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SARS and Business Rescue – Part 2

November 20, 2015

Often, in Business Rescue matters audited financial statements are not available to support submitted returns to SARS and the internal accounting records are inadequate.


The timeframes for the compilation of the initial assessment of the business by the Business Rescue Practitioner (BRP) and the subsequent business rescue plan preclude an in-depth tax compliance review, detailed reconciliation of the various tax submissions to the accounting records and a comprehensive assessment of tax risk.

A high-level review of tax risk must be undertaken by the BRP prior to the compilation of the business rescue plan. The outcomes of the review must be included in the plan. The review should cover the tax due and the compliance with the provisions of the Tax Administration Act.

Business rescue provisions that result in the ability to treat SARS differently in rescue from how it would be treated in insolvency creates an opportunity to restructure the financial affairs of a business in a manner contrary to the legitimate interest of SARS in respect of agency taxes such as Vat and PAYE.

Schemes to restructure businesses in this manner may fall foul of the various anti-avoidance provisions contained in the Income Tax Act Number 28 of 1997 and the Tax Administration Act. The concern about this restructuring potential becomes especially relevant where a large write-off of debt by SARS is contemplated.

The BRP takes control of the company in business rescue and, as such, the BRP becomes the person in overall charge of the business and its administration. In terms of the Tax Administration Act the BRP becomes liable for the proper administration of the tax affairs of the business. According to the Short Guide to the Tax Administration Act, 2011 (paragraph 10.2.4), the BRP then becomes a representative taxpayer.

It must be noted that the concept of a “public officer” no longer applies in the Companies Act. The term representative taxpayer is used instead.

Extract from TMA Practice note.

Disclaimer: The contents and information provided above are generalised and must not be acted upon as legal advice.