The new rules governing objections and appeals were promulgated under section 103 of the Tax Administration Act No. 28 of 2011 (‘TAA’) in Government Gazette 37819 on 11 July 2014. These rules replace the rules which were promulgated under section 107A of the Income Tax Act and for all practical purposes the new rules took effect on 11 July 2014 and will therefore regulate the resolution of tax disputes going forward.
The new rules comprise some 68 rules whereas the old rules comprised some 29 rules. The new rules are very similar to the High Court rules regulating litigation and it is important that taxpayers are aware of the provisions of the rules should they entered into a dispute with the Commissioner: South African Revenue Service (‘SARS’).
The rules contain a number of definitions but one that must not be overlooked is that the term “day” means a business day as defined in section 1 of the TAA which excludes Saturdays, Sundays and public holidays and those days between 16 December of each year and 15 January of the following year. The rules define the term “deliver” as meaning to issue, give, send or serve a document to the address specified for such purpose under the rules and includes via eFiling. It is intended therefore that most of the documents required under the rules can be lodged via eFiling.
The rules authorise SARS and the taxpayer to agree to extend the time period set out in the rules when necessary.
Under rule 6 a taxpayer can request reasons prior to lodging an objection and should consider doing so where proper reasons have not been made available at the time that the assessment is issued. A request for reasons must be made in the prescribed form and manner and specify the address at which the taxpayer will accept delivery of the reasons. The taxpayer must request reasons within 30 days of the date of assessment and SARS is in turn required to provide those reasons within 45 days.
The period of 45 days may be extended by a maximum of 45 days where exceptional circumstances, complexity of the case, principle or the amount involved justify an extension.
If the SARS official is satisfied that reasons have been supplied previously, the taxpayer is required to be informed thereof within 30 days and SARS must refer specifically to the documents which contain those reasons.
Under Rule 7, a taxpayer is required to deliver their notice of objection within 30 days after receiving reasons or the date of the assessment in question. The taxpayer is required to complete the prescribed form and must specify the grounds of objection in detail, that is, that part or specific amount of the disputed assessment to which the taxpayer objects, as well as the grounds of assessment which are disputed. At the time of filing the objection the taxpayer is required to submit those documents which have not previously been delivered to SARS in substantiation of the grounds of objection.
SARS may regard the objection as invalid where the requirements contained in rule 7 are not met and is obliged to inform the taxpayer within 30 days thereof.
The taxpayer will then be permitted to submit a new compliant objection within 20 days, this was previously 10 days, following the delivery of the notice of invalidity. Unfortunately we are seeing too many cases where SARS regards an objection as invalid on various grounds instead of actually dealing with the merits of the objection and taxpayers need to be aware of this problem.
Once the taxpayer has filed their objection, SARS may call for the submission of substantiating documents which are required to be lodged within 30 days of the request being made.
SARS is required to inform the taxpayer of their decision on the objection within 60 days under Rule 9, this period was previously 90 days. The period may be extended by a period of 45 days where SARS requests further information and the period may be extended by a period of 45 days where exceptional circumstances or the complexity of the matter, principle or amount involved justify that extension.
Where the taxpayer receives a notice of disallowance of objection, they are entitled to appeal against that decision under Rule 10 and must deliver the notice of appeal in the prescribed form and manner within 30 days after delivery of the notice of disallowance of the objection. The taxpayer is required to specify in detail the grounds on which they are appealing, as well as the grounds for disputing the basis of the decision to disallow the objection and to specify a new ground on which the taxpayer is appealing. It is at this stage that the taxpayer is entitled to request that the matter be referred to Alternative Dispute Resolution (‘ADR’). It must be noted that the taxpayer may not appeal on a ground that constitutes a new objection against a part or amount of the disputed assessment not objected to under Rule 7. It is therefore critical that when the taxpayer drafts their objection that they deal with all items in dispute, as the failure to do so at the right time will mean that the taxpayer cannot raise disputes later.
The taxpayer would then have the right to have the matter heard by the Tax Board, where the tax in dispute does not exceed R500,000 and SARS and taxpayer agree that the matter should proceed to the Tax Board, which is less costly and less formal than proceeding to the Tax Court.
The new rules contain a new process whereby a case may be designated as a test case under Rule 12, whereby one case will proceed to the Tax Court and similar cases are stayed until the test case is decided.
Instead of proceeding to the Tax Court, the taxpayer may decide to ask that the matter be referred to ADR and this often does result in the tax dispute being resolved. The processes regarding ADR are governed by Rules 17 to 25 and are largely similar to the rules which were previously in place.
Where the case proceeds to the Tax Court, SARS is required to file a statement containing their grounds of assessment and opposing appeal (Rule 31) within 45 days of the taxpayer filing their notice of appeal or the failure of ADR. The statement is required to set out the statement of consolidated grounds of disputed assessment, as well as which facts or legal grounds in the taxpayer’s notice of appeal SARS admits and which are opposed. SARS is not entitled to include a ground which constitutes a novation of the whole or factual legal basis of the disputed assessment, or which requires the issue of a revised assessment.
The taxpayer is then required to deliver their statement of grounds of appeal (Rule 32) within 45 days after delivery of SARS’ statement or after discovery of documents by SARS. The taxpayer must set out their grounds of appeal and which facts or legal grounds are admitted and those which are opposed. The taxpayer is precluded from including a ground of appeal that constitutes a new ground of objection against a part or amount of the disputed assessment not objected to under Rule 7.
Under Rule 33 SARS may then deliver a reply to the taxpayer’s statement of grounds of appeal. The issues in the appeal are those contained in the Rule 31 and 32 statements. The rules allow for the parties to agree that the statements made under Rule 31, 32 or 33 be amended.
As is the case with civil litigation, the parties are required to make discovery of documents in accordance with Rule 36. Rule 37 regulates the notice of expert witnesses. A pre-trial conference is required to be arranged not later than 60 days before the hearing of the appeal.
Under Rule 39 the taxpayer is required to apply to the Registrar of the Tax Court for a date of hearing of the appeal by the Tax Court within 30 days of delivery of the statement of grounds of appeal or SARS’ reply thereto.
SARS in turn is required to compile a dossier for the Tax Court and submit that at least 30 days before the case is heard by the Tax Court.
Part F of the new rules regulate applications on notice either in terms of the TAA itself or under the rules governing objections and appeals, which would include applications for orders to compel the taxpayer or SARS to comply with the provisions of the rules and related matters. Part G of the new rules contains the transitional arrangements, which in principle provide that the new rules will apply to disputes currently in progress.
The frustration that taxpayers experienced in the past was that SARS often failed to adhere to the time frames contained in the old rules. It must be noted that the new rules seek to shorten the time frame for resolution of tax disputes and it is hoped that SARS will adhere to those periods.