SARS’s tax collection powers strengthened – will enforcement get tougher?

Taxpayers looking to challenge the South African Revenue Service’s authority to repatriate foreign assets to settle tax debts may find themselves on shaky legal ground. A recent ruling by the High Court in Pretoria has reinforced SARS’s ability to obtain such orders – provided they meet the legal requirements – making constitutional challenges unlikely to succeed.

SARS Commissioner Edward Kieswetter welcomed the judgment, delivered on 12 February, in Greyvensteyn v Commissioner for SARS and Others, which upheld the constitutionality of the Tax Administration Act (TAA).

The ruling follows a provisional preservation order granted in February 2023 under section 163 of the Act, which authorised the repatriation of Andries Greyvensteyn’s foreign assets and restricted his right to travel.

Greyvensteyn was previously implicated in a multibillion-rand VAT fraud scheme involving Rappa Resources, a Germiston-based gold trader. According to a 2022 amaBhungane report, SARS uncovered an illicit gold export scam in which two companies fraudulently claimed R24.4 billion in VAT refunds between 2012 and 2020. Rappa was one of these companies, having its VAT refunds withheld and later facing a R7bn tax assessment.

Greyvensteyn’s involvement stemmed from his role as a founding director of Northern Spark Refinery, Rappa’s top gold supplier. Northern Spark allegedly funnelled Krugerrands into the scheme, disguising transactions with fictitious suppliers to inflate VAT refund claims. Greyvensteyn, who was convicted in 2021 for illegal dealing in unwrought precious metals, is also a director of Gold Kid Trading, another key supplier to Rappa.

In the recent court case, Greyvensteyn challenged the constitutionality of sections 180, 184(2), and 186(3) of the TAA, arguing they infringed on his right to access the courts (section 34) and right to freedom of movement and trade (sections 21 and 22). However, the court found SARS’s actions to be lawful and justifiable, ruling that:

• SARS’ decisions under sections 180 and 184(2) are administrative actions subject to judicial review under the Promotion of Administrative Justice Act (PAJA).
• Section 186(3), which allows for the repatriation of assets and travel restrictions, is reasonable and justifiable in an open and democratic society.

The court dismissed Greyvensteyn’s application with costs, including those of four counsel.

Kieswetter hailed the ruling as a landmark decision that “reaffirms SARS’s legal authority to discharge its work of collecting all revenue due to the state in an efficient and effective manner”.

He added: “Importantly, was the court’s reiteration that the provisions that allow SARS to determine third-party liability, repatriation of foreign assets and restrictions of travel are lawful and constitutional. SARS will continue to provide certainty and clarity to taxpayers, while making it easy and simple to transact with the organisation. However, SARS will vehemently oppose any action by the taxpayer intended to undermine its mandate.”

Greyvensteyn has the option to appeal the judgment. Alternatively, he can apply to the court to prevent the provisional preservation order issued in February 2023 – which included the repatriation order – from being made final. (This constitutional challenge was filed after the provisional preservation order was granted.)

The crux of the judgment

Louis Botha, a tax and exchange control specialist at WTS Renmere, says the judgment sets a precedent as far as the constitutionality of the challenged provisions goes.

Although SARS’s powers are not absolute, the judgment confirms that the agency can enforce tax compliance without infringing constitutional rights.

“The crux of the judgment is that the provisions in the Tax Administration Act, 28 of 2011 (TAA) regarding third-party liability and repatriation of foreign assets that were challenged by Greyvensteyn are constitutional.”

In other words, he says, unless the judgment is appealed, SARS can exercise its powers under the TAA to enforce payment through third-party liability or request the court to order the repatriation of foreign assets, provided it meets the requirements in a particular case.

“For example, for third-party liability to apply, one of the requirements is that SARS must be satisfied that the third party acted negligently or fraudulently and that the third party’s conduct led to the taxpayer acting fraudulently and negligently in respect of the payment of tax debts.

“The taxpayer will have an opportunity to make representations in response to SARS’s allegations and intention to apply the third-party liability provisions. If SARS still decides to apply the third-party liability provisions after considering the taxpayer’s representations, the taxpayer can take SARS’s decision to court on review,” Botha explains.

Practical implications of the judgment

Botha explains that, in practical terms, taxpayers facing an order to repatriate foreign assets to settle tax debts are unlikely to succeed in challenging the constitutionality of SARS’s right to obtain such an order – provided SARS meets the legal requirements.

“Although one of the grounds for the constitutional challenge to the repatriation provision – the ground of alleged unfair discrimination – was rejected on a technicality, a taxpayer in another case wishing to rely on this ground for a constitutional challenge would likely have to make a compelling argument.”

He says that in respect of the asset repatriation provisions (which also allow the court to limit a taxpayer’s travel outside South Africa and handover his or her passport), the court found that although this infringes on the constitutional rights to freedom of movement and practising one’s trade, the infringement was justifiable.

“This is based on section 36 of the Constitution that a legal provision will only be unconstitutional if it unjustifiably infringes on a constitutional right. One of the reasons for the justification, in this case, was that there were not any less restrictive means to fulfil the purpose of the provision, namely securing payment for the taxpayer’s tax debts.”

Taxpayers should also keep in mind that repatriation orders can be granted only if there are not sufficient assets in South Africa to cover outstanding taxes, Botha says.

“There are few reported instances of such orders being granted, likely because they also require SARS to use more resources, so SARS would likely apply for such an order as a last resort or if expending the resources to obtain such an order made financial sense.”

One of the rare cases where SARS sought the repatriation of foreign assets involved Angelo Agrizzi, the former Bosasa chief operating officer.

Following Agrizzi’s testimony before the Zondo Commission, SARS launched an inquiry into his affairs, suspecting fraud, money laundering, racketeering, and tax evasion. Agrizzi was subsequently hit with a tax bill of about R230 million, which SARS sought to recover.

In Commissioner for the South African Revenue Services v Angelo Agrizzi and Another, the court considered two applications. The first, brought by SARS, sought a compulsory order under section 186(2) of the TAA for the repatriation of Agrizzi’s foreign assets in Italy to settle his tax debts. The second was a counter-application by Agrizzi, challenging SARS’s refusal to suspend his assessed tax liability under section 164 of the TAA.

“In that case, the court declined to grant the order, one of the reasons being that it would have resulted in a material change to his bail conditions,” says Botha.

Will SARS take a tougher stance on tax recovery after court ruling?

Botha says that whether SARS will make greater use of third-party liability or repatriation provisions will depend on the specifics of each case. He explains that in both instances, certain requirements must be met, and SARS must provide sufficient proof.

“SARS will more likely use these only once other, simpler tax collection remedies provided for in the TAA have been exhausted and there are still taxes outstanding, such as issuing a final demand and subsequently a third-party notice to a bank to pay over a taxpayer’s funds to SARS to settle the debt.”

He notes that a judgment like this could encourage SARS to be more assertive in using these remedies when the circumstances justify it.

“The recent opinions expressed by Commissioner Kieswetter regarding increased tax collections to boost revenue may also indicate that SARS would be more willing to use third-party liability and repatriation remedies if the circumstances justify it and they believe the requirements would be met,” says Botha.