Timeframe for Sars response can be longer
There are circumstances in which prescription may not apply and taxpayers’ actions can affect this
Most taxpayers will be familiar with section 99 of the Tax Administration Act (TAA), namely the provisions which deal with the period of limitations for the issuance of assessments.
This article takes a closer look at one of the circumstances where prescription may not apply — that is, how a taxpayer ’ s actions may have an impact on this and what has been seen in practice.
As a quick refresher on the structure of the provisions of section 99, section 99(1) provides for the time periods in which the commissioner for the SA Revenue Service (Sars) may assess a taxpayer while section 99(2) sets out the circumstances where the time periods provided for in section 99(1) will not apply. Sections 99(3) and (4) provide for circumstances where the commissioner may, by prior notice, extend the time periods in section 99(1).
Finally, this article will also focus on instances where the commissioner may extend a time period on the basis that the circumstances contemplated in section 99(3)(a) arise.
Section 99(3)(a) (with our emphasis) provides as follows:
SECTION 46 PROVIDES THAT SARS MAY REQUEST A TAXPAYER TO PROVIDE RELEVANT MATERIAL WITHIN A REASONABLE TIME
“( 3) The commissioner may, by prior notice of at least 30 days to the taxpayer, extend a period under subsection (1) or an extended period under this section, before the expiry thereof, by a period approximate to a delay arising from:
“failure by a taxpayer to provide all the relevant material requested within the period under section 46 (1) or the extended period under section 46 (5)”.
As can be seen from the above, section 99(3) makes reference to a taxpayer’s behaviour relating to the provision of relevant material in accordance with section 46 of the TAA.
Section 46 in turn provides that Sars may request a taxpayer to provide relevant material within a reasonable time period (section 46(1)), but that Sars may extend the period based on reasonable grounds submitted by a taxpayer (section 46(5)).
From the wording of section 99(3) it therefore appears that if a taxpayer does not comply with either the time period granted by Sars to provide relevant material in accordance with section 46(1), or with an extended time period granted by Sars to provide relevant material in accordance with section 46(5), the commissioner may extend the prescription time periods.
UNILATERAL POWERS
This is an important consideration for taxpayers during the information-gathering phase of an audit as the commissioner ’ s powers to extend prescription in these circumstances are unilateral despite the commissioner having to provide advance notice.
We have, however, recently observed that in practice Sars appears to be relying on section 99(3)(a), not only where a taxpayer merely did not comply with the deadlines imposed in sections 46(1) or 46(5) as the case may be, but also in circumstances where a taxpayer motivated, obtained and adhered to an extension from Sars based on reasonable grounds in accordance with section 46(5).
What we observed is that Sars unilaterally added the number of days to the prescription time periods which passed between the date of the original due date by which the relevant material had to be provided (in accordance with section 46(1)) and the new due date by which the relevant material had to be provided as agreed to by Sars (in accordance with section 46(5)).
WHAT WE OBSERVED IS THAT SARS UNILATERALLY ADDED THE NUMBER OF DAYS TO THE PRESCRIPTION TIME PERIODS
In other words, we have seen Sars place reliance on the provisions of section 99(3)(a) to extend the prescription time periods when there was no failure to provide relevant material by the agreed extended date in accordance with section 46(5). This appears to be the Sars interpretation of these provisions.
As referred to above, this is an important consideration for taxpayers to take into account in the informationgathering stage of an audit and taxpayers should weigh up how a request for more time to provide relevant material (even if such request is acceptable to Sars) can factor into prescription, which can become an important defence in tax disputes.