Moving the business does not necessarily leave the tax debt behind

---

Moving the business does not necessarily leave the tax debt behind

• 27 October 2026
• Tax Administration
• Dr Stiaan Klue

Source: Monthly Tax Update, Professor Jackie Arendse, October 2026. Webinar-on-Demand: Monthly SARS Update with Prof Jackie Arendse - October 2026

At a glance

Tax accountants advising on a business transfer must look beyond the purchaser’s opening balance sheet. Commissioner for the South African Revenue Service v Africa Cash and Carry (Crown Mines) (Pty) Ltd and Another concerns a transfer that left the operating business in a connected entity while the original company’s substantial tax debt remained unresolved. The court held the recipient liable and treated its separate personality as unavailable for the specified recovery purpose.

The lesson is not that every group restructuring attracts another company’s liabilities. The judgment turns on the transfer’s facts, common control, the absence of consideration, deliberate exclusion of the debt and a subsequent undertaking. Those features must be analysed separately rather than compressed into a general assertion that related companies share tax debts.

The agreement was only one part of the liability record

Africa Cash and Carry (Pty) Ltd (ACC) had been assessed for earlier tax periods. Its business and assets were transferred to Africa Cash and Carry (Crown Mines) (Pty) Ltd (Crown Mines) under an agreement concluded on 31 December 2013. The South African Revenue Service (SARS) contended that the transaction was designed to frustrate recovery. The court found that the same interests controlled both entities and that Crown Mines continued the business under another name.

A further instrument proved important. On 25 September 2015, representatives acting for Crown Mines gave a conditional undertaking accepting liability for specified ACC tax liabilities once the pending litigation established them. The court treated that undertaking as binding. The underlying tax dispute ultimately reached the Supreme Court of Appeal, whose judgment was delivered on 21 November 2019; the relevant finality date for the undertaking analysis was 13 December 2019.

Due diligence confined to the signed sale agreement would therefore have been incomplete. A liability review should include objections, appeals, preservation proceedings, correspondence with SARS, undertakings by authorised representatives and the factual basis of any contingent liability. An unresolved assessment may be disputed for accounting purposes and still be central to the commercial risk of the transfer.

Client conversation trigger: Before a connected business transfer, require the seller and purchaser to identify every outstanding assessment, tax proceeding and undertaking affecting the assets or historical tax debt.

Distinct recovery routes must remain distinct

Section 182 of the Tax Administration Act addresses an asset received from a connected taxpayer for no consideration or consideration below fair market value. The liability is limited by the statutory comparison between the relevant tax debt and the asset’s value less qualifying consideration. It is not an automatic transfer of every liability in an unlimited amount.

For illustration only, assume that all section 182 requirements are met, the relevant debt is R8 million, and an asset worth R5 million is transferred for R1 million. The value shortfall is R4 million. On those assumptions, section 182’s monetary limit is the lesser of R8 million and R4 million: R4 million. This illustrates the limitation; it does not establish that the notice, timing or connected-person requirements have been met in any actual transaction.

Section 183 addresses a different case: knowing assistance in dissipating assets to obstruct collection. Section 184 regulates recovery and an opportunity to make representations. Section 20(9) of the Companies Act, in turn, permits a court to respond to unconscionable abuse of separate juristic personality. In Crown Mines, the court found such abuse and granted relief specifically for recovery of ACC’s indebtedness.

The accountant’s work should identify which route is alleged and what facts support each element. A fair-value valuation helps address one element of section 182; it does not answer an allegation of knowing dissipation under section 183 or dispose of a separate contractual undertaking.

Client conversation trigger: Where tax arrears coexist with a group asset transfer, prepare an exposure memorandum addressing consideration, valuation, control, purpose, creditor effects and existing undertakings before implementation.

The notice finding requires careful treatment

Section 182(3) contains a one-year requirement linked to receipt of the asset and notification of transferee liability. The court found that the preservation application did not constitute the required formal notice and that the later letter was out of time. It nevertheless held that Crown Mines had substantive notice in the circumstances and considered the jeopardy to collection when addressing representations.

This is a particularly sensitive part of the reasoning. It should not be presented as a general rule that SARS can disregard the statutory period whenever a transferee knows of a tax dispute. Nor does mere knowledge of the seller’s disputed liability establish compliance with every notice requirement. The judgment’s conclusion must be read with its exceptional facts and the other bases supporting relief.

For a live matter, preserve the entire notice history and obtain advice on the precise procedural issue. For transaction planning, compliance should be designed around the legislation, rather than an expectation that a procedural defect will defeat recovery after assets have moved.

Client conversation trigger: When a purchaser receives a transferee-liability claim, establish the asset-receipt date, each communication relied on as notice and the opportunity for representations; escalate disputed compliance promptly.

Three different clocks

Section 99 concerns time limits for assessments. Section 171 concerns the recovery of established tax debt. A contractual undertaking has its own accrual enquiry, including any condition that must be fulfilled before performance becomes due. Treating these as a single “three-year prescription” issue can produce a seriously defective opinion.

The court applied section 171’s fifteen-year recovery framework and also concluded that, even on the alternative three-year analysis, the proceedings instituted on 2 November 2022 were timely. The conditional undertaking became due only after the tax litigation reached finality. The court ultimately imposed joint and several liability for R1,499,692,534.63, with interest from 21 November 2019, and attorney-and-client costs including three counsel.

A defensible prescription schedule must identify the cause of action and legally relevant event for each claim. Recording the original assessment date alone is insufficient for an undertaking contingent on litigation, and the judgment should not be converted into a universal rule that every recovery clock begins with the last appeal.

Client conversation trigger: For old tax debts, obtain a separate dated analysis of assessment validity, statutory recovery and any undertaking before advising that liability has prescribed.

Practitioner action checklist

Related reading: Determining the tax consequences of director loan accounts; Paying a connected company’s costs: when the deduction belongs nowhere on your return; Frozen bank accounts: what Dumakude requires the tax accountant to prove.

Official source: Tax Administration Act 28 of 2011 (South African Government).

Frequently asked questions

Can SARS recover a tax debt from the company that took over the business?

In Africa Cash and Carry the court held the connected recipient liable and pierced the corporate veil for recovery. The judgment turned on common control, nil consideration, deliberate exclusion of the debt and a later undertaking.

Does every group restructuring transfer tax liabilities?

No. The lesson is not that every group restructuring attracts another company’s liabilities. The facts must be analysed separately rather than compressed into a general assertion.

What should due diligence on a business transfer include?

More than the sale agreement. Review objections, appeals, preservation proceedings, SARS correspondence, undertakings by authorised representatives and any contingent liabilities.

Build your expertise: to apply these principles in practice, explore The Tax Faculty’s Short Course in the Fundamentals of Corporate Income Tax.

About the author

Dr Stiaan Klue is Executive Dean and CEO of The Tax Faculty. He was the founding CEO of the South African Institute of Taxation (SAIT) and is the founding author of Silke on Tax Administration (LexisNexis).

0 COMMENTS

LEAVE A COMMENT