As Treasury seeks to narrow the gap between revenue and expenditure, tax controversy and dispute resolution gains importance. We set out below the importance of ensuring that your SARS dispute gets resolved.
Taxpayers aggrieved by a SARS assessment or decision, have the right to object against assessments and decisions within the parameters set by the Tax Administration Act, 2011 (the TAA). In terms of the TAA, and certain other provisions, a taxpayer may object against an assessment or decision which must be delivered to the Commissioner within 30 days after –
- Date of assessment or decision if no reasons for the assessment are requested by the taxpayer;
- Delivery of a notice by SARS stating that adequate reasons for the assessment has been provided; or
- Delivery of a notice by SARS providing the reasons for the assessment as requested by a taxpayer.
SARS regards an objection not delivered within this 30-day period as invalid. Similar rules apply to appeals which are not covered in this article. For dispute resolution purposes, the term “day” excludes a Saturday, Sunday or public holiday and the days between 16 December of each year and 15 January of the following year, both days inclusive. A senior SARS official may extend the 30-day period by a further 30 days if satisfied that “reasonable grounds” exist and for a further 31 days up to a maximum of three years if satisfied that “exceptional circumstances” exist which gave rise to the delay in objecting. In both cases, the onus of proving reasonable grounds or exceptional circumstances are on the taxpayer.
The senior SARS official exercises discretion deciding whether extension should be granted or not. The TAA does not give guidance on the way discretion should be exercised. However, administrative justice (section 33 of the Constitution read with the Promotion of Administrative Justice Act) requires the decision to be made reasonable. The Constitutional Court has held that although reasonability cannot be reduced to an absolute standard, certain principles apply. These principles are applied on a case-by-case basis. SARS issued its 5th version of Interpretation Note 15 (IN15) dealing with “Exercise of discretion in case of late objection or appeal” listing the factors which SARS should consider when exercising its discretion, namely:
- Reasons for delay;
- Length of the delay
- Prospects of success on the merits; and
- Other relevant issues, e.g. SARS’ interest in the determination of the final tax liability in view of the broader public interest relating to budgeting and fiscal planning.
The taxpayer must demonstrate the presence of the factor and demonstrate how it resulted in the late submission of the objection. IN15 illustrates what would be considered satisfactory or not.
Delays beyond the control of the taxpayer, e.g. due to illness, overseas travel or postal delays, are examples which SARS would consider satisfactory. Ignorance of the law with regard to the objection period is not viewed as reasonable. Also, using a tax practitioner does not absolve the taxpayer from complying with the TAA.
The taxpayer must justify the period of delay. Shorter periods of delay are more likely to be condoned than longer periods. Condonation of a late objection is not a right and can be rejected.
The taxpayer must demonstrate a prima facie case and that the prospects of success outweigh the prospects of the objection being disallowed or partially allowed. However, even where the prospects of success are trite, the late objection will not be condoned if there has been a flagrant and gross disregard of the rules.
If an objection is late, a senior SARS official may extend the 30-day period for a further 30 days (i.e. 60 days from date of assessment or decision) if the taxpayer can prove the existence of “exceptional circumstances”. The TAA does not define exceptional circumstances, so the ordinary meaning applies which includes, inter alia, unusual, non-typical, uncommon or rare. It is essentially something which is not capable of definition since if it could be foreseen, it is probably not exceptional. The TAA sheds some light and cites the following as exceptional:
- A natural or human-made disaster
- A civil disturbance or disruption in services
- A serious illness or accident; and
- Serious emotional or mental distress.
If an objection exceeds 3 years, SARS does not have discretion to condone a late objection. The condonation is completely denied by operation of law, no matter how good the prospects of success on the merits of the objection are.
A notice of objection which does not comply with the Rules (for e.g. it is late) will be regarded as invalid by SARS. SARS is required to notify the taxpayer within 30 days of receipt of the objection and state the grounds of invalidity. The taxpayer then has a second opportunity to remedy the defect and submit a new objection within 20 days of the notice of invalidity from SARS.
Only if the late objection is condoned by SARS, does the next phase of the dispute resolution process commence. It is therefore critical to ensure compliance with the rules governing dispute resolution.
Objections and appeals are procedural and subject to strict timelines. Whilst the TAA lays down the periods in which objections and appeals may be lodged, the condonation of the late submission is subject to the discretion of a senior SARS official, which must be exercised in a reasonable manner.
Albeit the decision to not condone a late objection or appeal is in itself subject to objection or appeal, the taxpayer should ideally not enter the dispute resolution process at the mercy of a senior SARS official’s discretion. Irrespective of the substantive or technical merits, an objection or appeal cannot succeed if it does not pass the first hurdle, namely being lodged timeously.
SARS applies the Rules strictly, and often to the prejudice of taxpayers. On the other hand, SARS often does not comply with the Rules and in some cases, seems to disregard the Rules. For instance, based on recent examples, SARS has no hesitation in disallowing an objection even if it is submitted only one day late. On the other hand, SARS can far exceed the time limitations in the TAA to attend to objections lodged on a timely basis. In many instances, taxpayers have to continuously follow up with SARS to have an objection resolved and often have to rely on an official compliant before the objection is dealt with. Moving forward, it is hoped that SARS will embrace its own Service Charter and apply the Rules more consistently and fairly.
Tax practitioners are well versed with tax law and have the professional knowledge and experience to assist and resolve objections and appeals. It is strongly advisable to retain the services of a tax practitioner to fulfil the tax dispute resolution function to the best outcome for the taxpayer.
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