The new tax court rules

court hoodAuthor: Alan Lewis (ACBS)

This article considers some of the new rules, and their possible impact, on the future litigation process in the tax court.

On 11 July 2014, the Minister of Finance promulgated new rules, governing the procedures to lodge an objection and appeal against an assessment, and related matters (“the new rules”). These rules replaced the previous rules, which had been promulgated on 1 April 2003.

While retaining the some structure as the previous rules, the new rules introduce new procedures, such as regular discovery of documents, into the litigation process of the tax court. It also introduces some new terms such as  “statement of grounds of assessment and opposing appeal”, which replaces the Commissioner’s “statement of grounds of appeal”, as contained in the previous rules.

The date of delivery of documents

This aspect is dealt with as follows by rule 3(2) of the new rules:

For purposes of these rules, the date of delivery of a document-

“(a) in the case of delivery by SARS, the clerk or the registrar, is regarded as the date ofdelivery of the document in the manner referred to in the definition of “deliver” inrule 1, but subject to section 253; and

(b) in the case of delivery by the taxpayer, appellant or applicant (other than SARS), is regarded as the date of the receipt of the document by SARS, the clerk or the registrar.”

At first glance, it appears that there are two different dates of delivery. Where SARS, the clerk, or registrar, deliver a document, that date, is the date of delivery, while on the other hand, where the taxpayer delivers a document, that date is the date of receipt of the document, by SARS, the clerk, or registrar.

The term “receipt” is not defined in the rules. What does it mean? What is the difference between the date of receipt, on the one hand, and the date of delivery, on the other hand? Why must this distinction be made? Why do the same rules of delivery, not apply to all parties in an action, as it does in the rules of the High Court?

It appears that these questions will require the attention of the tax court. They could have been avoided, by applying the same date of delivery, to all parties in any trial or application.

It appears that the term “date of receipt” may set a more stringent requirement, which must be met by a taxpayer, as far as the delivery of documents is concerned. If this is so, then this requirement may discriminate against taxpayers, and be unconstitutional.

Reasons for assessment

In terms of rule 6, of the new rules, a taxpayer who is aggrieved by an assessment may, prior to lodging an objection, request SARS to provide the reasons for the assessment required to enable the taxpayer to formulate an objection in the form and manner referred to in rule 7, of the new rules.

So, what must SARS provide to the taxpayer, in response to a request for reasons for assessment? In my opinion, rule 7 is not helpful to answer this question.

It simply states that  “A taxpayer who lodges an objection to an assessment must specify the grounds of the objection in detail including-

(i) the part or specific amount of the disputed assessment objected to;

(ii) which of the grounds of assessment are disputed; and

(iii) the documents required to substantiate the grounds of objection that the taxpayer has not previously delivered to SARS for purposes of the disputed assessment.”

An assessment is based on the particular facts of a transaction, and the applicable legal principles of the governing fiscal legislation. These details, must be set out in SARS’ reasons for assessment, and it is inconceivable that anything less would be acceptable. This would be the only sensible manner, to interpret SARS’ obligation, to provide reasons for its assessments.

Notice of appeal

Where SARS disallows the taxpayer’s objection, the taxpayer may note an appeal against that decision. However, in terms of rule 10 (3), 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.

There may be various reasons why a taxpayer did not object to a particular part, or amount of an assessment. It seems unfair and unreasonable, to deprive that taxpayer of the right to fully and properly formulate an object to that part, or amount, at a later stage, and in its present form, this rule may be found to be unconstitutional.

It is settled law, that a taxpayer may object to an assessment, which was issued as a result of an error, which that taxpayer made, in completing the relevant return. If a taxpayer made an error in formulating the objection, the same reasoning should apply, to allow the taxpayer to amend that error, by appealing on a ground that does, in fact, constitute a new objection.

This article first appeared on the November/December edition on Tax Talk.