By Lavina Daya (Edward Nathan Sonnenbergs)
The Tax Administration Act No. 28 of 2011 (“Tax Administration Act) deals with tax administration only and serves as a consolidated piece of legislation comprising of administrative provisions that are, as far as possible, common to all tax Acts. The Tax Administration Act was enacted for the purpose of, inter alia, ensuring the effective and efficient collection of tax by prescribing the rights and obligations of the taxpayer and other persons to whom the Tax Administration Act applies.
Section 164 of the Tax Administration Act, encompasses the pay-now-argue-later principle and provides that, unless a senior South African Revenue Service (“SARS) official otherwise directs, the obligation to pay tax and the right of SARS to receive and recover tax will not be suspended by an objection or appeal or pending the decision of a court of law pursuant to an appeal under section 133 of the Tax Administration Act. A senior SARS official may, however, suspend the payment of the disputed tax having regard to a number of factors as set out in section 164(3) including, inter alia, whether there is a risk of the dissipation of assets by the taxpayer concerned during the period of suspension.
Further, where a person knowingly assists in dissipating a taxpayers assets in order to obstruct the collection of a tax debt of the taxpayer, that person is jointly and severally liable with the taxpayer for the tax debt to the extent that the persons assistance reduces the assets available to pay the taxpayers tax debt. This is provided for in section 183 of the Tax Administration Act. A third party may therefore be liable for a taxpayers tax debt if that third party assisted in dissipating the taxpayers assets.
It is interesting to note that the Tax Administration Act does not define the term “dissipation of assets. The Memorandum on the Objects of the Tax Administration Act, SARS Short Guide to the Tax Administration Act, 2011 and commentary on the Tax Administration Act also do not provide any guidance or clarity on the meaning of this term.
Consideration is therefore given to the common law meaning of the term “dissipation of assets.
The case of Carmel Trading Co Ltd v Commissioner, South African Revenue Service and Others 2008 (2) SA 433 (SCA) provides guidance on the meaning of the term in the context of tax debts. The relevant paragraph (para 3) reads as follows:
“On 3 September 2002, Hartzenberg J issued a preservation and anti-dissipation order in relation to the Falcon. Such an order, which interdicts a respondent from disposing of or dissipating assets, is granted in respect of a respondent’s property to which the applicant can lay no special claim. To obtain the order the applicant has to satisfy the court that the respondent is wasting or secreting assets with the intention of defeating the claims of creditors. Importantly, the order does not create a preference for the applicant to the property interdicted.
In addition, in the case of Knox D’arcy Ltd and Others v Jamieson and Others [1994] 4 All SA 171 (W) the court stated the following in relation to an interdict in securitatem debiti (at page 175-6):
“Best of all we should adopt a name which aptly describes in a word what the interdict aims to achieve.
The essential purpose of the interdict in question is to prevent a person (the intended defendant), who can be shown prima facie:
(a) to have no bona fide defence against an apparently valid claim by another (the plaintiff);
(b) to have assets within the jurisdiction of the Court (today, within the area of any Division of the Supreme Court of South Africa); and
(c) to have an intention to defeat the plaintiff’s claim, or to render it hollow, by secreting his (the intended defendant’s) assets in any of a number of ways (for example, by apparently or actually disposing of them or by removing them beyond the jurisdiction of the Court), from successfully defeating the ends of justice, provided that the plaintiff can show a well-grounded apprehension of irreparable loss. The measure is in substance an interdict in securitatem debiti; but if the need is felt for a more descriptive name, it could appropriately be called, say, an ‘anti-dissipation interdict’. That name emphasises its purpose of forestalling a prima facie intention to defeat due execution of an anticipated judgment by the dissipation of assets.
The principles enunciated in the aforementioned cases, were applied in the case of Investec Employee Benefits Ltd and Another v Electrical Industry KwaZulu-Natal Pension Fund and Others 2010 (1) SA 446 (W) (at page 481) in the context of an anti-dissipation order.
Based on the aforementioned, it would seem that the “dissipation of assets involves the wasting, using up or secreting of assets with an intention of defeating the claims of SARS.
Therefore where a third party who knowingly assists a taxpayer in wasting, using up or the secreting of assets in order to obstruct the collection of a tax debt of the taxpayer, such third party will be jointly and severally liable with the taxpayer for the tax debt, albeit only to the extent that the third partys assistance reduces the assets available to pay the taxpayers tax debt. Further, a taxpayers ability to successfully have the payment of disputed tax suspended pending an objection or appeal in terms of section 164 would be compromised if SARS is of the view that there is a risk that the taxpayer may get rid of its assets during the period of suspension, therefore making it difficult for SARS to collect such tax in future.