The law of obligations, tax debts, in-solvency, and the dissipation of assets to the prejudice of the fiscus

Abstract

Section 183 of the Tax Administration Act (“TAA”) provides that any person who knowingly assists a taxpayer in dissipating that taxpayer’s assets in order to obstruct the collection of a tax debt of that taxpayer, is jointly and severally liable with that taxpayer for the tax debt to the extent that the person’s assistance in dissipating the assets reduces the assets available to be sold in execution to pay for the tax debt. Considering this provision, the following pertinent question arise: What constitutes a tax debt that triggers the liability of a person who knowingly dissipates the assets of a taxpayer? To answer this question, we consider the definition of a “tax debt” and whether the “tax debt” needs to be due or payable and if so, when does it need to be due or payable? For the evaluation pertaining to “due or payable,” we consider the law of obligations, the position regarding a tax-payer being held liable for his/her own tax debt and third-party liabilities as regard to tax debts. This article is further enriched by a discussion of the impeachable transaction provisions in the Insolvency Act 24 of 1936 as well the scope and application of the actio Pauliana (the common law action for setting aside impeachable transactions). The purpose of the insolvency component is to draw an analogy between the rights of a common creditor in civil proceedings and that of SARS where the debtor (the taxpayer in this case) entered into transactions for the dissipation of assets (or transactions which has the effect that the debtor can no longer pay their debt) which prefers one creditor above another or which is to the detriment of the creditor(s).