by Cliffe Dekker Hofmeyr 

Introduction

Under Section 93 of the Tax Administration Act (28/2011), there are five circumstances under which the South African Revenue Service (SARS) may issue a reduced assessment in order to reduce a person’s tax liability. While Section 93 makes it possible to ‘skin a cat’ (ie, reduce tax liability) in more ways than one, taxpayers should be mindful of the requirements that must be met and the correct process to follow in order to achieve the desired result.

In Rampersadh v Commissioner of the South African Revenue Service ((5493/2017) [2018] ZAKZPHC 36 (27 August 2018)), the KwaZulu-Natal Division of the High Court had to consider the provisions of Section 93 of the act, where the applicant taxpayers lodged a review application. Specifically, the taxpayers requested the High Court to review SARS’s decision not to issue reduced assessments under Section 93(1)(d).

This update focuses on the High Court’s pronouncements regarding Section 93 and other provisions of the Tax Administration Act but will also briefly discuss the High Court’s findings regarding the application of the Promotion of Administrative Justice Act (3/2000) to the facts of the case.

Facts

The taxpayers are members of a close corporation, which was audited in respect of its 2011 to 2013 years of assessment. The taxpayers had loan accounts in the close corporation and pursuant to these loan accounts, the audit was extended to the taxpayers. The taxpayers made representations to SARS and provided it with revised loan accounts. SARS issued revised assessments on 23 March 2015, to which the taxpayers objected on 15 May 2015; SARS then requested further information arising from the loan accounts, the taxpayers produced further revised loan accounts, followed by another objection on 20 July 2015. In all, the taxpayers submitted three different versions of the loan accounts. After SARS disallowed some of the objections on 1 December 2015, the taxpayers were told that they could appeal SARS’s decision within 30 business days.

The taxpayers failed to appeal SARS’s decision in good time and instead of lodging the appeal and requesting condonation for the late filing, the taxpayers submitted three requests under Section 93(1)(d) of the Tax Administration Act, that the revised assessments issued by SARS, be reduced. The requests were dated 13 July 2016, 19 October 2016 and 17 January 2017. After SARS refused all three requests, the taxpayers brought this review application, to review some of SARS’s decisions, under the Promotion of Administrative Justice Act. Prior to the hearing, the taxpayers had amended the relief sought and at the hearing, the taxpayers indicated that the only relief sought was against SARS’s decision to refuse the third request, which decision SARS handed down on 10 March 2017.

Decision

SARS opposed the relief sought by the taxpayers and The High Court addressed various other matters, as discussed below.

Exhaustion of available internal remedies Having regard to Section 7(2) of the Promotion of Administrative Justice Act, SARS argued that the taxpayers had not exhausted all the available internal remedies under the Tax Administration Act before they brought the current review application. For this reason, SARS argued that the review application had to be dismissed.

In response to this argument, the High Court indicated that the crisp issue to consider was whether the taxpayers could object or appeal to SARS’s decision to refuse the third request on 10 March 2017. The High Court held that to answer this question, one had to look at the provisions of the Tax Administration Act. The High Court first explained that there are various types of assessments that SARS can raise under the act and that only in the case of one type of assessment, a jeopardy assessment, does the act create an automatic right to take the decision on review.

The High Court then moved on to Section 93. Under Section 93 of the Tax Administration Act, SARS may only issue a reduced assessment under the following five circumstances:

• where the taxpayer successfully disputed the assessment under Chapter 9 of the Tax Administration Act (s93(1)(a));
• where it is necessary to give effect to a settlement under part F of chapter 9 of the Tax Administration Act (s93(1)(b));
• where it is necessary to give effect to a judgment following an appeal under Part E of Chapter 9 of the Tax Administration Act and there is no right of further appeal (Section 93(1)(c));
• if SARS is satisfied that there is a readily apparent undisputed error in the assessment by SARS or the taxpayer in a return (Section 93(1)(d)); or
• a senior SARS official is satisfied that an assessment was based on the failure to submit a return or submission of an incorrect return by a third party under Section 26 or by an employer under a tax act; or the assessment was based on a processing error by SARS; or an assessment was based on a return fraudulently submitted by a person not authorised by the taxpayer (Section 93(1)(e)).

