Fast-track liquidation does not remove the need for sound tax records

Three companies with incomplete records

The companies traded in packaging materials and vehicles, among other things. A tax audit led to corporate income tax assessments and an additional assessment. The inspector based profit adjustments on available bank credits. The companies argued that substantial purchase costs, including cash payments, should also be recognised. Much of the supporting documentation for those costs was missing.

A higher burden of proof

Because the required returns had not been filed, the burden of proof was reversed and increased. The companies therefore had to demonstrate convincingly that the assessments were excessive. References to usual trading margins or retrospective estimates of purchases were insufficient. Bank debits were not automatically enough either, where it was impossible to verify which company and which purchase a payment related to.

The inspector must still make a reasonable estimate

A reversed burden of proof does not allow arbitrary tax assessments. The court therefore examined whether the estimates were reasonable. Bank credits provided objective evidence in this case, and VAT due had been deducted from them. Possible cash receipts had not been included. Given the serious gaps in the accounting records, the court considered the estimates reasonable.

Documented costs were partly accepted

The outcome was not identical for every issue. For one BV, certain purchase invoices and associated bank payments provided sufficient evidence. Its taxable profit was reduced by €6,000 to €272,240. The remaining claimed costs were rejected. This illustrates why original records matter more than a general explanation assembled later: verifiable invoices and payments can directly affect the result.

Review tax affairs before dissolution

When planning closure, list outstanding returns, assessments, receivables and liabilities. Ensure invoices, bank transactions and cash records can be traced to each company and decide who will retain the files. Fast-track liquidation is no substitute for this preparation.

The judgment does not establish a general conclusion on personal liability in every liquidation. It does underline the importance of verifiable records. Oudshoorn can help assess the tax closure together with the legal steps.

More information from Oudshoorn

• Corporate income tax returns
• Restructuring and transactions