SARS information requests are not unfettered
THE South African Revenue Service (SARS) often sends out information requests in terms of section 46 of the Tax Administration Act. The question arises, in what circumstances SARS is permitted to ask such questions and what limits exist in respect of their powers?
The Tax Administration Act has recently been amended by the Tax Administration Laws Amendment Act, 2014, which made changes to SARS’s powers to request information from a taxpayer.
Section 46(1) of the Tax Administration Act states that:
“SARS may, for the purposes of the administration of a tax act in relation to a taxpayer, whether identified by name or otherwise objectively identifiable, require the taxpayer or another person to, within a reasonable period, submit relevant material (whether orally or in writing) that SARS requires.”
In terms of the Tax Administration Act the definition of “relevant material” reads as follows: “…any information, document or thing that in the opinion of SARS is foreseeably relevant for the administration of a tax act as referred to in section 3”.
Section 3(2) of the Tax Administration Act states that “administration of a tax act” means to obtain full information in relation to anything that may affect the liability of a person for tax in respect of a previous, current or future tax period.
In terms of section 46(6) of the Tax Administration Act, relevant material required by SARS under this section must be referred to with “reasonable specificity”. As noted, SARS may only request information that is “relevant material”. This definition refers to information which is “foreseeably relevant” for the administration of a tax act.
The Explanatory Memorandum to the Tax Administration Act sets out the following comments in relation to the test of what is “foreseeably relevant”:
Whether at the time of the request there is a reasonable possibility that the material is relevant to the purpose sought; whether the required material, once provided, actually proves to be relevant is immaterial;
An information request may not be declined in cases where a definite determination of relevance of the material to an ongoing audit or investigation can only be made following receipt of the material;
There need not be a clear and certain connection between the material and the purpose, but a rational possibility that the material will be relevant to the purpose; and
The approach is to order production first and allow a definite determination to occur later.”
The test of what is reasonably foreseeable should not permit “fishing expeditions” or requests for information unlikely to be relevant to the tax affairs of a taxpayer.
In terms of the Explanatory Memorandum the taxpayer would have the following remedies if it disagrees that the information requested is “foreseeably relevant”:
Request SARS to withdraw or amend the decision to request material — section 9 of the Tax Administration Act, 2011;
Pursue the internal administrative complaints resolution process of SARS; Approach the Tax Ombud; Approach the Public Protector.” A further potential remedy available to a taxpayer would be to bring an application for review on the basis that the request for information by SARS constitutes unfair administrative action under the Promotion of Administrative Justice Act.
It can therefore be seen that SARS has wide powers to request information from taxpayers. It may now request information or documents that, in SARS’s opinion, is foreseeably relevant in order to obtain information in relation to anything that may affect the liability of a person (not necessarily the taxpayer) in respect of a previous, current or even a future tax period.
However, these powers are not unfettered and do not, for example, permit SARS to embark on a fishing expedition outside their scope.
In addition it should be noted that the reportable arrangement provisions have been amended. In particular, in terms of a notice which came out in March, various transactions are now reportable.
This notice broadly covers, among others, the following categories of transactions:
Transactions which would have fallen into the provisions of section 8E of the Income Tax Act if the prescribed period in that section was 10 years (instead of three years). It also covers a “hybrid debt instrument” as contemplated in section 8F of the act if the prescribed period in that section was 10 years.
An arrangement in terms of which a company buys back shares on or after 16 March 2015 for an amount exceeding R10m and the company issued or is required to issue shares within 12 months of the buy-back.
An arrangement in terms of which a resident makes a contribution or payment to a nonresident trust and has or acquires a “beneficial interest” in that trust and the amount of payments or the value of the “beneficial interest” exceeds R10m.
An arrangement in terms of which a person/s acquires a controlling interest in the company that has a balance of assessed loss or an assessed loss of R50m or which holds a controlling interest in such a company.
The publication of the notice significantly amends the circumstances in terms of which a transaction may constitute a “reportable arrangement”, It expands the transactions which fall within the provisions of section 35(2) of the Tax Administration Act and which must be reported to SARS.
Requests for ‘relevant material’must adhere to what is ‘foreseeably relevant’ for the administration of a tax act
Peter Dachs and Bernard du Plessis are directors and joint heads of ENSafrica’s tax department.