Author: Taryn Solomon.
Receiving and responding to a request for relevant material from the South African Revenue Service (“SARS”)
and generally dealing with SARS during an audit or a dispute can be a
daunting task for any taxpayer. In this article, we go back to basics in
briefly discussing the processes followed by SARS during audits and
disputes (up to the appeal stage), including providing some tips and
insights in dealing with SARS in these processes, which may assist
taxpayers in navigating their way through them.
Request for relevant material and audit findings
SARS has wide information gathering powers in terms of section 46 of the Tax Administration Act, 2011 (“TAA”)
and may require a taxpayer or another person to submit relevant
material “for the purposes of the administration of a tax Act”. A
taxpayer or another person must be given a “reasonable period” within
which to submit the relevant material. Upon receiving a request for
relevant material from SARS, a taxpayer or person should therefore
firstly consider whether the information requested is indeed required
for the administration of a tax Act and secondly, whether SARS has
provided the taxpayer or person a reasonable period within which to
respond to the request. If the material requested is voluminous and/or
covers an extended period of time, a further period may be requested to
submit the response. It is a criminal offence in terms of section 234(h) of the TAA to refuse or neglect to furnish information requested by SARS.
Once
SARS has completed its audit (which may involve various correspondence
over a period of time), and where the audit identified potential
adjustments of a material nature, SARS must, in terms of section 42(2)(b)
of the TAA, provide the taxpayer with a document containing the outcome
of the audit including the grounds for any proposed assessment or
decision. This document is commonly referred to as the letter of audit
findings. A taxpayer must, within 21 business days, respond in writing
to the facts and conclusions set out in such letter. Based on the
complexities of the audit, an extension can be requested by the
taxpayer. The letter of findings and response thereto is an important
step in the audit/dispute process, as this is the first time in which
SARS formally sets out its views following an audit and it gives the
taxpayer the first formal opportunity to provide SARS with any further
explanation and/or the opportunity to correct any misinformation or
misunderstanding prior to SARS deciding to raise additional
assessments.
The issuing of additional assessments and suspension of payment application
Where
SARS is unpersuaded by a taxpayer’s response to the letter of findings,
it will issue a finalisation of audit letter reflecting the adjustments
to be made and additional assessments will be issued in terms of
section 92 of the TAA. Upon receipt of an additional assessment, the
following two important dates should be noted:
- The issue date of the additional assessment. It is 30 business days from this date where a taxpayer needs to take the next step in the dispute process, ie, requesting reasons for the additional assessment or objecting thereto. This is also the relevant date for determining whether a year of assessment has prescribed in terms of section 99 of the TAA.
- The second due date of the additional assessment. This is the final date by which payment of the amount due in terms of the additional assessment must be made. It is also the date by which a taxpayer must submit its suspension of payment application in terms of section 164 of the TAA, as discussed further below.
The obligation to make payment by a taxpayer
of an assessment is not suspended merely because that taxpayer intends
on disputing such assessment. However, section 164 of the TAA provides
taxpayers with the opportunity to submit a suspension of payment
application to SARS in which the taxpayer must motivate in terms of the
legislated factors why such payment should be suspended pending an
objection and appeal. Importantly, a taxpayer’s obligation to make
payment is, however, suspended while SARS is considering the taxpayer’s
application for suspension of payment in terms of section 164 of the
TAA. Accordingly, and from a practical perspective, should the SARS debt
management division make contact with a taxpayer regarding payment
while SARS is still considering a suspension of payment application, a
taxpayer can and should inform debt management that its obligation to
pay is suspended at that time.
Request for reasons, objection and appeal
If,
despite the explanations offered by SARS in the letter of audit
findings and the finalisation of audit letter, it remains unclear as to
why the additional assessments were issued and the taxpayer requires
reasons to enable it to formulate its objection, it may request reasons
in terms of rule 6 of the rules promulgated under section 103 of the TAA
(the “Rules”) within 30 business days from the issue date of the additional assessment.
Once
SARS has supplied the reasons, the taxpayer has 30 business days to
submit its notice and grounds of objection (where there is no request
for reasons, the 30 business days start running from the issue date of
the additional assessment). The requirements for an objection are
governed by section 104 of the TAA, together with rule 7 of the Rules. A
taxpayer’s objection is a fundamental document in the dispute process
as the taxpayer does not get another opportunity to add further grounds
of objection after this point. The objection must, inter alia,
specify the grounds of objection in detail including the specific amount
of the disputed assessment being objected to; which grounds of the
assessment are being disputed; and must include any documents required
to substantiate the grounds that the taxpayer has not previously
provided to SARS.
SARS has 60 business days to allow or disallow
the objection. If disallowed, the taxpayer has 30 business days from
that disallowance to submit its notice and grounds of appeal. The
requirements for an appeal are governed by section 107 of the TAA,
together with rule 10 of the Rules. The appeal must, inter alia,
specify in respect of which grounds of objection the taxpayer is
appealing; the grounds for disputing the basis of the decision to
disallow the objection; and any new ground on which the taxpayer is
appealing. Despite being able to appeal on a new ground, such new ground
may not constitute a new objection against an amount of the disputed
assessment.
There is an opportunity in the notice of appeal form to elect to refer the matter to an alternate dispute resolution (“ADR”)
process. Such a process freezes the time periods in respect of the next
steps in the formal dispute process and provides the parties with an
informal forum to try resolve the dispute. There are specific rules
(rules 13 – 25 of the Rules) that govern the ADR process.
Where
an ADR process is not followed or where such a process is unsuccessful
in resolving a dispute, the parties will draft and exchange their tax
court pleadings (colloquially referred to as the Rule 31 and Rule 32
Statements), which will crystallise the issues in dispute and will then
undertake all the preparatory work for the tax court, including
discovery, pre-trial conference and the like. All of these procedures
are also governed by the Rules.
Knowing and understanding the rights and obligations involved
As
is evident from this article, which merely provides a glimpse of what
is involved, the audit and dispute processes are intricate and detailed
and are also governed quite rigidly by legislation. It is therefore
important at each stage of an audit and/or dispute process for a
taxpayer to know and understand both its and SARS’ rights and
obligations, as well as the consequences of information provided and
actions taken.
Reviewed by Peter Dachs, head of ENSafrica’s tax department.
Taryn Solomon
tax | principal associate
tsolomon@ENSafrica.com
cell: +27 82 351 5158
add to Outlook contacts
No information provided herein may in any way be construed as legal advice from ENSafrica and/or any of its personnel. Professional advice must be sought from ENSafrica before any action is taken based on the information provided herein, and consent must be obtained from ENSafrica before the information provided herein is reproduced in any way. ENSafrica disclaims any responsibility for positions taken without due consultation and/or information reproduced without due consent, and no person shall have any claim of any nature whatsoever arising out of, or in connection with, the information provided herein against ENSafrica and/or any of its personnel. Any values, such as currency (and their indicators), and/or dates provided herein are indicative and for information purposes only, and ENSafrica does not warrant the correctness, completeness or accuracy of the information provided herein in any way.