Introduction:
Section 155 (Personal liability of representative taxpayer) of the Tax Administration Act No. 28 of 2011 (“Tax Administration Act”) gives the South African Revenue Service (“SARS”) authority to hold the directors of a company (“Directors”) liable in their personal capacities for the tax debts of a Company with a tax debt due and payable to SARS (“Company”) in the event that the Company fails to pay the tax debt.
Section 172 (Application for civil judgment for recovery of tax) of the Tax Administration Act:
Section 172 (Application for civil judgment for recovery of tax) of the Tax Administration Act provides for the process SARS must follow to apply for civil judgment to be issued by a competent court.
Section 172 (Application for civil judgment for recovery of tax) of the Tax Administration Act states that should a person, including the Director being held liable for a Company’s outstanding tax debt, have such an outstanding tax debt and SARS has provided the Director with 10 (ten) business days’ notice (“Notice”), SARS may file a certified statement of the amount of tax payable, which must be certified by SARS as correct and filed with the clerk or registrar of the court (“Certified Statement”) upon the 10 (ten) days lapsing.
SARS is not required to provide the Notice if it is satisfied that giving such notice to the Director would prejudice the collection of the tax debt.
Once the Notice has lapsed, the Certified Statement is filed with the clerk or registrar of the court that has jurisdiction over the Director who will be named in the Certified Statement (“Clerk”).
Take note that the Certified Statement can be filed irrespective of whether or not the tax debt is subject to an objection or appeal. The Certified Statement cannot be filed if 10 (ten) days have not elapsed from the day SARS receives a request for suspension of payment of tax or from the day a suspension has been revoked, whichever may be applicable or if the obligation to pay the tax debt has been suspended.
A Certified Statement filed with the Clerk must be treated as a civil judgment, lawfully given in the relevant court in SARS’ favour for a liquid debt for the amount stated in the Certified Statement.
Opportunity to make representations:
SARS must provide a person who is personally liable in terms of section 155 (Personal liability of representative taxpayer) of the Tax Administration Act (namely the Directors) (“Representative Taxpayer”) with an opportunity to make representations before the Representative Taxpayer is held liable in terms of section 155 (Personal liability of representative taxpayer) of the Tax Administration Act (“Opportunity to Make Representations”). A Director is therefore entitled to an Opportunity to Make Representations.
SARS will not provide an Opportunity to Make Representations to the Director if doing so will place the collection of the tax debt in jeopardy.
The Opportunity to Make Representations must be provided to the Director as soon as practicable after the Director is held liable for the tax debt of Company in terms of section 155 (Personal liability of representative taxpayer) of the Tax Administration Act.
SARS’ Power of recovery against Directors:
Section 184 (Recovery of tax debts from other persons) of the Tax Administration Act states that SARS has the same powers of recovery against a Representative Taxpayer as SARS has against the assets of the Company. SARS will, therefore, be able to use the same tools to recover the tax debt against the Director as it would be able to use against the Company.
In terms of section 177 (Institution of sequestration, liquidation or winding-up proceedings) a senior SARS official may authorise the institution of proceedings for the sequestration of the Directors and/or liquidation or winding-up of the Company for the outstanding tax debt owed to SARS (“Recovery Proceedings”) and SARS may institute Recovery Proceedings against the Directors whether or not they are present in the Republic of South Africa (“South Africa”) and whether or not they have assets in South Africa.
Payment versus appeal:
Once the payment of the tax debt is made by the Company or the Director and SARS is satisfied that the Company has no other outstanding debts, SARS must withdraw the Certified Statement if requested by the Company and/or the Directors in the prescribed form and manner.
Should the Company appeal the value of the tax debt, SARS will require leave of the court having jurisdiction in the matter to institute the Recovery Proceedings against the Directors.
Conclusion:
SARS’ powers to recover the outstanding tax debt of a company are extensive. SARS can approach the Directors of a Company for that Company’s tax debts by following the procedure set out in section 172 of the Tax Administration Act. It would, therefore, be prudent for Directors to seek legal assistance as soon as it comes to the Director’s attention that SARS will proceed or is in the process of proceeding with a civil judgment against a Director in his/her personal capacity. This will ensure that the Director’s rights are fully protected.