Author: Peter Dachs (Tax Director at ENSAfrica)
The South African Revenue Service (“SARS”) often sends out information requests in terms of section 46 of the Tax Administration Act. The question arises, in what circumstances SARS is permitted to ask such questions and what limits exist in respect of their powers?
Relevant legislative provisions
The Tax Administration Act has recently been amended by the Tax Administration Laws Amendment Act, 2014. This made certain changes to SARS’ powers to request information from a taxpayer.
Section 46(1) of the Tax Administration Act states that:
“SARS may, for the purposes of the administration of a tax Act in relation to a taxpayer, whether identified by name or otherwise objectively identifiable, require the taxpayer or another person to, within a reasonable period, submit relevant material (whether orally or in writing) that SARS requires”.
The definition of the term “relevant material” prior to the Tax Administration Act was:
“any information, document or thing that is forseeably relevant for the administration of a tax Act as referred to in section 3”.
In terms of the Tax Administration Act the definition of “relevant material” was amended as follows:
“any information, document or thing that in the opinion of SARS is foreseeably relevant for the administration of a tax Act as referred to in section 3”.
Section 3(2) of the Tax Administration Act states that “administration of a tax Act” means, inter alia, to obtain full information in relation to anything that may affect the liability of a person for tax in respect of a previous, current or future tax period.
In terms of section 46(6) of the Tax Administration Act, relevant material required by SARS under this section must be referred to with “reasonable specificity”.
Scope of SARS information collecting powers
As noted above, SARS may only request information that is “relevant material”. This definition refers to information which is “foreseeably relevant” for the administration of a tax Act.
The Explanatory Memorandum to the Tax Administration Act sets out certain comments in relation to the test of what is “foreseeably relevant”:
“According to the literature, the test of what is foreseeably relevant for domestic tax application would have a low threshold, and the application of what is ‘‘foreseeably relevant’’ follows the following broad grounds:
- whether at the time of the request there is a reasonable possibility that the material is relevant to the purpose sought;
- whether the required material, once provided, actually proves to be relevant is immaterial;
- an information request may not be declined in cases where a definite determination of relevance of the material to an ongoing audit or investigation can only be made following receipt of the material;
- there need not be a clear and certain connection between the material and the purpose, but a rational possibility that the material will be relevant to the purpose; and
- the approach is to order production first and allow a definite determination to occur later”.
The comments in the first three bullets of the aforementioned extract from the Explanatory Memorandum appear to have been taken from the publication, OECD Update to Article 26 of the OECD Model Tax Convention and its Commentary, which was approved by the OECD Council on 17 July 2012.
Article 26(1) of the OECD Model Convention, which deals with exchange of information, states that:
“the competent authorities of the Contracting States shall exchange such information as is foreseeably relevant for carrying out the provisions of this Convention or to the administration or enforcement of the domestic laws concerning taxes”.
In this regard, the OECD Commentary states that:
“The standard of ‘foreseeable relevance’ is intended to provide for exchange of information in tax matters to the widest possible extent and, at the same time, to clarify that Contracting States are not at liberty to engage in “fishing expeditions” or to request information that is unlikely to be relevant to the tax affairs of a given taxpayer. In the context of information exchange upon request, the standard requires that at the time a request is made there is a reasonable possibility that the requested information will be relevant; whether the information, once provided, actually proves to be relevant is immaterial. A request may therefore not be declined in cases where a definite assessment of the pertinence of the information to an ongoing investigation can only be made following the receipt of the information.”
Therefore, it appears there is international support for the argument that the test of what is “foreseeably relevant” would have a “low threshold”.
However, as can also be seen from the above-quoted extract from the OECD Commentary, this does not mean that the test of what is “foreseeably relevant” permits “fishing expeditions” or requests for information that are unlikely to be relevant to the tax affairs of a given taxpayer.
It is stated in the Explanatory Memorandum in relation to the amendment to the definition of “relevant material” that:
“The proposed amendment aims to clarify that the statutory duty to determine the relevance of any information, document or thing for purposes of e.g. a verification or audit, is that of SARS and the term foreseeable relevance does not imply that taxpayers may unilaterally decide relevance and refuse to provide access thereto, which is what is happening in practice”.
The Explanatory Memorandum states that:
“The fact that SARS determines what relevant material is required for purposes of the administration of a tax Act does not mean that the taxpayer has no remedies during, for example, the audit process. It is submitted that a taxpayer would have the following remedies:
- Request SARS to withdraw or amend decision to request material – section 9 of the Tax Administration Act, 2011;
- Pursue the internal administrative complaints resolution process of SARS;
- Approach the Tax Ombud
- Approach the Public Protector”.
A further potential remedy available to a taxpayer would be to bring an application for review on the basis that the request for information by SARS constitutes unfair administrative action under the Promotion of Administrative Justice Act.
Section 234(h)(i) of the Tax Administration Act states that a person who wilfully and without just cause refuses or neglects to furnish, produce or make available any information, document or thing (excluding information requested under section 46(8) of the Tax Administration Act) as and when required in terms of the Tax Administration Act, is guilty of an offence and, upon conviction, is subject to a fine or to imprisonment for a period not exceeding two years.
It can therefore be seen that SARS has wide powers to request information from taxpayers. It may now request information or documents that, in SARS’ opinion, is foreseeably relevant in order to obtain information in relation to anything that may affect the liability of a person (not necessarily the taxpayer) in respect of a previous, current or even a future tax period.
However, these powers are not unfettered and do not, for example, permit SARS to embark on a fishing expedition outside the scope of these powers.