Judgment summary
This is an appeal from the Western Cape Division of the High Court, Cape Town, concerning an action instituted by SARS under section 183 of the Tax Administration Act 28 of 2011 (the TAA) against four individuals for R216.6 million, on the basis that they knowingly assisted Energy Africa Proprietary Limited (Energy Africa) to dissipate its assets to obstruct SARS's collection of a tax debt (paras 1-2).
The trial proceeded on two separated issues: first, whether a transcript of evidence given by the appellants at a section 50 TAA inquiry held during 2015 and 2016 is admissible in the trial and, if so, for what purpose; second, whether the STC and CGT assessments raised against Energy Africa constitute 'tax debts' for the purposes of section 183 of the TAA (para 2).
The High Court found the transcript admissible, leaving the purpose of its use to the trial court, and found that the STC and CGT assessments constitute tax debts for section 183 purposes (para 3). The Supreme Court of Appeal dismissed the appeal against both findings, with costs including the costs of two counsel (para 67).
Background
Prior to a January 2007 restructuring of the Tullow Group's African operations, Energy Africa formed part of that group. On 25 January 2007, Energy Africa sold its shares and claims in Energy Africa Holdings (Pty) Ltd (EAH) to Tullow Overseas Holdings BV (TOH), and the tax return for that period did not raise any CGT liability (para 4).
Following an audit, SARS delivered a notice on 16 November 2012 under section 80J(1) of the TAA indicating it intended to raise CGT of R453 126 518 and STC of R487 205 316 in relation to the EAH disposal (para 5). The appellants disputed the audit findings on 15 April 2013, and on 19 April 2013 Energy Africa disposed of its sole asset, a loan account credit held in Titan Share Dealers Proprietary Limited (TSD), by declaring a dividend in specie in favour of its holding company, Elandspad Investments Proprietary Limited (Elandspad) (para 6).
On 21 August 2013, SARS issued the additional CGT assessment of R453 126 518 with understatement penalties of 150%, and the STC assessment of R488 282 886 with interest and understatement penalties of 150% (para 7). Energy Africa objected, informing SARS it had no cash or assets to pay (paras 8-9). SARS partially allowed the objections, reducing the understatement penalties to 100%, and Energy Africa did not appeal the balance (para 9).
SARS obtained a certified statement under section 172(1) of the TAA on 30 July 2014, and was informed on 24 October 2014 that Energy Africa was dormant (para 10). SARS applied for a section 50 inquiry, during which the appellants testified. On 25 October 2016, SARS issued notices of personal liability under section 183 of the TAA, alleging the first and second appellants had knowingly assisted the taxpayer in dissipating its only asset of value to obstruct collection of a tax debt. Energy Africa was liquidated by court order in April 2016. The appellants made written representations in January 2017 contending that no tax debt existed at the time of the dissipation, since it predated the assessments (para 11).
Core dispute
The appeal turned on two separated issues, both concerning provisions of the Tax Administration Act 28 of 2011.
The first issue was whether the term 'tax debt' as used in section 183 of the TAA requires that an assessed tax debt exist at the time the dissipation of assets occurs. The appellants argued that a tax debt only arises upon assessment, so no tax debt existed on 19 April 2013 when the dividend in specie was declared, since the CGT and STC assessments were only issued on 21 August 2013 (paras 15, 20-21). SARS argued that 'tax debt' must be read with section 169(1) of the TAA, that liability exists by operation of law independent of assessment, and that section 183 is satisfied if a tax debt was anticipated at the time of dissipation (para 22).
The second issue was whether the transcript of evidence given by the appellants at the section 50 TAA inquiry is admissible in subsequent civil proceedings under section 56 of the TAA. The appellants argued that admitting the evidence would conflict with section 69 of the TAA (confidentiality of taxpayer information) and that section 56(4) does not extend to civil proceedings outside the tax administration context, relying on the obiter remarks in Commissioner for South African Revenue Services v Sassin and Others (paras 50-54).
Court findings
On the meaning of 'tax debt', the Court held that a taxpayer's liability to pay tax arises by operation of law upon the occurrence of a taxable event, and that an assessment does not create liability but merely determines and quantifies a pre-existing debt, rendering it recoverable (paras 26, 29, 33-34). The Court relied on Singh v Commissioner, South African Revenue Service and Namex (Edms) Bpk v Kommissaris van Binnelandse Inkomste for the proposition that a tax debt exists independently of assessment, and that an assessment is a requirement for enforceability, not existence, of the debt (paras 30-33).
The Court examined the structure of chapter 11 of the TAA, including sections 179 to 182, and concluded that the term 'tax debt' in section 183 does not require an assessed, liquidated and immediately claimable debt at the time of dissipation. To hold otherwise would produce an absurd result, allowing a culpable third party who deliberately assists in dissipating assets before an anticipated assessment issues to escape liability (paras 44-46). The Court noted that the CGT and STC assessments for the 2007 tax period related to a legal liability arising from taxable events in that period, and that following the objection process the assessments became final, so the tax indebtedness was finally established (para 49).
On admissibility of the transcript, the Court held that section 56(4) of the TAA permits SARS to use evidence given at an inquiry in 'a subsequent proceeding', which is not confined to tax proceedings; reading in the words 'tax proceedings' was neither necessary to give effect to the legislative intention nor to make the TAA workable (paras 58-59). The Court found no contradiction between the confidentiality provisions in sections 56(1) and 69 and the express permission in section 56(4) to use evidence against another person, given the exceptions in section 69(2) (paras 60-61). The Court distinguished the wording of the TAA from sections 417 and 418 of the Companies Act 61 of 1973, and found support in Bernstein and Others v Bester NO and Others and Pitsiladi v Van Rensburg and Others NNO for the use of compelled testimony in civil proceedings (paras 62-63). The Court rejected the argument based on section 34 of the Constitution, noting that fairness of the trial remains the responsibility of the trial court when weighing the evidence (paras 65-66).
Outcome
The Supreme Court of Appeal dismissed the appeal with costs, including the costs of two counsel, upholding the High Court's findings that the transcript of the section 50 inquiry is admissible and that the STC and CGT assessments constitute tax debts for the purposes of section 183 of the TAA (para 67).
Major issues / areas of contention
- Whether the term 'tax debt' in section 183 of the Tax Administration Act requires an assessed tax liability to exist at the time a taxpayer's assets are dissipated
- Whether liability for tax exists by operation of law independently of an assessment, or only arises upon assessment
- Whether a transcript of evidence given at a section 50 TAA inquiry is admissible in subsequent civil proceedings under section 56 of the TAA
- Whether admitting inquiry evidence in civil proceedings conflicts with the confidentiality provisions of section 69 of the TAA
- Whether admission of compelled inquiry testimony in civil proceedings infringes the right to a fair hearing under section 34 of the Constitution