SARS in­for­ma­tion re­quests are not un­fet­tered

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

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.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.