South African Court dismisses billionaire’s appeal on existence of ‘tax debt’

South Africa’s Supreme Court of Appeal (SCA) held that a tax debt exists regardless of there being an assessment in dismissing an appeal brought by billionaire businessman Christo Wiese relating to a tax debt owed to the SA Revenue Service (SARS) of ZAR216.6 million (USD11.9 million).

In Christoffel Hendrik Wiese and Others v CSARS (1307/2022) [2024] ZASCA 111, SARS had accused Wiese and his associates Isak Visagie, Gert Viljoen and Frederick Hofmeyr, of knowingly assisting Energy Africa (Pty) Ltd, ultimately owned by Wiese’s privately held investment company Titan Premier Investments, of dissipating its sole asset to obstruct the collection of a tax debt.

Energy Africa’s asset was a loan claim of ZAR216.6 million owed by another company in the Titan group, Titan Share Dealers, which Energy Africa passed on to its shareholder in April 2013. The dissipation of the asset occurred after the taxpayer and its tax advisors were informed by SARS in November 2012 that it would be issuing assessments for the 2007 tax period, to recover unpaid taxes.

In August 2013, SARS issued the additional assessments to include the tax debt, which consisted of capital gains tax (CGT) totalling ZAR453,126 and secondary tax on companies (STC) totalling ZAR487,205, plus interest and penalties.

In September 2013, SARS was informed that the taxpayer had no funds to make payment of the tax debt. In May 2014, the taxpayer confirmed to SARS that there would be no further dispute by way of appeal, and, in April 2016, the taxpayer was liquidated.

SARS requested the High Court to declare the four defendants jointly and severally liable to pay the debt under Section 183 of the Tax Administration Act (TAA), which provided that: “If a person knowingly assists in dissipating a taxpayer’s assets in order to obstruct the collection of a tax debt of the taxpayer, the person is jointly and severally liable with the taxpayer for the tax debt to the extent that the person’s assistance reduces the assets available to pay the taxpayer’s tax debt.”

The defendants argued that reliance upon section 183 of the TAA was dependent on there being a tax debt. In this case, they said, the assessment had not been issued until after the dissipation, so there was no tax debt.

The High Court ruled that the phrase ‘tax debt’ had a broad meaning of “an amount of tax due or payable”. The CGT debt and STC debt should have been paid during the 2007 tax period and therefore a tax debt already existed. The defendants appealed.

Dismissing the appeal, the SCA agreed with the High Court in holding that an assessment did not establish or impose a tax liability, because the tax liability existed by operation of law, regardless of whether it had been assessed. Further, the purpose of section 183 was to impose liability on a third party who deliberately obstructed SARS from collecting a tax debt.

The judgment was concerned only with the separated issue of the meaning of ‘tax debt’, so a court will now have to rule on the question of whether the defendants knowingly and deliberately assisted the taxpayer in the dissipation of assets to obstruct the collection of a tax debt. If this is the case, section 183 will apply, and the defendants will jointly pay the tax debt to SARS.

In dismissing the appeal, the SCA also found that the transcript of evidence given by Wiese and his associates during a Section 50 inquiry was admissible in subsequent proceedings under section 56 of the TAA.

Section 50 inquiries are established by order of a Court on application by SARS, which must demonstrate reasonable grounds to believe that relevant material is likely to be revealed during the inquiry.

The SCA held that evidence obtained under Section 50 of the TAA served a legitimate purpose, which was “to enable SARS to execute its statutory duty, inter alia, to recover tax debts due to the fiscus”. It was therefore admissible in litigation between the parties.

Recent developments indicate that the collection focus on high-net-worth taxpayers is intensifying, with SARS employing advanced technology to streamline audits and bolster efficiency. Tax earned from wealthy individuals increased by more than 10% over the past year, rising to ZAR12.5 billion. From 85 lifestyle and luxury vehicle audits alone, SARS collected R850 million. Another R190 million came from high-wealth taxpayers who underpaid their provisional taxes.

Speaking in April, SARS Commissioner Edward Kieswetter said some 4,000 taxpayers were now managed by SARS’s High Wealth Individuals (HWI) Unit, which was established in 2021, and a further 58,000 taxpayers and their related entities would be migrated to the unit over time.

Over the past year, as part of their foreign investment allowances, this group had applied to move ZAR13.6 billion overseas, down from ZAR17 billion the previous year, of which some ZAR7 billion was approved.

Kieswetter also noted that SARS was increasing its focus on South Africa’s 64,000 tax-exempt institutions, particularly public benefit organisations, which include non-profit organisations, trusts and companies.