Have the right help when you are in a dis­pute

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - Peter Dachs

Fac­ing off against the skilled pro­fes­sion­als at SARS means you will need a le­gal tax pro­fes­sional to as­sist

TIMES have cer­tainly changed. Ten years ago a tax query from a SARS as­ses­sor would find its way to the desk of the fi­nan­cial di­rec­tor or in-house tax ad­vi­sor who would send it off to their au­di­tors.

The au­di­tors would, in turn, give it to their tax depart­ment who would draft a re­ply to SARS and hope the mat­ter went away. If not, an in­for­mal meet­ing be­tween the fi­nan­cial di­rec­tor and tax ad­vi­sor at the au­dit firm would usu­ally set­tle the dis­pute.

Nowa­days SARS is a world-class or­gan­i­sa­tion. It at­tracts top talent at all lev­els, is ef­fi­cient and suc­cess­ful. The query from a SARS as­ses­sor is now just the first step in a com­plex dis­pute res­o­lu­tion process. And go­ing to your au­di­tor for as­sis­tance in a dis­pute res­o­lu­tion mat­ter is a bit like go­ing to see your lawyer to help fi­nalise your fi­nan­cial state­ments.

Dis­pute res­o­lu­tion is what law firms do. They are geared for all as­pects thereof from me­di­a­tion to full blown lit­i­ga­tion. The law recog­nises this and grants equal le­gal priv­i­lege to lawyers in law firms. Le­gal priv­i­lege is a fun­da­men­tal as­pect of any dis­pute res­o­lu­tion process. You don’t want the other side to be able to have ac­cess to con­fi­den­tial in­for­ma­tion re­lat­ing to your dis­pute.

In de­vel­oped mar­kets, ma­jor tax lit­i­ga­tion is prin­ci­pally run by law firms. For­tu­nately, over the last decade, var­i­ous South African law firms have built the nec­es­sary ca­pac­ity to run tax dis­pute res­o­lu­tion mat­ters from the first SARS query to the Supreme Court of Ap­peal in Bloem­fontein.

For in­stance, our law firm has close to 60 full-time tax pro­fes­sion­als, many of whom are skilled in tax dis­pute res­o­lu­tion. They work to­gether with mem­bers of the lit­i­ga­tion depart­ment. The tax pro­fes­sion­als pro­vide, in­ter alia, the rel­e­vant tax tech­ni­cal ex­per­tise while the lit­i­ga­tors pro­vide ex­per­tise in the dis­pute res­o­lu­tion process and also rel­e­vant as­pects of ad­min­is­tra­tive law.

It is im­por­tant to re­alise that the dis­pute res­o­lu­tion process starts with the first SARS query. The re­sponse must be drafted in a man­ner which con­sid­ers the pos­si­bil­ity of the end game be­ing wit­nesses giv­ing ev­i­dence un­der cross-ex­am­i­na­tion in court. As Ad­vo­cate Barry Roux has shown in the Os­car Pis­to­rius trial, cros­sex­am­i­na­tion is not for sissies. A wit­ness will be thor­oughly tested on his rec­ol­lec­tion of all rel­e­vant facts.

There­fore, any in­cor­rect fac­tual al­le­ga­tion in the re­sponse to the query, how­ever in­no­cently made, may come back to bite the tax­payer later in the dis­pute res­o­lu­tion process. In ad­di­tion it is im­por­tant that any fac­tual state­ment can be proved by the tax­payer. This re­quires an un­der­stand­ing of who the rel­e­vant wit­nesses may be, where they are and what they are go­ing to be able to say to sup­port the var­i­ous fac­tual al­le­ga­tions in the re­sponse to SARS.

Of­ten it is not nec­es­sary to in­ter­view wit­nesses at this early stage, but it is nec­es­sary to un­der­stand that such wit­nesses ex­ist and what they will be able to tes­tify to should the mat­ter ever go to court.

Early on in the dis­pute res­o­lu­tion process, as­sum­ing the par­ties have not man­aged to set­tle the mat­ter, SARS will is­sue a re­vised as­sess­ment.

In terms of the “pay now ar­gue later” prin­ci­ple con­firmed in the Met­cash case, the tax­payer must make pay­ment to SARS un­less, in terms of the pro­vi­sions of sec­tion 164 of the Tax Ad­min­is­tra­tion Act, it can per­suade SARS that the pay­ment of the tax should be sus­pended. If this ap­pli­ca­tion is un­suc­cess­ful then SARS’s de­ci­sion may be taken on re­view. In or­der to chal­lenge the de­ci­sion of SARS in a re­view it is nec­es­sary to un­der­stand the rel­e­vant ad­min­is­tra­tive law prin­ci­ples set out in, among oth­ers, the Pro­mo­tion of Ad­min­is­tra­tive Jus­tice Act. This re­quires ad­min­is­tra­tive law ex­per­tise, which good lit­i­ga­tors have in spades.

For ex­am­ple, in a re­view hear­ing a judge will not test whether SARS was wrong in de­cid­ing not to sus­pend the pay­ment of tax, but rather whether it was “rea­son­able” in so do­ing. This sig­nif­i­cantly in­forms how the sus­pen­sion ap­pli­ca­tion to SARS is drafted.

In re­spect of the court process, no-one wants to go to court. It is costly, time con­sum­ing and ab­sorbs se­nior man­age­ment re­sources. There are plenty of op­por­tu­ni­ties to set­tle a tax dis­pute mat­ter be­fore court. These in­clude the Al­ter­na­tive Dis­pute Res­o­lu­tion Process as well as other set­tle­ment meet­ings with SARS.

How­ever, un­like in the “old days” there are no cosy meet­ings over cups of cof­fee. In­stead, by way of ex­am­ple, at a re­cent meet­ing SARS brought five rep­re­sen­ta­tives — most of whom were from their Large Busi­ness Cen­tre.

An un­der­stand­ing of the tax tech­ni­cal as­pects of the dis­pute by the tax­payer is sim­ply not suf­fi­cient at these meet­ings. They also re­quire people skilled in dis­pute res­o­lu­tion and with a proper un­der­stand­ing of the prospects of suc­cess at trial. For ex­am­ple, it is not pos­si­ble to un­der­stand whether a pro­posed set­tle­ment is a good or bad set­tle­ment for the tax­payer un­less it has an un­der­stand­ing of its prospects of suc­cess at trial. This, in turn, re­quires an un­der­stand­ing not only of how strong the tax tech­ni­cal po­si­tion of the tax­payer is in re­la­tion to the tax dis­pute, but also the abil­ity of the tax­payer to prove its case, among oth­ers, through its wit­nesses.

South African tax­pay­ers are now fol­low­ing the rest of the de­vel­oped world in un­der­stand­ing the com­plex­ity of the tax dis­pute process and us­ing law firms to pro­vide the rel­e­vant ex­per­tise in these mat­ters. We es­ti­mate that the quan­tum of the tax dis­pute mat­ters dealt with by our firm over the last few months is in ex­cess of R20bn.

Peter Dachs is a di­rec­tor in the tax depart­ment at ENSafrica.

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