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Facts
The dispute mainly pertains to assessments raised by SARS against the Applicant for the 2005 to 2011 years of assessment, totalling the amount of R18,192,295.36 including interest. The Applicant objected to the assessments and alleged that the amounts in question constituted donations or dividends in respect of which the Applicant could not be assessed for tax.
The Applicant requested a compromise from SARS on four occasions. Following three failed attempts to conclude a compromise agreement, the Applicant and SARS finally concluded such an agreement on 21 May 2014 (Agreement). The final date to comply with the Agreement was 30 November 2014. By 1 December 2014, the Applicant had paid the amount stipulated in the Agreement and thus complied with his payment obligations.
On 13 March 2015, SARS contended that it was no longer bound by the Agreement as the Applicant had not, as was required by the Agreement, made full, verifiable and complete disclosure of all material facts nor kept his tax affairs current. It is also important to note that the Applicant was provisionally sequestrated on 11 February 2014 - between his second and third attempts to conclude a compromise agreement.
Section 205 of the TAA states that SARS is not bound by a compromise if:
With these considerations in mind, SARS argued that it was no longer bound by the Agreement, as the Applicant had failed to:
The Applicant further made misstatements in the request for the compromise, for instance that he was the beneficiary of the JSM Trust which had failed to keep its tax affairs in order. In addition, he failed to disclose an alleged interest in a certain property (Bendor property).
SARS further argued that the Applicant had unequivocally accepted liability for the 2011 and 2012 assessments. The Applicant disputed this, stating that the amounts were not taxable as income in his hands as they were dividends or donations.
The Applicant’s main arguments can be summarised as follows:
The court stated that the real dispute between the parties was how the dividends and donations received should be classified. The Applicant argued that the donations were made out of generosity or disinterested benevolence and that the dividends were not taxable, whereas SARS argued that the donations and dividends were income. The dispute appeared to be a purely factual one and it was difficult to assess whether the Applicant had not made a full and frank disclosure as alleged by SARS.
The court made the following observations regarding applicable provisions in the TAA and their interpretation:
Matter referred to trial
The court accepted SARS’s argument that the alleged non-disclosure regarding the Bendor property was intentional and that such fraud is material, but questioned why SARS had still entered into the Agreement even though it was aware of the Applicant’s interest in the property. The court appeared to disagree with SARS’s argument that any misstatement or failure to make a disclosure would automatically be material.
The court finally held that, because of the factual disputes, the necessity for SARS to justify its argument regarding materiality by proving the facts that were attendant when the Agreement was entered into and because of the fact that one cannot decide the issue of fraud on affidavit, the matter should be referred to trial. The court indicated that it did not wish to express an opinion on which interpretation of s205 is correct.