The case provides valuable guidance to businesses on how to manage their tax positions with linked companies, safeguard operational continuity, and maintain transparency when engaging with SARS, particularly where there is linked entity non-compliance.
Understanding the Factual Matrix
Africa Cash and Carry (“Cash and Carry”) had accumulated substantial tax debt, in the region of R6.5 billion, across multiple years of assessment. During the period in question, Cash and Carry transferred its business operations, assets, systems, and staff to a related entity, Africa Cash and Carry (Crown Mines) (Pty) Ltd (“Crown Mines”). SARS viewed this as a transfer that undermined its ability to recover lawful revenue and pursued both companies for liability of the tax debt.
From a corporate governance standpoint, the case demonstrates how closely SARS examines the relationships between related entities, particularly when considering tax debt relief which may be available to a burdened taxpayer, and especially where business operations continue without interruption after a significant restructuring event.
Corporate decisions that appear commercially sound must always be assessed against their tax consequences, as SARS will scrutinise any transaction that removes value from a taxpayer during a period of unpaid tax. This serves as a stark alert to taxpayer’s considering utilisation of tax debt relief mechanisms and the importance of means analysis testing prior to application for available relief.
Tax Debt Relief Options Remain Available
For taxpayers’ having trouble settling their tax liabilities, the Tax Administration Act, No. 28 of 2011 (“TAA”), sets out various relief mechanisms such as suspensions of payment, Deferral arrangements, and Compromise requests. Throughout the Cash and Carry timeline stretching back to the early 2000s, repeated requests for these forms of relief were made. Initially SARS granted some but later revoked concessions when asset transfers and structural changes contradicted the information provided.
A suspension of payment prevents SARS from proceeding with collection steps where a taxpayer has filed a dispute or intends to file a dispute, yet it remains conditional. In this case, once assets were moved out of the entity, SARS withdrew the suspension due to the risk of dissipation of assets.
Deferred payment arrangements offer temporary cashflow relief, but these rely on full disclosure and a proven ability to meet instalments. Any dissipation of assets or unexplained transfers quickly undermines the credibility of the request.
A Compromise of tax debt, the most generous form of relief, allows SARS to reduce the debt where full recovery is not feasible. This involves SARS writing off interest and penalties and allowing the burdened taxpayer to settle the capital liability due. However, it is granted only after a rigorous means analysis that examines the taxpayer’s entire financial position and the conduct, as well as compliance, of related or linked parties.
Tax debt relief is never automatic. It depends on transparent engagement with SARS, verifiable financial data, and conduct that aligns with the information supplied. A proper means analysis before applying for relief ensures that the request is accurate and reduces the risk of SARS withdrawing concessions when inconsistencies arise.
It is also crucial to ensure that linked or related entities are compliant when engaging with SARS, to avoid the risk of any form of relief being declined due to linked entity non-compliance.
Means Analysis as the Foundation of Tax Relief
A consistent theme throughout the Cash and Carry case is the importance of means analysis. SARS evaluated the financial records of both entities, considered the valuations of business assets, and reviewed the movements of funds and operational responsibilities between the companies. This process allowed SARS to determine whether the group genuinely lacked the ability to pay or whether the financial distress presented was inconsistent with the facts.
Means testing protects the integrity of the tax system and further educates a taxpayer’s eligibility for tax debt relief. It ensures that relief is granted to businesses that demonstrate genuine inability to pay, while discouraging attempts to restructure affairs in a manner that reduces the prospect of lawful recovery.
The case reinforces that means analysis is not a formal requirement alone but a fundamental part of corporate responsibility.
Corporate Structures Must Support Compliance
Although the Cash and Carry matter has been before the courts for several years, it remains ongoing. SARS recently brought an interlocutory application for the admission of certain evidence in the main application to recover the outstanding tax debt – once again drawing attention to the importance of correctly managing tax positions with linked companies.
The continuing legal battle confirms that SARS will look beyond separate registrations where companies within the same group share staff, shareholding, systems, leadership, and trading activities. If assets move from one entity to another while tax remains outstanding, SARS may investigate whether the restructuring served a legitimate business purpose or undermined its ability to recover debt.
Businesses should therefore ensure that corporate restructuring is always accompanied by full documentation, clear commercial rationale, and an accurate reflection of how such changes affect tax compliance.
Due Diligence Is a Must
Companies should assess their current frameworks and ensure that their internal processes provide clear visibility into group structures, asset movements, and financial capacity. Any organisation that may be at risk of accumulating significant tax debt should prepare for timely engagement with SARS, supported by complete financial information and a credible means analysis to confirm their eligibility, as well as the possible risk of linked entity non-compliance. To fall short of this requirement is to fall short of potential tax debt relief being afforded to a taxpayer.
Businesses that act early, disclose fully, and plan responsibly, retain access to the relief measures offered by the TAA. Those that do not, risk heightened enforcement, increased financial exposure, reputational consequences and closing the door on possible relief.
However, this is not a road that must be walked alone, as taxpayers are encouraged to engage with reputable practitioners to review their current financial circumstances, assess linked entity compliance, and aid in obtaining tax debt relief which may be available.
