JOHANNESBURG – The South African Revenue Service (Sars) is flexing its muscles to preserve assets to ensure tax collection, a tax expert says.
Arguably the most widely reported preservation order handed down over the past year has been for the preservation of Mark Krok’s assets. Krok is a former South African businessman.
This followed a request from the Australian Tax Authority and effectively secured all Krok’s assets to the value of R297 million for the collection of unpaid tax debt of R249 million owed to the Australian Taxation Office.
Madelein Grobler, corporate tax consultant at KPMG, explains that a preservation order is an order of the court to prevent a taxpayer from disposing or removing assets.
A preservation order differs from an attachment order. An attachment order will allow Sars to sell the taxpayer’s assets, while a preservation order only allows Sars to safeguard the taxpayer’s assets.
Grobler says recent judgments to preserve assets could be the beginning of many more to come.
“The South African economy is struggling and Sars is under pressure to collect more revenues every year, so it has to consider how to collect debt,” she says.
“This [the preservation order] is a manner in which they can actually preserve the asset in order to collect the debt when an actual tax liability has arisen.”
Grobler says Sars has become increasingly robust as far as safeguarding tax debts are concerned.
“The introduction of the Tax Administration Act [TAA] on October 1 2012 has given Sars the upper hand with respect to preservation orders,” she says.
Prior to the introduction of the TAA, Sars brought an application for a preservation order in terms of the common law. Under the common law, Sars had to prove that the taxpayer was more likely than not to dispose of assets.
Following the introduction of the TAA, the situation changed and Sars may now bring an ex parte application (where there is no representation of the taxpayer) for a preservation order to the High Court.
“This can be done if a senior Sars official believes a taxpayer will remove assets and frustrate its efforts to collect tax,” she explains.
Lesley Isherwood, head of tax technical at KPMG, says whether such an order is granted will depend on the specific facts of each case.
In a recent judgment (CSars v eTradex) Sars told the court that the taxpayer’s affairs have been outstanding for a number of years. It also indicated that it had numerous discussions with the taxpayer about rectifying its tax position, she says.
The taxpayer on the other hand explained to the court why there had been such a long delay in the submission of its tax returns, showed the steps taken to rectify the situation and had offered to provide security for the outstanding tax debts, Isherwood says.
In this specific instance, the High Court did not grant the final order.
Grobler explains that assets may also be seized if a senior Sars official has reasonable grounds to believe that the assets will be dissipated.
“It provides Sars with the power to seize and remove assets in anticipation of an application for a preservation order.”
Such a preservation order must commence within 24 hours from the time of seizure of the assets, she says.