His article deals with the manner in which the number of days in which to lodge an objection are to be calculated as well as certain aspects of the rules governing objections and appeals.
The Manner in which the Number of Days in which to Lodge an Objection are to be Calculated
The rules regulating objections and appeals are now very much time driven, and thus it is important that taxpayers remember the number of days within which they are entitled to reasons for the assessment issued and also the period within which the objection is to be noted.
The rules refer to “days”, and section 83(23) of the Act states as follows:
“Any reference in this Part and the rules to “day” means any day other than a Saturday, Sunday or Public Holiday; Provided that the days between 16 December of a year and 15 January of the following year, both inclusive, shall not be taken into account in determining days for the period allowed for complying with any provision in this Part or the rules.”
The taxpayer is fully entitled, as pointed out earlier, to insist on proper reasons for the assessment received, and is entitled thereto within a period of 30 business days from the date of the request.
Where the reasons supplied by the Commissioner are sufficient, the taxpayer is required to note an objection within 30 days of the date of the assessment concerned. The thirty days will commence from the first date on the notice of assessment date, that is form IT34. Where, however, the Commissioner: SARS has issued a letter that purports to be an assessment, it is safer to work on the 30 days as commencing from the date of the letter concerned, as opposed to the date upon which the actual notice of assessment is received. This aspect has been discussed previously at length.
A Brief Overview of the Objection and Appeal Process and the Options Available to the Taxpayer to Proceed either to ADR, the Tax Board or the Tax Court or Attempt to Resolve the Matter under the Settlement Rules
The Act allows for the taxpayer to note an objection against an assessment and in order to do so the taxpayer must complete form ADR 1 and set out the detailed grounds of objection on the ADR 1, or in a separate letter. It is necessary to complete an ADR 1 for each assessment.
Where the taxpayer relies upon a legal advisor or accountant to submit the detailed grounds of objection, SARS insists that the taxpayer must personally sign the form ADR 1. A taxpayer is bound to the grounds of objection submitted at this stage, and cannot add thereto later.
In addition, the Commissioner: SARS will require that the taxpayer signs a Power of Attorney in favour of the advisor confirming that he/she is authorised to act for the taxpayer in respect of the objection.
The writers firm has previously obtained a power of attorney signed by the taxpayer and completed the ADR1 on behalf of the taxpayer. SARS has come back to us and advised that it requires the form ADR1 to be signed by the taxpayer personally, in the case of a natural person, or by the public officer of a company, or a director, who has been duly authorised by hisher board to sign the form in question.
If the objection has been disallowed, the taxpayer must complete form ADR2 if he/she wishes to challenge the decision to disallow the objection. The matter can then proceed either to Alternative Dispute Resolution (ADR), the Tax Board where the amount in dispute does not exceed R500 000, or the Tax Court.
The writer has on a number of occasions, requested that a dispute be referred to ADR only to be advised by the Commissioner: SARS’s local office that the matter is inappropriate for ADR and should proceed directly to the Tax Court. The new rules regulating the objection and appeal process prescribe a number of days within which certain events are required to happen and, unfortunately, it appears that in many cases the time frames are not being adhered to.
Once the Commissioner has taken a decision to allow the objection, the matter will come to an end and a revised assessment must then be issued by the Commissioner in conformity with the decision made by SARS in favour of the taxpayer.
It must be remembered that, despite the fact that a taxpayer has succeeded in his/her objection, the matter can be reviewed and revisited by the Commissioner within a period of three years.
This is what happened in the case of Carlson Investments Share Block (Pty) Ltd vs Commissioner: SARS (63 SATC 295). The sections regulating the objection procedures read together with section 79 specifically allows the Commissioner to review a matter even though an objection has already been allowed. The only time that a taxpayer obtains finality is where the Tax Court has ruled on the matter and he/she has succeeded with their appeal.
Thus, even though a taxpayer may succeed with a matter in objection, it does not mean that that is the end of the matter. The Commissioner can review the matter within a period of three years in accordance with the provisions of section 81 and section 79 of the Act.
The flowchart made available by the Commissioner setting out the steps involved in the objection and appeal process can be useful. Once the taxpayer has received notice of the disallowance of his/her objection, he/she is entitled, within a period of 30 business days, to note an appeal against the decision and request that the matter be referred either to the Tax Board or the Tax Court or Alternate Dispute Resolution.
