Author: Mareli Treurnicht (International Law Office).
Section 99 of the Tax Administration Act (28/2011) prescribes the period of limitations for issuance of assessments. It states that, among other circumstances, the South African Revenue Service (SARS) may not make an assessment in terms of Chapter 8 of the Tax Administration Act:
- three years after the date of an original assessment by SARS;
- in the case of self-assessment for which a return is required, five years after the date of an original self-assessment by the taxpayer or, if no return is received, an assessment by SARS; or
- in the case of a self-assessment for which no return is required, five years after:
- the date of the last tax payment for the tax period; or
- the effective date, if no payment was made in respect of the tax period.
At present, the above prescription periods do not apply in the following circumstances:
- In the case of assessment by SARS, the full amount of tax chargeable was not assessed due to fraud, misrepresentation or non-disclosure of material facts; or
- In the case of self-assessment, the full amount of tax chargeable was not assessed, due to:
- intentional or negligent misrepresentation;
- intentional or negligent non-disclosure of material facts; or
- failure to submit a return or (if no return was required) to make the required tax payment.
The Tax Administration Laws Amendment Bill 2015 proposes to extend the aforementioned time periods by introducing the new Sections 99(3) and (4) of the Tax Administration Act. Section 99(3) provides that the commissioner for SARS may, with at least 30 days’ prior notice to the taxpayer, extend the aforementioned periods or an extended period under Section 99 (before expiry), by a period approximate to the delay arising from:
- failure by the taxpayer to provide all relevant material requested under Section 46 of the Tax Administration Act; or
- resolution of an information entitlement dispute, including legal proceedings.
Section 99(4) provides that the commissioner for SARS may, by prior notice of at least 60 days to the taxpayer, extend any of the aforementioned periods (before expiry) by three years (in the case of an assessment by SARS) or two years (in the case of self-assessment), where an audit or investigation under Chapter 5 of the Tax Administration Act relates to:
- the application of the doctrine of substance over form;
- the application of Part IIA of Chapter III of the Income Tax Act (58/1962) (ie, the general anti-avoidance rule), Section 73 of the Value-Added Tax Act (89/1991) or any other general anti-avoidance provision under a tax act;
- the taxation of hybrid entities or instruments; or
- Section 31 of the Income Tax Act (ie, the transfer pricing provisions).
According to the Memorandum on the Objects of the Tax Administration Laws Amendment Bill 2015, too large a proportion of SARS’s resources is spent on information entitlement disputes, resulting in insufficient time for SARS to ensure that it has all the information required to make a correct assessment at its disposal. The memorandum states that failures by taxpayers to provide information and information entitlement disputes are often tactical or vexatious, given that taxpayers are aware of the period within which SARS must finalise the audit and issue additional assessments. It further states that information entitlement disputes are often based on convoluted or strained interpretations of the relevant provisions of the Tax Administration Act and some matters subject to audit may be so complex that it is impossible to meet the prescription deadline – particularly in the context of audits requiring SARS to consider the application of the general anti-avoidance rule or transfer pricing audits.
The proposed amendments to Section 99 of the Tax Avoidance Act seek to address these issues by providing for an extension of the existing prescription period before it comes to an end. This will allow the taxpayer an opportunity to make representations as to why the existing prescription period should not be extended.
This article first appeared on internationallawoffice.com.