S.Africa: SARS gets aggressive with tax inquiries

Note by Prof. Dr. Daniel N. Erasmus: We have experience in representing clients at these inquiries. The SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... powers are extensive. It is very difficult to challenge the access by SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... to this type of inquiry once they present prima facie evidence that falls into the provisions of sections 51-58 of the TAA. What is important is the commencement of an audit. Make sure the audit is valid, and SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... have fully complied with sections 40-42 of the TAA. What is the purpose and scope of the audit? Are they playing open cards with you? Are you being fully compliant within the boundaries of the investigative provisions? Did you get a comprehensive letter of findings to explain their factual findings and supporting law?

If this process is properly handled, the necessity for SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... to invoke their inquiry powers may be limited. You effectively can remain in control. If they fail to follow the section 40-42 process properly, we have in 2 cases had the audit/assessments set aside in court, without any further investigation being conducted.

Once an inquiry is set, preparation is of key importance. You do not want witnesses giving evidence without being properly prepared. SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... rely on the ability to cross-examine and interrogate witnesses using skilled Senior Counsel to do so. Strong and knowledgeable legal representation is essential before and during the inquiry phase.

For more information/advice, contact daniel@taxriskmanagement.com

Article by: Hogan Lovells – Natalie Napier and Keshen Govindsamy

Taxpayers will always seek to mitigate their tax liabilityTax liability represents the total amount of tax owed by an individual or business to a tax authority, whether local, national, or international. This obligation arises through various forms of income, profits, or transactions subject to taxation laws and regulations. Understanding tax liability is essential for compliance and efficient financial management for corporations and individuals. It influences how businesses structure..., while the South African Revenue ServiceThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... (SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently...) endeavours to extract the maximum amount of tax. This uneasy relationship between SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... and taxpayers is further compounded by lack of protection afforded to the taxpayer, and the far-reaching powers afforded to SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently.... Although a bill of rights for taxpayers has been proposed by the Davis Tax Committee, this still has to be implemented. In the meantime, taxpayers should be aware of the far-reaching powers of SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently....

On 24 May 2018, the Gauteng High Court handed down a judgment in a matter between SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... and, among others, Bravura Equity Services (Pty) Ltd (Bravura), which further swung the pendulum in favour of SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently....

An application was brought by SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently..., requesting an order for an inquiry to be conducted in terms of section 50, read together with sections 51 to 58 (the Relevant Provisions) of the Tax AdministrationTax authorities are fundamental institutions within government frameworks, overseeing tax assessment, collection, and administration. Their operations ensure that tax laws are enforced and public funds are collected efficiently. This article delves into tax authorities' purpose, responsibilities, and structure, offering insights into their essential role in supporting government functions and economic stability. What is a Tax Authority? A tax authority is... Act 28 of 2011 (TAA). The Relevant Provisions of the TAA allow for SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... to obtain authorisation from a judge for an inquiry to be conducted into a taxpayer’s affairs where:

a judge has reasonable grounds to believe that a taxpayer has –
- failed to comply with their tax obligations;
- committed a tax offence; or
- disposed of, removed or concealed assets which may satisfy an outstanding tax debtTax liability represents the total amount of tax owed by an individual or business to a tax authority, whether local, national, or international. This obligation arises through various forms of income, profits, or transactions subject to taxation laws and regulations. Understanding tax liability is essential for compliance and efficient financial management for corporations and individuals. It influences how businesses structure...; and (the Section 51 Activities)

relevant material is likely to be revealed during the inquiry that may provide proof of the failure to comply, commission of the offence, or of the disposal, removal or concealment of the assets.

Bravura denied these submissions and stated that their structures and advice is purely commercially driven, and that tax advice only constituted an ancillary part of their advice. Bravura submitted that all of their structures were set up to achieve commercial solutions for its clients.

Accordingly, the court had to accordingly determine how the Relevant Provisions were to be applied in deciding whether the order for the inquiry to be conducted into Bravura’s affairs was to be granted. The court noted in this regard that there is a “dearth of authority” on how the Relevant Provisions are to be interpreted and further that neither party could even refer the court to any precedent dealing with the interpretation of the Relevant Provisions.

The court accordingly tested each of the requirements of the Relevant Provisions in light of the submissions made by each party.

SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... submitted that the requirement of “reasonable grounds to believe” places a lighter burden on SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... than if SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... had to actually satisfy the court on Bravura’s non-compliance or that they had actually committed a tax offence. SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... further stated that the Relevant Provisions do not constitute a hearing to determine the tax liabilityTax liability represents the total amount of tax owed by an individual or business to a tax authority, whether local, national, or international. This obligation arises through various forms of income, profits, or transactions subject to taxation laws and regulations. Understanding tax liability is essential for compliance and efficient financial management for corporations and individuals. It influences how businesses structure... of Bravura, but rather, it operates as an investigative tool.

Bravura’s case, however, was that the court is required to scrutinise the facts submitted by SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... to satisfy itself that SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... has proved its case on a balance of probabilities in light of the fact that an inquiry into its affairs is a “far-reaching, open-ended and invasive”. In other words, SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... must prove that Bravura has actually conducted the Section 51 Activities.

The court, after having considered the arguments and precedent placed before it, concluded that SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... was not required to prove on a balance of probabilities that Bravura actually conducted the Section 51 Activities, nor that there is a likelihood of relevant material being revealed at the inquiry.

The facts presented before the court evidenced that SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... had conducted audits and gathered sufficient material in relation to the transactions entered into by Bravura that demonstrated the structures used facilitated impermissible tax avoidanceTax avoidance refers to the practice of legally structuring financial activities to minimise tax liability, reducing the amount of tax owed without violating laws. Unlike tax evasion, which is illegal and involves concealing income or misreporting, tax avoidance operates within the framework of the law. Multinational enterprises (MNEs) and individuals often engage in tax planning strategies that reduce tax liabilities... of income taxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable.... A network of special purpose vehicles was used to achieve the tax benefits. From its review, SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... had concluded that the transactions constituted “reportable arrangements” and that the “general anti-avoidance rules” were applicable. Having regard to all of the surrounding facts and circumstances, SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... was of the view that there are a number of instances where Bravura and the entities concerned have failed to file tax returnsA Tax Return is a formal statement filed by an individual or entity that details income, expenses, and other pertinent tax information to a tax authority. Its primary purpose is to assess tax liability, determine refunds owed, or highlight outstanding taxes due. Tax returns may include information about earnings, capital gains, allowable deductions, and credits, depending on the tax regulations... and/or declare the requisite income taxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable..., value-added tax and secondary tax on companies.

The court considered all of the submissions made by SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... and found that the application brought by SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... was not “factually bereft” and nor was it based on generalised, vague and unsubstantiated averments. It stated that all SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... had to do to comply with this requirement is “satisfy the court that there are reasonable grounds for believing this to be so”, in other words that there are reasonable grounds to believe that Bravura conducted the Section 51 Activities. The court held that SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... had satisfied the court that there were “reasonable grounds” supporting the application made by SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently....

The Bravura case clearly establishes guidance as to the interpretation and application of the Relevant Provisions. The burden of proofThe burden of proof is a foundational principle in legal proceedings, requiring a party to demonstrate the truth of their assertions to the requisite standard of evidence. In tax law, the burden of proof often determines which party—typically the taxpayer or the revenue authority—must establish that a transaction, deduction, or tax position is justified. This principle ensures fairness and clarity... rests on SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... and only requires “reasonable grounds” to be demonstrated by SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently.... However, in assessing whether “reasonable grounds” exist, sufficient evidence of the Section 51 Activities must be presented by SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... to the court for an order to be granted. SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... cannot simply approach a court without support for its request, i.e. as a “fishing” expedition to gather information from taxpayers. However, taxpayers should be wary in implementing transactions and ensuring that they are tax compliant. Following the Bravura judgment, taxpayers should also be aware that SARSThe South African Revenue Service (SARS) is the official tax authority responsible for the administration and enforcement of tax laws in South Africa. It plays a crucial role in managing the country’s fiscal policy by collecting revenue, administering customs, and ensuring compliance with tax legislation. Established under the South African Revenue Service Act, No. 34 of 1997, SARS functions independently... has at its disposal a mechanism to interrogate the affairs of a taxpayer with the sanction of a court. This can have far-reaching implications.

Related Articles

Responses