In certain cases, it may be appropriate to try and settle a dispute under the provisions contained in sections 88A to 88H of the Act found in a new part of the Act, new Part IIIA of the Act.
The purpose of the settlement rules is contained in section 88B of the Act. That section states as follows:
“1. The basic principle in law is that it is the duty of the Commissioner to assess and collect taxes, duties, levies, charges and other amounts according to the laws enacted by Parliament and not to forego any such taxes, duties, levies, charges or other amounts properly chargeable and payable.
- Circumstances may, however, require that the strictness and rigidity of this basic principle be tempered where it would be to the best advantage of the State.
- The purpose of this part is to prescribe the circumstances whereunder it would be inappropriate and where only it would be appropriate that the basic rule be tempered and for a decision to be taken to settle a dispute.”
Where the taxpayer has evaded tax, the settlement rules will not be applicable in accordance with the provisions of section 88C of the Act.
Section 88D of the Act sets out those circumstances where it may be appropriate to settle a dispute, as follows:
“The Commissioner may, where it would be to the best advantage of the state, settle a dispute, in whole or in part, on the basis that it is fair and equitable to both the person concerned and the Commissioner, having regard to inter alia –
- whether that settlement would be in the interest of good management of the tax system, overall fairness and the best use of the Commissioner’s resources;
- the cost of litigation in comparison to the possible benefits with reference to –
(i) the prospects of success in the court;
(ii) the prospects of collection of the amounts due; and
(iii) the cost associated with collection;
- whether there are any –
(i) complex, factual or quantum issues in contention; or
(ii) evidentiary difficulties, which are sufficient to make the case problematic in outcome or unsuitable for resolution through the alternative dispute resolution procedures or the courts;
- a situation where a participant or a group of participants in a tax avoidance arrangement has accepted the Commissioner’s position in the dispute, in which case the settlement may be negotiated in an appropriate manner required to unwind existing structures and arrangements; or
- whether the settlement or the dispute will promote compliance of the tax laws by the person concerned or by a group of taxpayers or a section of the public in a cost-effective way.”
Where, for example, the taxpayer has insufficient documentary records or is party to a scheme similar say to film schemes, plantation schemes and other types of arrangements, the Commissioner would be empowered to settle the dispute under the rules contained in Part IIIA of the Act.
The Act contains defined procedures to be followed where a dispute is to be settled under the rules, and the manner in which details thereof are to be reported to the Auditor-General and the Minister of Finance.
The writer is of the opinion that the new rules are better than those previously in place in so far as objection and appeal procedures are concerned. Once taxpayers and the Commissioner become more familiar with the rules, the procedures should become more streamlined and more efficient.
Taxpayers have obtained a number of rights that they did not have before as a result of the enactment of the Final Constitution and in particular the Bill of Rights contained therein. However, it must be remembered that the rights contained in the Final Constitution are capable of limitation by a law of general application in accordance with the limitation of rights provision contained in section 36 of the Final Constitution. In arguing a case regarding an abuse of rights, taxpayers need to approach a court with clean hands and show that they have complied with their obligations and that the Commissioner has abused the powers conferred on him.
It does unfortunately happen that certain officials exceed the boundaries of the powers that they have. This conduct cannot be condoned and action must be taken against such officials, either by lodging complaints with the SARS Service Monitoring Office or by approaching the High Court for relief. The obligations that taxpayers have in this country have increased recently, and it is important that taxpayers are fully aware of such obligations that they face in the tax arena. The possibility now of obtaining binding tax rulings should improve and assist in securing certainty in tax matters in this country, as is the case in many countries around the world. The Commissioner is also increasing the information required from taxpayers and from third parties regarding taxpayers in order to ensure that full and proper disclosure is made. It is important that the disclosure of information in these cases is properly controlled and is not abused in any way. The new objection and appeal procedures should improve the speed with which disputes between taxpayers and SARS are resolved.
Beric J Croome BCom, BProc, LLB, FCMA, H Dip Tax Law (cum laude), CA(SA) Advocate of the High Court of South AfricaTax Executive – Edward Nathan Sonnenbergs Inc