South African billionaire, Christo Wiese, has lost a court appeal in a case relating to a tax debt owed to the SA Revenue Service (Sars) of R216.6 million.
Sars had accused Wiese’s privately-held investment company Titan group of obstructing the collection of assets in 2013 from one of the companies it owned, Energy Africa, by “dissipating its assets”.
According to a judgment by the Supreme Court of Appeal on Friday, this dissipation occurred with the transfer of a loan-account claim Energy Africa held in Titan Share Dealers (TSD) as a dividend in specie to Elandspad Investments Proprietary (Elandspad), its holding company.
Energy Africa’s only asset at the time was a loan claim of R216.6m owed by another company in the Titan group, Titan Share Dealers, which Energy Africa passed on to its shareholder, in anticipation of Energy Africa being assessed by Sars, for capital gains tax and secondary tax on companies.
The main concern for the court was whether there was a tax debt on the loan claim: Wiese had argued that because Sars had not initiated an assessment prior to the loan being distributed, there was therefore no tax debt as it was only due once Sars had made an assessment.
According to the Tax Administration Act, “if a person knowingly assists in dissipating a taxpayer’s assets in order to obstruct the collection of a tax debt, 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”.
Wiese’s argument was, however, that in order for there to be a “tax debt”, Sars was required first to issue an assessment to the taxpayer.
The dispute arose when UK-listed Tullow Oil and its subsidiaries restructured its African operations in January 2007. Prior to the restructure, Energy Africa was part of Tullow. Titan sold its shares and claims in Energy Africa Holdings (EAH) to Tullow Overseas Holdings BV on January 25, 2007. The tax return for that period did not raise any liability for capital gains tax.
Sars then conducted an audit on the Tullow deal and based on this audit, in 2012, it told Energy Africa that it intended to adjust the 2007 income tax assessment. This would result in the inclusion of capital gains tax of R453.13m on the disposal of a subsidiary. Sars would also raise secondary tax on companies of R487.21m.
The audit findings were opposed by Titan. On April 19, 2013, Energy Africa disposed of its sole asset by declaring a dividend in specie in favour of Elandspad.
In the latest court appeal, the same issues were dealt with, namely whether the term “tax debt” should exist at the time that the dissipation of assets occurs, and whether the transcript of proceedings at an inquiry was admissible upon production in subsequent civil proceedings.
“The determination of the amount of tax due to Sars occurs by way of assessment. An assessment, however, does not establish or impose liability. The liability exists, by operation of law, whether or not there has been an assessment. The definition of the terms ‘tax debt’ and ‘assessment’ bear this out. The tax debt exists, with or without an assessment,” the court ruled.
“It must be emphasised that we are not concerned with what the third party knew or with what constitutes knowing assistance in the dissipation of assets in order to obstruct the collection of a tax debt. That was not the subject of the separated issue. The separated issue was whether ‘tax debt’ was envisaged to refer to an assessed indebtedness at the time of the dissipation,” the court said.
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