A PERSON’S TAX IMPLICATION IS THE REPUBLIC OF SOUTH AFRICA WHERE TAX IS OWED TO A FOREIGN COUNTRY INTRODUCTION REMARKS AND BACKGROUND Tax law in South Africa, without the correct advice, may become a fairly precarious situation for a person who lives and/or works outside the Republic or owns assets in the foreign country, but has permanent residency in South Africa. Recent case law, which will be discussed below, paints an interesting picture of the stance taken by our courts when tax is owed to a foreign government. II. THE TAX ADMINISTRATION ACT 28 OF 2011 The aforementioned Act regulates the situation whereby South Africa has an international tax agreement with a foreign country. Of particular interest is Section 185(1)(a) of the mentioned statute which reads as follows: “If the South African Revenue Service has, in accordance with an international tax agreement, received a request for conservancy of an amount alleged to be due by a person under the tax laws of the other country where there is a risk of dissipation or concealment of the assets, SARS may apply for the preservation order under Section 163 of the Act, as if the amount were tax payable by the person under the Tax Act.” The wording of the above Section is clear. If South Africa has a tax agreement with a foreign country and the latter country applies for a preservation order, our courts may grant an order for the preservation of the amount, if there exists a risk of dissipation, as if the tax amount was due and payable under South Africa’s own tax laws. COMMISSIONER, SOUTH AFRICAN REVENUE SERVICE V KROK AND ANOTHER 2014 (3) SA 453 (GP) The Krok case cited above provided the legal practitioner with insight into how our courts approach the situation empirically, as referred to above. Krok owed the Australian Tax Office (ATO) tax, interest and penalties, in the amount of approximately R 235 000 000.00. The ATO assessed the risk and applied for a preservation order over Krok’s assets in South Africa as Krok had purportedly sold the said assets to a third party, although the former party still derived income benefits from same. This appeared to be a simulated transaction so as to protect Krok from future claims from creditors. The Application made by the ATO was complete and all necessary documentation supporting their concerns were duly attached to the Application. The High Court in Pretoria found in favour of the ATO and granted the order. The learned presiding Judge found that, on the face of the matter, the ATO had a claim which was not placed in dispute. The certificate alleging the amount due and payable to the ATO was deemed sufficient proof of the amount owed and for the preservation order to be granted. OPINION AND CONCLUSION The court in the Krok matter, in our opinion, ruled correctly. In tax matters, it appears that a certificate alleging indebtedness is sufficient proof of the amount owed. Any person objecting to the certificate will need to approach the court, on Affidavit, and provide compelling reasons and proof of why the former statement is not the case. Furthermore, it appears that where there exists an international tax agreement between two countries, the courts of the country hearing the preservation order shall, as far as is reasonably possible, assist the applying country in preserving the latter country’s tax interests. Hence, it would always be prudent to approach a competent attorney for tax and legal advice and not, as in Krok’s case, seek to simulate a transaction to protect assets. The latter situation is very much frowned upon by our courts. Feel free to contact one of our practitioners for advice in this regard.
Posted on: Tue, 07 Oct 2014 07:48:22 +0000