Tax­pay­ers must ex­haust all av­enues

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - HAN­NEKE FAR­RAND & ES­THER GELDEN­HUYS

THE South African Rev­enue Ser­vice has in­creased its au­dit ac­tiv­ity and fo­cus on the col­lec­tion of tax. Tax­pay­ers of­ten rely on pro­tec­tion in terms of ad­min­is­tra­tive law and in par­tic­u­lar, the Pro­mo­tion of Ad­min­is­tra­tive Jus­tice Act, No 3 of 2000. An im­por­tant rule un­der the Pro­mo­tion of Ad­min­is­tra­tive Jus­tice Act is that ju­di­cial re­view can only be used as a last re­sort af­ter all other in­ter­nal reme­dies have been ex­hausted and tax­pay­ers there­fore first have to make use of the ob­jec­tion and ap­peal pro­ce­dures pro­vided for in the Tax Ad­min­is­tra­tion Act, No 28 of 2011.

The case out­lined be­low high­lights the na­ture of some of SARS’s ac­tions that may be brought un­der ju­di­cial re­view in terms of sec­tion 6 of the ad­min­is­tra­tive jus­tice act and the cir­cum­stances un­der which such a re­view ap­pli­ca­tion might be dis­missed.

In the re­cent North Gaut­eng High Court judg­ment of MTN In­ter­na­tional (Mau­ri­tius) Ltd v Com­mis­sioner for SARS, the tax­payer brought an ap­pli­ca­tion in terms of sec­tion 6 for the re­view of the pro­ce­dural de­fects and ac­tions of the Com­mis­sioner for SARS in the rais­ing of an ad­di­tional in­come tax as­sess­ment. An or­der was sought to set aside the as­sess­ment and to re­fund monies withheld by SARS.

The tax­payer in this case was a com­pany reg­is­tered in Mau­ri­tius, reg­is­tered as a tax­payer with SARS and a sub­sidiary of a South African hold­ing com­pany. The tax­payer in­curred in­ter­est ex­pen­di­tures on loans granted by its hold­ing com­pany and claimed a de­duc­tion on the in­ter­est in terms of the In­come Tax Act, No 58 of 1962. The orig­i­nal as­sess­ment was is­sued on April 1 2008. Is­sues arose re­gard­ing whether the tax­payer was al­lowed to claim the de­duc­tion and the Com­mis­sioner con­ducted an au­dit based on its view that the in­ter­est ex­pen­di­ture was “un­pro­duc­tive in­ter­est”.

A let­ter of find­ings was is­sued to the tax­payer on Fe­bru­ary 24 2011 and the tax­payer replied on March 25 2011. On March 31 2011 SARS raised an ad­di­tional as­sess­ment and emailed the as­sess­ment on the same day to the ap­pli­cant, but in­di­cated the “due date” of the as­sess­ment as March 30 2011. It is im­por­tant to note that SARS’s power to raise an ad­di­tional as­sess­ment would have pre­scribed in terms of sec­tion 79 of the act on March 31 2011.

SARS also in­di­cated the “sec­ond date” as be­ing March 31 2011 in­stead of set­ting it at 30 days later as nor­mally done in prac­tice. The tax­payer submitted that SARS could not raise an as­sess­ment that omit­ted the pe­riod for pay­ment en­tirely, and that by pre­dat­ing the “due date”, the tax­payer was de­prived of the 30 days from “due date” within which to ob­ject or to re­quest rea­sons or time within which to pay the as­sessed amount.

SARS re­lied on the Con­sti­tu­tional Court de­ci­sion in Met­cash Trad­ing Lim­ited v Com­mis­sioner, SARS 2001 (1) SA 1109 (CC) and submitted that where a spe­cial­ist court, such as the Tax Court, had been as­signed to hear ap- peals against tax as­sess­ments, the high court did not have ju­ris­dic­tion to ad­ju­di­cate where there is only a dis­pute of fact and no ques­tion of law.

The court agreed that there was in­deed a dis­pute of fact be­cause of the al­le­ga­tion made against SARS, which re­volved around the rea­sons for rais­ing the as­sess­ment and for fix­ing the “due date” and the “sec­ond date”.

The court held that it could not de­cide whether the al­leged ma­nip­u­la­tion of the dates was mala fide (in bad faith) since it was an is­sue that had to be de­cided by the Tax Court.

It is not clear from the case whether all in­ter­nal reme­dies were first ex­hausted by the tax­payer or whether the ap­pli­ca­tion in terms of sec­tion 6 of the Pro­mo­tion of Ad­min­is­tra­tive Jus­tice Act was brought due to the fact that the tax­payer felt it was de­prived of the op­por­tu­nity to ob­ject.

The im­por­tant point il­lus­trated by the case is that a re­view ap­pli­ca­tion un­der the Pro­mo­tion of Ad­min­is­tra­tive Jus­tice Act is not suit­able where there might be a dis­pute of facts.

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