Ex­tra string to a tax­payer’s bow

A court can be ap­proached for a declara­tory or­der to avoid the cum­ber­some pro­cesses of the tax court

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - JO­HAN KOTZE

MANY ag­grieved tax­pay­ers, and of­fi­cials from the South African Rev­enue Ser­vice (SARS), may re­gard the tax court as the only mech­a­nism to re­solve a tax dis­pute.

SARS’s gen­eral func­tion is to raise as­sess­ments based on its con­vic­tion that a cer­tain amount should be taxed. A tax­payer who dis­agrees with an as­sess­ment from SARS may ei­ther ca­pit­u­late and pay the tax or de­clare a dis­pute through an ob­jec­tion and ap­peal process.

Yet this is not the only course of ac­tion open to tax­pay­ers. Oth­ers are not sub­ject to ob­jec­tion and ap­peal and there­fore oblige an ag­grieved tax­payer to ex­plore al­ter­na­tive legal means to deal with SARS. One is to ap­proach a court by for a declara­tory or­der.

Declara­tory or­ders are far from com­mon. Even so, it is worth not­ing that in each of these cases SARS has ar­gued that this is the do­main of the tax court, im­ply­ing that a tax­payer may not ap­proach the high court di­rectly for a declara­tory or­der.

In the case of Shell’s An­nan­dale Farm (Pty) Ltd v C:SARS, Judge Den­nis Davis held that the tax court was not the only com­pe­tent au­thor­ity to de­cided on tax is­sues. Where the ques­tion was sim­ply one of law — that is, the facts were not in dis­pute — the mat­ter could be re­solved by the high court by way of a declara­tory or­der.

Judge Davis said the court had a dis­cre­tion to con­sider an ap­pli­ca­tion for a declara­tory or­der — it had to de­cide whether a spe­cific case was suit­able for this pur­pose. In ex­er­cis­ing that dis­cre­tion con­sid­er­a­tions of pub­lic pol­icy came into play be­cause of SARS be­ing placed in an in­vid­i­ous po­si­tion where it might be faced with tax­pay­ers at­tempt­ing to short-cir­cuit the act’s pro­ce­dural pro­vi­sions.

In Grain SA v C:SARS, a case in which the writer has been in­volved, Grain SA ap­proached the Free State High Court to de­clare that a val­ueadded tax (VAT) rul­ing is­sued by SARS was wrong and that amounts Grain SA re­ceived from the Maize Trust were in fact do­na­tions for pur­poses of the Value Added Tax Act.

SARS ar­gued that it was not ap­pro­pri­ate for the court to make a declara­tory or­der at that stage since there were var­i­ous rea­sons why SARS should not be cur­tailed in its du­ties to ex­er­cise its so-called un­fet­tered dis­cre- tion when per­form­ing its du­ties. SARS also con­tended that Grain SA had to wait un­til it was as­sessed be­fore go­ing the way of ob­jec­tion and ap­peal.

It was com­mon cause that SARS gave a VAT rul­ing — in terms of sec­tion 41B of the VAT Act — with which Grain SA did not agree.

The pro­vi­sions of the VAT Act deal­ing with ob­jec­tion and ap­peal do not cater for rul­ings. If SARS was cor­rect that Grain SA had to wait, one won­ders for how long. In the mean­time, its au­di­tors would have in­sisted that any dis­puted VAT should be pro­vided for in Grain SA’s fi­nan­cial state­ments.

Judge Jor­daan ac­cepted that the dis­pute be­tween Grain SA and SARS was ap­pro­pri­ate for a declara­tory or­der. SARS then ar­gued that the mat­ter should not be dealt with as a declara­tory or­der as the rel­e­vant facts had not been thrashed out to the bone, as would have been pos­si­ble in a for­mal trial. Judge Jor­daan dis­agreed on the grounds that SARS had been pre­sented with a set of facts and then fur­nished with a spe­cific VAT rul­ing. There­after, Grain SA pro­vided SARS with an­other rep­re­sen­ta­tion and met SARS, upon which SARS had fur­nished an­other rul­ing on the mat­ter.

A declara­tory or­der has sev­eral ben­e­fits, among them:

It is quick, since the par­ties’ ar­gu­ments are based on af­fi­davits with­out hav­ing to deal with ev­i­dence and wit­nesses in court; and

Costs fol­low the suit, whereas in the tax court a tax­payer may, among other things, only be granted a cost or­der against SARS if SARS had been un­rea­son­able.

Pic­ture: REN­JITH KR­ISH­NAN/ freedig­i­talpho­tos.net

Declara­tory or­ders are far from com­mon It has the ben­e­fit of be­ing quick, since the par­ties’ ar­gu­ments are based on af­fi­davits with­out hav­ing to deal with ev­i­dence and wit­nesses in court

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