Get Your Ducks In a Row And Know Your Rights as a Taxpayer
01 February 2006
Posted by: Author: Daniel Erasmus
Get Your Ducks In a Row And Know Your Rights as a Taxpayer (Part 2)
Let us then assume that SARS has made it clear that it is only conducting a regulatory investigation. In such a case there is still a set of rules that SARS must abide by before it is entitled to start extracting information from the taxpayer under investigation in order to conduct its regulatory audit.
In terms of the provisions of sections 74A and 74B of the Income Tax Act (sections 57A and 57B of the VAT Act) they must be able to show that they fall within the jurisdictional facts as set out in those sections.
What does this mean? If you look carefully at the wording of the sections you will see that the information,documents or things which SARS may require a taxpayer to produce must be "for the purposes of the administration of this Act”. That seems simple enough!
Did you know, however, that this term is specifically defined in section 74 of the Income Tax Act and section 57 of the VAT Act? In its definition it sets out the eight areas applicable to SARS where it is entitled to request information, documents or things from taxpayers.
SARS must not only quote which of those subsections are relevant to their investigation for which they require the information,documents or things, but they must specifically state and set out any underlying facts that have taken them to the decision to require the information, documents or things in the first place. In simple terms, this means that SARS must share with the taxpayer, in a transparent manner, why he or she is the subject of the current regulatory audit or investigation. If, for instance, SARS officials have received a tip-of f that the taxpayer is not declaring his/her full gross income, SARS must give details of this. This does not mean that SARS must divulge the source of their information, but they must be open and transparent enough to explain to the taxpayer that they are under investigation in a particular area of their affairs by virtue of this tip-off.
Immediately, this gives the taxpayer the opportunity to focus on the area of the audit and to then provide SARS with the appropriate information, documents and things that are relevant to the investigation in that specific area.
It is not supposed to be an open-ended fishing expedition! Furthermore, when it comes to information, documents or things,the taxpayer is only obliged to give that information, documents or things that existed at the time the request was made. Often SARS ask for input or advice or opinion of the taxpayer in relation to a particular set of facts. This is not information, documents or things, as defined, as it is not information,documents or things that exist in a recorded format as at the time that the request is made.In addition to the above, there are instances where SARS will approach an association that may have a list of various taxpayers on its records. Often SARS will then request broad-based information about the list of taxpayers on its records.This is also not in accordance with the provisions of the above-mentioned sections.
An investigation where information, documents or things are being requested must be in respect of a specified and identifiable taxpayer. In this regard, SARS must be able to give the specific name and appropriate tax reference number of that taxpayer concerned.They cannot just ask for a broad spectrum of information based on a suspicion that some of the information may pertain to taxpayers which they would now like to investigate in one form or another,without being specific as to what that investigation is.
Should a taxpayer be approached by SARS and SARS does not abide by what is set out in this article, he or she is well within their rights to question why SARS is conducting this particular investigation, not only to quote the appropriate subsection of the Act, but to get the underlying facts or evidence that has led SARS to the investigation in the first place.
In the absence of this crucial information to which the taxpayer is entitled, he or she may very well have just cause to show SARS why the investigation should not be allowed to continue.SARS would then find it very difficult to force the taxpayer into a corner and to threaten him/her with criminal charges in the event that this just cause is shown.
Source: By Daniel Erasmus (TaxTalk)