Judgment summary
TEG Asset & Risk Management CC, a close corporation, submitted an income tax return for 2017 and VAT returns for periods between 2015 and 2017. SARS assessed TEG, and when TEG requested reduced assessments, SARS refused on 28 October 2022 and again on 23 February 2023 (paras 1 to 2).
TEG applied to the High Court to review and set aside SARS's refusal decisions and to have the assessments remitted to SARS for fresh decisions (para 1).
The court found that SARS's stated reason for refusing the reduced assessments was wrong, because the undisputed evidence showed that a tax consultant, Ms Buitendag, had submitted TEG's returns without authorisation from TEG, even though Mr Bowman was validly appointed as public officer (paras 27 to 30).
The court reviewed and set aside both SARS decisions and sent the matter back to SARS for a fresh decision, with costs awarded against SARS (Order).
Background
Mr Yates, the sole member of TEG, appointed Mr Bowman, an accountant, in 2010 to provide accounting services, including filing tax returns, and gave him full access to TEG's financial records (paras 3 to 5).
In May 2019, Mr Yates learned that SARS was auditing TEG's 2017 income tax return and its VAT returns for 2015 to 2017. Mr Bowman assured Mr Yates that SARS had made a mistake, but Mr Yates could not obtain the SARS e-filing profile codes without Mr Bowman's agreement (para 6).
It later emerged that Mr Bowman had sub-contracted Ms Buitendag, a tax consultant, to file the returns, and that she, not Mr Bowman, held the e-filing codes (para 7).
On 30 September 2019, SARS advised Mr Bowman that objections to the assessments had been declined (para 8). In June 2020, SARS obtained payment from TEG's bank account, and Mr Bowman again assured Mr Yates this was a SARS error (para 9).
In July 2022, SARS told Mr Yates that TEG had a substantial tax liability, and Mr Yates terminated Mr Bowman's mandate, although he was advised to retain Mr Bowman as TEG's public officer pending finalisation of the matter (paras 10 to 11).
On 7 October 2022, TEG's attorneys wrote to SARS requesting reduced assessments under section 93(1)(e)(iii) of the Tax Administration Act 28 of 2011, alleging that the returns had been fraudulently submitted by a person not authorised by TEG, and accusing Mr Bowman of gross negligence in appointing Ms Buitendag without authority (paras 12 to 18).
SARS declined the request on 28 October 2022 on the basis that Mr Bowman was TEG's legally appointed public officer, and reaffirmed this position on 23 February 2023 after further correspondence and complaints by TEG to regulatory authorities about Mr Bowman and Ms Buitendag (paras 20 to 23).
Core dispute
TEG relied on four grounds of review: that the decisions were unlawful because Mr Bowman was never appointed as public officer; that the decisions were based on material errors of law regarding the effect of any defect in his appointment; that SARS ignored relevant considerations by refusing reduced assessments solely on the basis of Mr Bowman's appointment; and that SARS made material errors of fact and acted with procedural unfairness by failing to consider the merits of the request for reduced assessment (para 24).
The central question was whether section 93(1)(e)(iii) of the Tax Administration Act 28 of 2011 applied, which permits a reduced assessment where a senior SARS official is satisfied that an assessment was based on a return fraudulently submitted by a person not authorised by the taxpayer (para 19).
SARS's answering affidavit did not deny TEG's allegation that Ms Buitendag submitted the returns without TEG's authorisation (para 25). SARS maintained that the complaints lodged with regulatory authorities about Mr Bowman and Ms Buitendag were not relevant to the reassessment request and did not prove fraudulent submission or submission by an unauthorised person (para 26).
Court findings
The court found it beyond doubt that, as a matter of fact and law, Mr Bowman was validly appointed as TEG's public officer at all relevant times (para 27).
The court held that section 93(1)(e)(iii) has two requirements that a taxpayer must meet before a senior SARS official becomes bound to consider reassessment: the return itself must have been fraudulent, and it must have been submitted by a person not authorised by the taxpayer to submit returns at all. The court noted that a return is not fraudulent merely because it was submitted by someone other than the public officer, and that the obligation to furnish correct, timeous returns remains that of the taxpayer (paras 28 to 29).
SARS had given only one reason for declining the request, namely that the returns were submitted by an authorised person. Given the undisputed evidence that Ms Buitendag submitted the returns without TEG's authorisation, the court found this reason to be wrong, requiring review of the decisions (para 30).
The court held that the evidence supported the second, third and fourth grounds of review raised by TEG (para 31). The court also noted that the SARS decision makers could not be blamed for their decisions, as the significance of Ms Buitendag's role only became clear once the founding affidavit was filed (para 32).
Outcome
The court reviewed and set aside SARS's decisions of 28 October 2022 and 23 February 2023. The matter was remitted to SARS for a fresh decision. SARS was ordered to pay TEG's costs, including the costs of counsel, with Scale C applying (Order).
Major issues / areas of contention
- Whether Mr Bowman was validly appointed as public officer of TEG
- Whether TEG's tax returns were submitted by Ms Buitendag without authorisation from TEG
- The correct interpretation of section 93(1)(e)(iii) of the Tax Administration Act 28 of 2011 concerning fraudulent returns submitted by unauthorised persons
- Whether SARS's refusal of reduced assessments was based on a material error of law and fact
- Whether SARS ignored relevant considerations and acted with procedural unfairness in declining the reduced assessment request
- Whether the SARS decisions of 28 October 2022 and 23 February 2023 were reviewable