6 October 2010

Tax: Does SARS have the authority to attach foreign moveable assets of a South African taxpayer?

SARS is an organ of state within the public administration, but as an institution outside the public service established by section 2 of the South African Revenue Act, 34 of 1997 (the Act).

The main function as provided for by the Act is to collect and administer all national taxes, duties and levies; collect revenue that may be imposed under any other legislation, as agreed on between SARS and an organ of state or institution entitled to the revenue; provide protection against the illegal importation and exportation of goods; facilitate trade; and advise the Minister of Finance on all revenue matters.

Given the wide powers to collect tax by SARS, the question that arises is whether SARS has the authority to enforce its powers as provided for by the Act against overseas movable assets of South African taxpayers. In determining this question, the first issue that has to be determined is whether SARS has the jurisdiction to attach moveable assets outside South Africa.

Jurisdiction has been defined in the case of Ewing McDonald & Co Ltd v M&M Products 1991 1 SA 252 (AD) as the power vested in a court of law to adjudicate upon, determine and dispose of a matter.

It was further held by the court that jurisdiction: "...Does not extend beyond the boundaries of, or over subjects or subject matter, not associated with the court's ordinary territory."

Having regard to the definition of jurisdiction it is apparent that in order for SARS to attach the moveable overseas assets of a taxpayer, SARS will have to first approach a South African court to obtain judgment against the taxpayer and then enforce such judgement in accordance with the rules and/or regulations of the country where the taxpayers assets are located.

In the case Metlika Trading Ltd v Commissioner SA Revenue Services 2005 (3) SA 1 (SCA), the Supreme Court of Appeal (SCA) was asked to consider whether or not the Court a quo had jurisdiction to grant an interdict in respect of an act which was to be performed outside of its jurisdiction.

The SCA was presented with the following facts.

In 2002 an enquiry was done by the Respondent (SARS) pertaining to the income of Ben Nevis Holdings Ltd (Ben Nevis) as a result of the sale of its shares in Specialised Outsourcing. It came to the attention of SARS that all the South African assets of Ben Nevis had been transferred to the First Appellant (Metlika) which was registered in the British Virgin Islands. During 2002, income tax assessments were raised against Ben Nevis in excess of R9,000,000 (nine hundred million rand).

Accordingly and as a result thereof, SARS approached the relevant court and instituted an action for an order declaring that the assets previously owned in the name of Ben Nevis were in fact owned by Ben Nevis and one of these assets was an aircraft. However prior to the institution of the action, SARS obtained a court order authorising the attachment of certain assets and also interdicts preventing the sales of certain assets.

One of the interdicts that were granted was that Hawker Aviation Service (HAS) was ordered to take all necessary steps to procure the return of an aircraft to South Africa. The aircraft was registered to Hawker Aviation Service, to which Metlika was a partner, and was also responsible for the management of the aircraft to and from South Africa.

On appeal the appellants argued that the aircraft was in a foreign country and that the Court a quo had no jurisdiction to order its return to South Africa because such an order infringed the sovereignty of the foreign country concerned and because the Court a quo would be unable to give effect to its order.

The SCA dismissed this argument.

The SCA held that as SARS is an incola (resident), the Court may assume jurisdiction to grant an interdict no matter if the act in question, is to be performed or restrained outside of the Court's area of jurisdiction. The SCA found that the aircraft was registered in South Africa in the name of a south african company (HAS), which was a partner in the partnership that owned the aircraft. It was further held by the SCA that it is clear the intention was that the aircraft be based in South Africa and that its operation to and from South Africa be managed by HAS, and that in such circumstances it was clearly within the power of the new partnership and HAS to procure the return of the aircraft to South Africa. The SCA held that the order that HAS take all necessary steps to procure the return of the aircraft to South Africa does not affect the sovereignty of a foreign court at all, and is an order in personam against a person, which is subject to the Court's jurisdiction and not against third parties.

The order was granted on whether the Court a quo could enforce compliance of the order. The Court found that since the order could be enforced by way of contempt of court proceedings it was sufficiently effective to confer jurisdiction on the Court a quo to grant the order.

In light of the above, SARS does not have the authority to directly attach the assets of a South African taxpayer that are located overseas. It can however approach the High Court to obtain an order in which the South African taxpayer concerned will be ordered to have its moveable assets relocated to South Africa.

Tayob Kamdar, Director and Corne Lewis, Candidate Attorney
Dispute Resolution: Litigation, Arbitration and Mediation

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