On 17 September 2019, the South African Revenue Service (SARS) released a Media Statement regarding the steps that SARS has taken in implementing the Nugent Commission (Commission) recommendations (Media Statement).
The announcement regarding the re-constitution of the High Court Litigation Unit, comes hot on the heels of a proposal made in the draft Tax Administration Laws Amendment Bill, 2019 (Draft TALAB), which was released on 21 July 2019. In terms of the Draft TALAB, it was proposed that the notice requirement in s11(4) of the Tax Administration Act, No 28 of 2011 (TAA) should be amended. The notice requirement must be met before taxpayers can institute proceedings against SARS in the High Court.
We discuss the current position and matters related to the proposed amendment below.
In terms of s11(4) of the TAA, unless the court otherwise directs, no legal proceedings may be instituted in the High Court against SARS unless the applicant has given SARS written notice of at least one week of the applicants intention to institute legal proceedings.
Proposed amendment and reason
In terms of clause 25 of the Draft TALAB, it is proposed that s11(4) of the TAA is amended to change the period of one week to 21 business days.
The Memorandum on the Objects of the Draft TALAB (Memorandum) states that the one week notice period has proven to be impractical in practice to give effect to the rationale for the notice, i.e. to enable SARS an opportunity to investigate the matter further and to decide how to resolve the dispute, for example by exploring a dispute resolution process, thereby avoiding litigation at the publics expense. The proposed amendment increases the current one week period to 21 business days in order to afford SARS sufficient time to investigate the matter to see if it can be resolved without resorting to litigation, unless a competent court directs otherwise, for example in the case of urgency. In comparison, for example, the Institution of Legal Proceedings Against Certain Organs of State Act, 2002, [Act 40 of 2002] provides that no legal proceedings for the recovery of a debt may be instituted against an organ of state unless the creditor has given the organ of state six months written notice, from the date the debt became due, of his or her or its intention to institute the legal proceedings in question.
Problems with the proposed amendment
Considering the provisions of the TAA and what is occurring in practice, the proposed amendment could potentially create a number of problems. CDHs Tax & Exchange Control Practice made submissions to National Treasury regarding the proposed amendment.
In practice and based on existing case law, it appears that the High Court is mostly approached in cases where SARS has rejected an application to suspend payment of tax in terms of s164 of the TAA (SOP Application) or has refused to pay a refund in terms of s190 of the TAA. An example of a case where SARS refused to pay a refund is the matter of Top Watch (Pty) Ltd v The Commissioner for the South African Revenue Service: 80 SATC 448, which we discussed in ourTax & Exchange Control Alert of 13 July 2018.
In the case of a SOP Application being rejected, s164 of the TAA states that SARS may institute enforcement proceedings to recover a tax debt, once 10 business days have passed since the date the application was rejected. Therefore, it is crucial that a taxpayer whose SOP Application has been rejected, has the option to institute urgent proceedings in the High Court to review SARSs decision before the period of 10 business days has elapsed. Within this context, changing the period in s11(4) of the TAA to 21 business days would render the section superfluous and useless, as SARS might have already by that time issued a third-party instruction in terms of s179 of the TAA, pursuant to which funds would be automatically deducted from the taxpayers bank account.
Within the context of refunds and applications in terms of s190 of the TAA, the issue is that any delay in the receipt of a refund could have a significant adverse effect on a taxpayers cash flow and ability to conduct business. As stated in the Memorandum, the justification for the longer notice period is based on the provisions of the Institution of Legal Proceedings Against Certain Organs of State Act 40 of 2002, which provides for a six-week notice period.
Despite what is stated in the Memorandum, there is a fundamental difference between litigation against the State outside the context of tax proceedings and the institution of High Court proceedings against SARS. The Memorandum acknowledges that in terms of Act 40 of 2002, it is the creditor that must give notice before proceedings are instituted against the State. However, in the context where a SOP Application is rejected, SARS is the creditor that is seeking payment of the tax debt, and not the taxpayer which seeks to review SARSs decisions.
Furthermore, where the dispute pertains to the payment of a refund in terms of s190, one is dealing with a liquidated debt that is not paid, but which is a claim that has already been proven, unless it is being verified by SARS in terms of s190(2). On the contrary, Act 40 of 2002 mostly applies in cases where the damages suffered first need to be proven by the relevant individual and one is mostly not dealing with a liquidated claim and the individual is not entitled to any relief, until the claim in question has been proven.
Submissions by the public and response
Following receipt of written submissions from the public on the Draft TALAB, workshops hosted by National Treasury regarding the proposed amendments in the Draft TALAB and parliamentary hearings that took place on 10September2018, National Treasury gave a presentation to the SCOF (Presentation).
The Presentation dealt with, amongst other things, comments received from the public regarding the proposed amendment to s11(4) of the TAA and National Treasurys response thereto. It appears that National Treasury has heeded some of the public comments received on the proposed amendment as according to the Presentation, National Treasury has decided to revise the one-week notice period to a notice period of 10 business days and indicates that the situation will be monitored.
Whilst the proposal to revise the notice period to 10 business days is better than the original proposal to amend the notice period to 21 business days, it may still not be ideal. In the case of SOP Applications that are rejected, the issues highlighted above may still arise. However, it should be noted that the proposed amendment will only come into effect if it is retained in its current form and passed by Parliament.
SARSs announcement regarding the re-constitution of its High Court Litigation Unit places the proposed amendment to s11(4) of the TAA in a different context. Considering the issues that the proposed amendment may still cause, one has to question why the amendment was proposed while in the background, SARS was already taking steps to address the issues raised in the Memorandum.
It remains to be seen whether the revised proposal to amend the notice period will become law, but the situation will certainly be monitored closely.