his associates, aware of this potential tax liability, orchestrated the transfer of a valuable loan claim held by Energy Africa. 

According to SARS, this financial manoeuvring aimed to dissipate assets and obstruct tax debt collection.

Wiese and his associates countered this by arguing that SARS couldn’t utilise the specific provisions of the Tax Administration Act they relied on (section 183) until a formal tax assessment was issued. 

They said a definitive tax debt couldn’t be established before this assessment. The SCA sided with the taxman, delivering a blow to Wiese’s arguments. 

The court’s decision clarified that SARS has the authority to hold individuals accountable under section 183 of the Tax Administration Act if they are found to be involved in dissipating assets with the intention of avoiding tax obligations. 

This essentially empowers SARS to act proactively against what they perceive as attempts to circumvent tax debts, even before a formal assessment is finalised.

The SCA judgment holds significant weight for South Africa’s tax landscape as it strengthens SARS’s ability to pursue sophisticated tax avoidance schemes. 

This decision serves as a deterrent to those considering employing complex financial structures to dodge their tax obligations.

Another crucial aspect of the case involved the court’s allowance of SARS to utilise evidence gathered through confidential processes. 

This decision underscores the investigative powers granted to SARS and their ability to build strong cases against suspected tax offenders.

In its judgement, the SCA agreed with both SARS and the High Court, affirming that further litigation is required to determine if the defendant knowingly obstructed tax collection.

If found guilty, Wiese and his associates will be required to pay SARS the substantial sum of R216 million. 

“There can, of course, be a criminal element where SARS finds facts to support taking this all the way,” Daniels said. 

“However, there is also the possibility that the defendants may approach the Constitutional Court, which seems to have developed an appetite for taking on tax matters lately.”

The SCA’s judgment serves as a stark warning to tax advisors, lawyers, accountants, and company directors. 

This is because there is now absolute clarity that a tax debt exists independently of an assessment.

In addition, under section 183 of the Tax Administration Act, any third party who deliberately impedes the collection of tax debt by assisting with the dissipation of assets cannot evade responsibility by arguing that an assessment was not yet issued.

This “third party” includes tax advisors, lawyers, and accountants.

“This case underscores the serious implications for professionals involved in tax planning and advisory roles,” Daniels said. 

“It emphasises the need for due diligence and ethical conduct to avoid falling foul of the law and facing substantial financial and legal consequences.”