Remedy for declined tax clearance certificate

sarsOn 18 February 2014 the North Gauteng High Court delivered a judgment on the remedies available when a tax clearance certificate (‘TCC’) is declined by SARS.

What is clear from the judgment is that when a taxpayer is dependent on a TCC for financial or business purposes and it gets declined by SARS, the potential impending economic harm that may come to a taxpayer from such refusal does not entitle the taxpayer to a court order compelling SARS to issue such a TCC sought.

The facts in this decision are briefly as follows:

The second applicant in these proceedings was a private company in business rescue from 27 May 2013. At a subsequent creditors’ meeting (23 August 2013), SARS voted against the business rescue plan prepared and submitted by the second applicant’s business rescue practitioner (i.e. the first applicant in these proceedings).

The business practitioner launched an application in terms of the provisions of section 153(1)(a)(ii) read with section 153(7) of the Companies Act No. 71 of 2008 to have SARS’s vote set aside on the basis that the vote was inappropriate. That application was currently still pending by the time these proceedings were entered into.

In the meantime (shortly after the company entered into business rescue) the Department of Defence sent a letter to the second applicant notifying it that its TCC was due to expire on 22 February 2014. In response to this request, the applicants lodged a formal application for a new TCC on 5 February 2014. This application was refused by SARS on 7 February 2014. Thereafter the present application was lodged by the applicants on 13 February 2014.

The application of the law in the decision:

A decision on the issuance of a TCC constitutes administrative action as contemplated by the Promotion of Administrative Justice Act 3 of 2000 (‘PAJA’). Should applicants be dissatisfied with the Commissioner’s decision and wish to challenge it, they should launch review proceedings as provided for by section 8 of PAJA. In the absence of such proceedings and pending the finalisation thereof, the decision of SARS remains in place and is of full force and effect.

The judge quoted from the judgment of the Supreme Court of Appeal in the matter of Oudekraal Estates (Pty) Ltd v City of Cape Town and Others 2004 (6) SA 222 SCA (at 242 8-0):

“The proper functioning of a modern state would be considerably compromised if all administrative acts could be given effect to or ignored depending upon the view the subject takes of the validity of the act in question. No doubt it is for this reason that our law has always recognised that even an unlawful administrative act is capable of producing legally valid consequences for so long as the unlawful act is not set aside.”

The issuing of a TCC is governed by the provisions of the Tax Administration Act 28 of 2011 (‘the TAA’) i.e. section 256(3):

“A senior SARS official may provide a taxpayer with confirmation of the taxpayer’s tax compliance status and may confirm that the taxpayer is tax compliant by issuing a tax clearance certificate only if satisfied that the taxpayer is registered for tax and does not have any —

  1. outstanding tax debt, excluding a tax debt contemplated in section 167 or 204 or a tax debt that has been suspended under section 164 or does not exceed the amount referred to in section 169 (4); or
  2. outstanding return unless an arrangement acceptable to SARS has been made for the submission of the return.”

The second applicant had an outstanding tax debt of just under R12 million which according to SARS was not a debt as contemplated by section 167 and 204 of the TAA and was not suspended in terms of section 164 thereof.

The judge stated that it must be borne in mind that the relief sought by the applicants was not interim but final. Section 256(3) does not provide for the issuance of an interim or provisional TCC. The provisions of section 256(3) of the TAA are peremptory in that they allow the Commissioner to issue a TCC “only if satisfied” that the requirements of the section are met.

The judgment may be summarised as follows:

The consequence of granting the relief sought by the applicants would set a precedent that would negatively impact on SARS’s tax administration. In the future every taxpayer whose application for a TCC had been refused would simply be entitled to approach the court and without having to address the merits of the refusal obtain an order compelling SARS to issue him/her with a TCC.

The judge remarked: “Quite clearly that would cause chaos within the country and tax administration would come to a standstill.”

The fact that a refusal of a TCC is likely to cause the taxpayer involved actual or impending harm does not entitle them to a mandamus compelling this court or SARS to issue such a TCC.

Applicants should have treated the TCC issue as a priority and addressed it from commencement of the business rescue proceedings. They did not do so and only sprung into action in this regard when they were notified of the pending expiry of their TCC. They did not take appropriate action for a period of about 8 months. The judge struck the application off the roll with costs.