DEATH AND TAXES
Nine companies have won a claim against a deceased estate to claw back tax dues that hadn’t been paid over to the revenue service
Nine companies that handed over their VAT dues to an accounting firm for payment to the South African Revenue Service (Sars) were recently left in the lurch when the money disappeared. Worse, the man who headed the accounting firm died, leaving his affairs in a mess.
Surely few things can be more alarming for taxpayers who’ve made careful provision to keep themselves on the right side of Sars than suddenly to find themselves in this position, with everything still owing and all their money gone. So Sydwell Trading and eight other companies in the same boat went to court with a claim against Sean Pillay’s estate.
The nine were all franchisees of The Unlimited Group (TUG), a company that sold short-term funeral, “scratch and dent” and “accident cash” policies to the public.
TUG in turn had an arrangement with accounting firm Sean Pillay & Co. It would pay the company for advisory, financial and taxation services. The accounting firm was supposed to calculate the VAT due by each company and the date on which it was due, and pay over the funds for their VAT bill to Sars.
The nine companies invoiced TUG monthly for the products they had sold, including VAT, and TUG would then pay them their commission and send the VAT portion to Sean Pillay & Co for payment to Sars.
But the nine companies later discovered that Pillay had never sent the VAT returns or paid the VAT to Sars. When he did file, they were nil returns, despite the fact that the companies were actively trading and owed VAT.
After Pillay died, the nine companies brought a court application against his company and against his widow as executor of his estate.
They called TUG, as business partner, to give evidence on how the system had operated in relation to Pillay. At first, TUG said, it had wanted the nine companies to pay their VAT directly. Later, however, everyone agreed that TUG would withhold the VAT due to Sars by the nine companies, and pay it to Sean Pillay & Co. That company, acting for each plaintiff as its registered tax practitioner, would then pay the VAT to Sars.
Ironically, this system was devised because TUG feared that if the franchisees came under financial pressure, they might be tempted to use their VAT collections as bridging finance and not pay them over.
The companies also each paid R1,000 a month to Pillay for the firm’s services. But now they claimed that money back, as Pillay hadn’t dealt with the VAT returns properly or paid the VAT amounts to Sars. “Instead, the monies had been stolen/appropriated by the company and/or the deceased,” they said.
Another witness, a financial manager at accounting specialist Burns Acutt, said he’d been asked to quote on the functions previously carried out by Sean Pillay & Co. After he checked the tax profiles of the nine companies, he found that for the most part Pillay had made no tax returns.
Intent to defraud
The judge hearing the matter, Graham Lopes, said there was no suggestion that the plaintiffs’ witnesses were trying to convey anything but the truth, and he had no hesitation in accepting their evidence, particularly as it was corroborated by documentary evidence.
There was no doubt that the accounting firm and Pillay himself had carried on his business recklessly and with intent to defraud the plaintiffs. All nine had shown that Pillay had stolen money from them that he should have paid over to Sars.
“His actions go beyond recklessness,” Lopes said, adding that his behaviour “relates to deliberate acts of theft and fraud”. As such, the companies were entitled to be reimbursed for the service fees they had paid.
The judge therefore ordered that Pillay’s estate pay the nine the money owed, ranging from R30,000 to R544,673 each, plus interest.