PRESERVATION APPLICATIONS IN TERMS OF THE TAX ADMINISTRATION ACT, 28 of 2011
Introduction
Section 163(1) of the Tax Administration Act, 28 of 2011 (the Act), provides as follows:
“A senior SARS official may, in order to prevent any realisable assets from being disposed of or removed which may frustrate the collection of the full amount of tax that is due or payable or the official on reasonable grounds is satisfied may be due or payable, authorise an ex parte application to the High Court for an order for the preservation of any assets of a taxpayer or other person prohibiting any person, … from dealing in any manner with the assets to which the order relates.
Section 163(3) of the Act provides that:
“A preservation order may be made if required to secure the collection of the tax referred to in subsection (1)…”
Section 163(7) of the Act provides for the granting of ancillary orders regarding how the assets must be dealt with, including the appointment of the curator bonis and the realisation of the assets in satisfaction of the tax debt.
The jurisdictional requirements for a preservation order in terms of the Act (“the SARS preservation order”)
The jurisdictional requirements were considered in the judgment in Commissioner, South African Revenue Service v Tradex (Pty) Ltd 2015 (3) SA 596 (WCC) (Tradex). At the time that Rogers J delivered this judgment, section 163(1) did not include the following provision, which was inserted later, but with retrospective effect:
“In order to prevent any realisable assets from being disposed of or removed which may frustrate the collection of tax.”
Jurisdictional requirements
The jurisdictional requirements for a preservation order as enumerated in the Act are as follows:
- The application must be authorised by a senior SARS official (s 163(1));
- A preservation order must be required to secure the collection of tax (s 163(3));
- Tax must either be due, or a senior SARS official must be satisfied on reasonable grounds that it may be due or payable (s 163(1));
- A preservation order can only be granted over realisable assets (s 163(1)); and
- SARS must show that there is a material risk that assets, which would otherwise be available in satisfaction of taxes, will, in the absence of a preservation order, no longer be available (s 163(1)).
The five prerequisites for a SARS preservation order are discussed briefly below.
The application must be authorised by a senior SARS official
The Act determines that powers and duties required to be exercised by a senior SARS official must be exercised by:
- the Commissioner;
- a SARS official who has specific written authority from the Commissioner to do so; or
- a SARS official occupying a post designated by the Commissioner in writing for this purpose.
The preservation order must be required to secure the collection of tax
In Commissioner for the South African Revenue Service v Van der Merwe (WCC case number 13048/13, February 2014) (Van der Merwe), the following was found concerning the requirement that the order must be required to secure collection of tax:
“No necessary implication exists which warrants reading a requirement of necessity into the statute. It follows therefore that for a court to determine whether a preservation order is required to secure the collection of tax in terms of s 163(3), it does not need to be shown that the grant of the order is required as a matter of necessity, or to prevent dissipation of assets. Rather in making the assessment as to whether to grant the order or not, the court must be apprised of the available facts in order to arrive at a conclusion, reasonably formed on the material before it, as to whether the preservation order is required or not to secure the collection of tax. These facts must not amount to a statement of the applicant’s opinion, but must illustrate an appropriate connection between the evidence available and the nature and purpose of the order sought. It is not required of the court to determine whether the tax is, as a matter of fact, due and payable by a taxpayer or other person contemplated in s 163(1) which will be determined by later inquiry. Rather, at the preservation stage sufficient information is to be placed before the court to enable the court to determine whether such an order is required against the persons against whom it is sought.”
In paragraph 32 of Tradex, Rogers J found:
“On a similar approach, preservation of assets could be said to be ‘required to secure the collection of’ if preservation would confer a substantial advantage in the collection of the tax. I venture to suggest that, once one has concluded that a ‘substantial advantage’ has been shown, one could simultaneously conclude that there was ‘an element of need’ sufficient to meet the ‘required’ … test.”
Tax must either be due, or a senior SARS official must be satisfied on reasonable grounds that it may be due or payable
This requirement was interpreted in the Tradex judgment where it was stated that the tax “need not currently be due and payable. A preservation order would be permissible if it appeared that tax in a currently unquantified amount was likely to become due and payable.”
Therefore, tax that “might” become due or payable within the foreseeable future is sufficient to fulfil the jurisdictional requirement if there are reasonable grounds on which SARS could be satisfied that it would become so due and payable. To be “satisfied” does not mean that SARS has to prove on a balance of probability that this will happen in future.
In Madinda v Minister of Safety and Security 2008 (4) SA 312 (SCA), Heher JA remarked as follows:
“The phrase ‘if [the court] is satisfied’…has long been recognised as setting a standard which is not proof on a balance of probability. Rather it is the overall impression made on a court which brings a fair mind to facts set up by the parties.”
Therefore, SARS must show, on the facts available to it, that there is an overall impression that there may be taxes due or payable in the foreseeable future.
A preservation order can only be granted over realisable assets
Realisable assets are defined as assets that can easily be realised, such as movable or immovable property, funds kept in investments or bank accounts, and shareholding in private companies or listed entities.
A preservation order must be granted to preserve realisable assets for the purpose of tax collection
As mentioned above, this requirement was inserted by an amendment which applies with retrospective effect. At the time of the Tradex and Van der Merwe judgments, section 163(1) did not contain this requirement.
However, in Tradex, Rogers J confirmed that SARS need not prove the requirements for an ordinary dissipation order, which necessitates proof of intention to dissipate assets on the part of the person against whom such an order is sought. SARS is, however, required to show:
“…that there is a material risk that assets which would otherwise be available in satisfaction of tax will, in the absence of a preservation order, no longer be available. The fact that the taxpayer bona fide considers that it does not owe the tax would not stand in the way of a preservation order if there is the material risk that realisable assets will not be available when it comes to ordinary execution. An obvious case is that of a company which, believing it owes no tax, proposes to make a distribution to its shareholders.”
In Commissioner, South African Revenue Service v Hamiltonn Holdings 2021 JDR 0460 (GP), the critical question was identified as “whether reasonable grounds exist to believe that there is a real risk of assets being dissipated and thereby frustrate the fiscus’ attempt to collect what is due”.
The appointment of a curator bonis and the granting of ancillary relief
Concerning the appointment of a curator bonis, Ponnan JA found the following in Commissioner, South African Revenue Service v Van der Merwe 2016 (1) SA 599 (SCA):
“In terms of s 163(7) of the TAA a court granting a preservation order may make any ancillary orders regarding how the assets must be dealt with, including appointing a curator bonis in whom the assets must vest. In the somewhat analogous context of financial-service regulation Wallis JA stated in Executive Officer, Financial Services Board v Dynamic Wealth Ltd and Others 2012 (1) SA 453 (SCA) [para 6]:
‘Provided the court is satisfied that the registrar’s concerns are legitimate and that the appointment of a curator will assist in resolving those concerns it will ordinarily be appropriate to grant an order’
This approach is consistent with the Constitutional Court’s judgment in Fraser v Absa Bank Ltd (National Director of Public Prosecutions as Amicus Curiae) 2007 (3) SA 484 (CC) [para 12], which held, in the comparable scenario of restraint orders under the Prevention of Organised Crime Act 121 of 1998 (POCA), that ‘(t)he effect of a restraint order is to place the defendant’s property beyond his or her control and into the hands of a curator bonis pending the outcome of the criminal proceedings.”
Conclusion
SARS has been very effective over the past decade in implementing these provisions as can be seen from the above summary of the relevant provisions. The success of the SARS preservation order is not only attributable to the efficiency of the appointed curator bonis, but is also largely dependent on the competence, experience and efficiency of SARS’ legal representatives.