Considering that the first three scenarios in Section 93 involve the issuing of reduced assessments pursuant to the dispute resolution mechanisms in Chapter 9 of the TAA being followed, it is clear that a request under Section 93(1)(d) cannot be raised by way of objection or appeal. It appears that it is simply raised by way of a request. The next question is whether the refusal of a request gives rise to the right of objection or appeal under the Tax Administration Act. To answer this question, one must consider whether the refusal of the request falls within the ambit of Section 104(2)(c) of the act, where it states that a taxpayer may object to any decision that may be objected to or appealed against under a tax act, other than the decisions not to extend the period for lodging an appeal or lodging an objection (see Section 104(2)(a) and Section 104(2)(b)).

There are at least three refusals where the TAA states that the dispute resolution procedure in Chapter 9 applies:

• where SARS is empowered, under Section 220, to remit a penalty imposed under the Tax Administration Act for administrative non-compliance, but decides not to remit the penalty, the taxpayer may object and appeal against such decision;
• where Section 224 of the Tax Administration Act states that a taxpayer may object and appeal against SARS’s decision to impose an understatement penalty under Section 222 or its decision not to remit an understatement penalty in terms of Section 223; and
• where a senior SARS official, under Section 231, decides to withdraw relief granted under the voluntary disclosure programme to a taxpayer, the taxpayer may object and appeal against such decision.

As the Tax Administration Act does not specifically state that the refusal to issue a reduced assessment under Section 93 is subject to objection and appeal and as the High Court’s jurisdiction is only ousted where a decision in Section 104 is being disputed, SARS’s decision to refuse the third request was not subject to objection and appeal under Chapter 9 of the Tax Administration Act . Therefore, the internal remedies in the act were not available to the taxpayers and they can, therefore, bring the review application under the Promotion of Administrative Justice Act.

High Court’s jurisdiction The next argument raised by SARS was that the High Court did not have jurisdiction to hear the review application:

Section 105 of the TAA [Tax Administration Act], states that a taxpayer may only dispute an assessment or ‘decision’ as described in s104 in proceedings under Chapter 9, unless a High Court otherwise directs. Section 105 does not oust the High Court’s jurisdiction to hear the current review application as the decision to refuse the Taxpayer’s request is not a decision, within the ambit of s104 of the TAA. As SARS’s decision to refuse the request constitutes administrative action in terms of PAJA [Promotion of Administrative Justice Act] and as s6(1) of PAJA allows a person to institute proceedings for the review of administrative action, the High Court has jurisdiction to deal with this application.

Court’s finding on the outcome of the review application As this section is mainly focused on the application of the Promotion of Administrative Justice Act, we will only briefly mention the key findings made by the High Court. These are the following:

• Under Section 93(1)(d) of the Tax Administration Act, the taxpayers had to show that the claimed errors were, in fact, apparent and undisputed.
• The taxpayers raised four points in arguing that SARS had made apparent and undisputed errors but could not provide any documents to substantiate their claims.
• In light of the above, the High Court dismissed the taxpayers’ review application under the Promotion of Administrative Justice Act and awarded costs in favour of SARS.

Comment

The judgment should serve as a reminder to taxpayers that they must always have documentary proof when trying to argue that SARS had made an error in an assessment. In the matter discussed, such documentary evidence would have in any event been necessary for the taxpayers to succeed with an objection or appeal. In the current case, it is clear that the basis for the value of the loan accounts could not be proven and that this is probably why the taxpayers were unsuccessful.

Further, where faced with an audit or where SARS has raised an additional assessment, taxpayers should ensure that they obtain proper legal and professional advice, to prevent serious adverse consequences from ensuing.