Attributing a tax liability of a delinquent company to a representative taxpayer of the company

Abstract

The South African Revenue Service has for many years found it difficult to collect sufficient amount of tax from a limited taxpayer base. It has therefore sought to increase the range of its collections efforts by including in legislation several aggressive collections actions such as attributing a tax liability of a company to its representative taxpayer. It appears from reading the enabling provisions of the Act that the legislature omitted to determine the exact manner in which such tax debt should be attributed. This is precariously done by issuing the representative taxpayer with a notice informing him/ her of his/ her suspected liability and thereafter blindly attributing the tax debt without notice of assessment. If compared to the South African Companies Act, Act 73 of 2008 it becomes apparent that in instances where a director has been found to have violated his fiduciary duties and contributed or caused a debt to be unpaid he would only become liable through the operation of law. Simply an aggrieved party must upon application to the relevant court prove gross negligence, fraud or an unconscionable abuse by the director concerned before the court will deem such person to be liable. The courts have the benefit of decided cases to assist them in making an objective determination whether a person becomes liable or not. Contrary to the South African Revenue Service's its Australian counterpart has through their legislators found it wise to, in similar circumstances, impose a penalty to a suspecting defaulting director. The director would be given a determined amount of time to remedy the default after which, if left unpaid, a penalty equal to the liability would be imposed upon the director. The Australian Tax Authority has also sought to include various defences a suspecting defaulting director may rely on to refute any claim of liability. This approach is seen to be pragmatic and pro-active as it allows the Australian Tax Authority to mitigate any real loss it may incur. In my dissertation, I will evaluate and compare the different approaches of attributing a liability of the delinquent company to its representative in differing fields of law and jurisdictions. In the comparison, it will be shown that the manner in which a tax debt is attributed to a representative taxpayer is just as important for the reason a revenue authority would want to attribute a tax debt to a representative taxpayer. The purpose of the comparison is to highlight the effectiveness of the different approaches and the burden of proof that needs to be overcome by a complaining party. In the dissertation, it will become evident that, despite moral and judicial justification for attributing a tax debt of a delinquent company to its representative taxpayer, there are debilitating shortcomings in the South African Revenue Service's current approach.