A third-party appointment (hereafter referred to a TPA), akin to the fiscus’ Robin Hood, is governed in terms of section 179 of the Tax Administration Act, 2011 (“TAA”).
In essence, the legislation provides a senior SARS official the power to issue a notice to any person who holds for or owes money to a taxpayer. The TPA requires such person to pay the money to SARS in satisfaction of the taxpayer’s outstanding tax debt, instead of to the taxpayer.
SARS’ collection powers are emphasised with this section, as no judgment is required to remove funds from a taxpayer’s bank account or to force the taxpayer’s debtor to pay SARS directly. This must be contrasted with ordinary civil litigation where a judgement is required before a creditor can collect against a debtor.
The double-edged sword of the section, provides that the third party cannot show benevolence towards the taxpayer, as the third party could be held personally liable for the tax debt should they part with the money contrary to the notice.
The TPA ought not to rob the taxpayers of their basic rights as embodied in the Bill of Rights including the right to just administrative action. SARS may upon request, extend the payment period for the third party to allow the taxpayer to receive money for the basic living expenses of the taxpayer and his or her dependants.
In 2015, this section was amended to even the playing field between SARS and taxpayers, in that a TPA “may only be issued after delivery of a final demand for payment which must be delivered at least 10 business days before the issue of the notice.…”. This is a peremptory requirement before the step can be taken to issue a TPA for recovery of an outstanding tax debt.
Prior to this amendment, there was no obligation on SARS to deliver a demand for an outstanding debt before issuing a TPA and taxpayers could be caught off-guard when funds are suddenly removed from their accounts.
The validity of the TPA was recently tested in the matter of SIP Project Managers (Pty) Ltd v CSARS, by the Gauteng division of the High Court.
The key finding of this case is that it is not enough for SARS to prove the existence of a final demand; the letter of demand should be delivered to the taxpayer. Furthermore, it is not lawful for SARS to issue a final demand in respect of a debt that is not yet payable.
A simplified summary of the facts is that:
SARS raised an additional assessment creating a tax liability on the account of the taxpayer in the amount of R1 233 231.00.
The taxpayer only became aware of the tax liability when funds in the region of R1,2 million were removed from his bank account early this year.
According to SARS, three final demands were sent to the taxpayer before a TPA was issued to the taxpayer’s bank. The bank complied with the TPA and paid an amount over to SARS.
The critical consideration in the matter is that the taxpayer denied having received any of the final demands and provided the Court with a screenshot of its e-filing profile to support its contention. SARS failed to deal with this crucial allegation and provided contradictory submissions as to who actually sent the letters or to whom it was sent.
Despite SARS being able to produce the letters of demand, the Court stated that it is not sufficient for SARS to just prove the existence thereof; SARS must be able to demonstrate that it actually sent the final demand to the taxpayer. Where e-filing is used, as in this case, SARS would have to demonstrate that it placed the final demand on the taxpayer’s e-fling profile in order to meet the requirements set out in the Rules for Electronic Communications. SARS failed to prove that the letter of final demand did appear on the e-filing system. The Court therefore found that no final demands were delivered by SARS to the taxpayer.
Furthermore, the Court found the final demand relied upon by SARS was premature and therefore unlawful because the debt was not yet due and payable as the due date for payment on the assessment had not arrived by the time the demand was delivered.
This is a timely reminder that SARS cannot simply do as they please, as they are a creature of statute and should not act outside of the tax Acts.