The Constitutional Court judgement in Greyvensteyn vs Commissioner for SARS and Others has been welcomed by South African Revenue Service (SARS)!
Serving to reaffirm the constitutionality of SARS holding individuals personally liable for company debts, the Greyvensteyn judgement emphasises this point. It also supports SARS pursuing recovery from those persons. The judgement highlights the importance of tax revenue collection.
Where there is uncertainty as to who can be held personally liable, a distinct legislative guideline provides clarity. It states that individuals involved in the financial management of a company, even informally, could find themselves personally liable for its unpaid tax debts.
SARS’ broad powers extend beyond just the taxpayer. These powers potentially implicate directors, shareholders, and other key individuals in a company’s financial affairs.
Personal liability under Section 180 of TAA
Section 180 of the Tax Administration Act (TAA) empowers SARS to hold third parties personally responsible for a company’s tax debt.
This applies if:
- The person controls or regularly manages the overall financial affairs of a taxpayer; and
- SARS determines that the person acted negligently or fraudulently concerning the taxpayer’s tax debt.
Where a tax debt exists, this includes liability for capital sums due. It also includes related penalties and interest.
Holding an official financial title within the company is not necessary. Merely being involved in financial decisions can make an individual a target. Directors, shareholders, financial officers and even informal advisors can be held liable. This applies if their actions or inaction contribute to tax non-compliance.
The courts back SARS’ powers
The judiciary has reinforced SARS’ authority to pursue third parties. In Greyvensteyn, the taxpayer challenged SARS’ ability to hold him liable for a company’s tax debt. He argued that it violated his constitutional rights. However, the court confirmed that SARS’s statutory powers do not infringe on constitutional protections. This is true as long as SARS exercises those powers lawfully. This ruling serves as a dire warning.
SARS’ pursuit of tax debts is legally sound. Third parties cannot hide behind constitutional arguments to avoid responsibility. This applies where the legal requirements of Section 180 of the TAA are met.
SARS won’t stop at civil liability
SARS’s collection arsenal is not limited to Section 180. For example, Sections 153 to 155 of the TAA impose personal liability. This applies to a “representative taxpayer” – any person responsible for managing the tax affairs of a company. This includes public officers. As such, these individuals may be held personally accountable for the company’s unpaid income tax.
The threat of personal liability extends beyond financial penalties. SARS has the power to initiate criminal proceedings. This applies to individuals controlling non-compliant companies. This means that merely paying a fine may not be enough. Offenders could face criminal charges. They could even face imprisonment.
Negligence is no excuse. Even if tax non-compliance is due to oversight rather than deliberate fraud, individuals can still be held accountable.
SARS has made its position clear. Ignorance or mismanagement will not shield individuals from legal consequences. This includes cases where taxpayers fail to submit tax returns. It also applies where there is non-payment of taxes rightfully due.
The hidden triggers – how tax debt accumulates
Many taxpayers are unaware of how tax debt arises until it’s too late.
The most common triggers include:
- Late or non-submission of tax returns, leading to administrative penalties;
- Estimated assessments issued due to unfiled returns;
- Filing tax returns without making the required payment;
- Partial payments that leave outstanding balances;
- Incompetent tax advisors failing to meet compliance requirements; and
- Snowballing of interest and penalties on what was originally a small tax debt.
These seemingly small missteps can snowball into significant liabilities. They leave third parties vulnerable to personal liability claims.
Be proactive – protect your finances and freedom
If a company has outstanding tax debt, taking a wait-and-see approach is a recipe for disaster. SARS’ ongoing crackdown means that those involved in financial decisions- even informally – could face devastating financial and legal consequences.
Where there is a significant risk of SARS pursuing personal liability, or a large tax debt in the company’s name, immediate action is necessary. In such cases, legal professional privilege becomes essential in all engagements with SARS. As a result, consulting with a tax attorney to understand potential exposure and implement a proactive strategy is crucial.
Moreover, if SARS has already issued a personal liability notice, seeking legal advice is critical. This helps protect one’s assets, including liquid funds. It also mitigates the risk of further prosecution by SARS.
Greyvensteyn’s precedent-setting decision “reaffirms SARS’ legal authority to discharge its work of collecting all revenue due to the state in an efficient and effective manner.” In light of this, now is not the time to bury your head in the sand. Being proactive rather than reactive could mean the difference between financial ruin and business recovery.
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Jashwin Baijoo | Head | Strategic Engagement & Compliance | mail me | |
Micaela Paschini | Team Lead | Tax Legal | mail me | |
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| Tax Consulting SA | |
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