In a recent Tax Court Judgment handed down on 25 February 2022, the Court found in favour of an unnamed taxpayer, admonishing SARS for their persistent disregard for the time limits prescribed in the rules promulgated under Section 103 of the Tax Administration Act, 28 of 2011 (“the Rules”). The Court further confirmed that SARS’ delay is so egregious that it should not be countenanced. 

What led to the Application?

Following an audit performed by SARS in respect of the taxpayer’s 2016 to 2018 years of assessment, additional assessments were raised by SARS. The taxpayer, aggrieved by the assessments, requested SARS to provide reasons for the assessments, in order to enable the taxpayer to properly object to the assessments. The taxpayer duly requested reasons within the 30-day period as allowed by the Rules. 

SARS had 45 business days from the delivery of the taxpayer’s request to deliver its reasons, which it failed to do so, and unilaterally extended the time period for delivery of the reasons as per the Rules. 

Upon receipt of the reasons and within the prescribed 30-day time period, the taxpayer delivered its objection against the assessments. Once again, SARS failed to meet the 60-day time period prescribed for providing a notice of outcome of objection. Only after the taxpayer placed SARS on terms for delivery of the notice of outcome of objection by serving a legal notice, did SARS provide the taxpayer with an outcome, which was a partial disallowance of the objection.

The taxpayer then delivered its notice of appeal in accordance with the Rules, and importantly, alternative dispute resolution was not selected by the taxpayer. SARS was then required to deliver its Rule 31 statement within 45 days of the filing of the notice of appeal, which again, it failed to do. 

The taxpayer then put SARS on terms for the delivery of the Rule 31 statement, failing which the taxpayer would apply for a final order under section 129(2) of the TAA. The SARS official advised the taxpayer in formal correspondence that only the 2018 tax period had been allocated to her, despite the fact that the dispute spans from the 2016 to 2018 years of assessment. 

The taxpayer, in an attempt to accommodate SARS again, agreed to providing SARS with an extension until 30 July 2021, which SARS agreed to and confirmed that a Rule 31 statement covering all three tax periods would be provided on 30 July 2021.

In what will come as a surprise to few, SARS again failed to meet the above deadline, allocated the matter to another official after business hours on 30 July 2021, and requested an extension to 31 August 2021. The taxpayer, who had understandably had enough of SARS’ empty promises, refused the request for an extension. SARS only delivered its Rule 31 statement 36 days after the agreed upon extended deadline which it had requested. 

The Court’s finding

In a scathing judgment, the Court found SARS to have displayed a persistent disregard for the time limits prescribed in the Rules, specifically SARS’ failure to seek the extension required in respect of providing the reasons, failure to request an extension to file its Rule 31 statement and a failure to provide any explanation whatsoever to the taxpayer for the delays. The taxpayer submitted that the most recent series of delays were simply the perpetuation of a pattern of disregard for the Rules and what is required of administrative functionaries such as the SARS officials in the present matter, which the Court agreed with.  

The Court ruled that whatever gloss SARS seeks to put on it, the facts of the matter demonstrate that the delays experienced by the taxpayer were egregious, there had been no explanation for the delay and the resultant prejudice to the taxpayer, which prejudice SARS admits (since attempting to mitigate it) is severe. The Court went further to state that SARS had dismally failed to fulfil its obligations, both under the constitutionally entrenched right to fair administrative action, the TAA and the Rules. The Court also awarded costs to the taxpayer, but for reasons unbeknownst, did not award costs on a punitive scale, despite the lambasting judgment.

Disputes and Tax Advisors go Hand-in-Hand

Litigation is not only a costly, but also a lengthy and unpleasant, exercise. With the taxpayer (not to mention the taxpayer’s finances) at the heart of the dispute resolution process, the aim of tax advisors should be to submit first-time accurate disputes. By resolving the dispute speedily, they can avoid proceeding to Tax Court.

In finding assistance from a tax consultancy, it is important to note that tax dispute resolution is a highly specialised field. Most tax practitioners have limited understanding of the dispute and alternative dispute resolution process, simply because that is not their primary focus in the maze of tax services.

It is therefore prudent to find an advisory practice that has first-hand experience in dealing with disputes, preferably one who has experience with the dispute process, alternative dispute resolution process and has faced off against SARS in Tax Court.

One can certainly see the importance of appointing astute tax attorneys to deal with tax disputes, which seemingly was not the case here. While SARS may have difficulty in adhering to the prescribed time periods, there are ways to avoid such a protracted dispute without ending up in court.  

To avoid tax disputes from gathering dust, and to keep SARS to the letter of the law, it is best to work with a tax advisory service who takes a proactive in approach in bringing disputes to an amicable and timely resolution. Partnering with someone who is aware of the technical and legal points before entering into negotiations with SARS, can help expedite the resolution process and save the taxpayer a small fortune in unnecessary fees and penalties imposed by SARS.

Written by Andre Daniels, Legal Manager: Tax Controversy and Dispute Resolution at Tax Consulting SA