Third Party Appointment

THIRD PARTY APPOINTMENTS UNDER SECTION 179 OF THE TAX ADMINISTRATION ACT

The Tax Administration Act ("TAA") was enacted, amongst other things, to provide for the effective and efficient collection of tax and to determine the powers and duties of SARS in doing so. Section 179 of the TAA relates to the recovery of tax by SARS and authorises SARS to collect a tax debt through third parties by issuing a Third Party Appointment ("TPA") Notice against the taxpayer's bank account or debtors.

Section 179(1) enables SARS to issue a TPA Notice to a third party who holds money on behalf of the taxpayer, such as a financial institution, or a party that owes money to a taxpayer such as a taxpayer's debtors and clients. The TPA Notice will be issued to the bank or customer, as an example, and the bank or customer will be obliged (subject to certain circumstances) to pay funds over to SARS in satisfaction of the taxpayer's debt, even in instances where the debt is under dispute.

There are however a certain set of jurisdictional factors that SARS needs to consider in order to carry out this collection power in a procedurally fair manner. Section 179(5) gives rise to a duty that SARS may only issue the TPA Notice after it has delivered a Final Demand for payment to the taxpayer. The Final Demand must be delivered at least 10 business days before the issue of the TPA Notice. Furthermore, the Final Demand must set out the recovery steps that SARS may take if the tax debt is not paid and also indicate to the taxpayer the debt relief mechanisms available to it under the TAA.

In the recent case in the Pretoria Tax Court of SIP Project Managers (Pty) Ltd v Commissioner for South African Revenue Service 82 SATC 306, the taxpayer applied to the court for the setting aside of a TPA Notice and an order declaring that the TPA Notice was null and void. The taxpayer contended that SARS failed to comply with its obligation under s179(5) by not delivering a Final Demand to the taxpayer before the TPA Notice was issued.

SARS could at best only show the court that the Final Demand was generated. The court found however that the actual delivery of the Final Demand to the taxpayer is required to show compliance, whether the delivery is physical or electronic. Since SARS could not prove delivery of the Final Demand, the court held that the TPA Notice to the taxpayer's bank was thus null and void.

The court remarked that the obligations under s179(5) were clearly introduced to limit SARS' power to recover a tax debt through the appointment of a third party.

The powers conferred upon SARS in the execution of its statutory duties are not absolute and must comply with constitutional requirements imposed by section 33 of the Constitution, read with the Promotion of Administrative Act 3 of 2000. Failure to do so can easily lead to the judicial review and setting aside of its administrative actions.

If SARS has issued a TPA Notice to a third party related to you and you are unsure whether this has been done lawfully and validly, feel free to contact our offices for assistance.