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SAIT Commentary on draft 2 of the new dispute resolution rules under section 103 of the TAA

23 July 2013   (0 Comments)
Posted by: SAIT Technical
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SAIT provided commentary on Draft 2 of the new dispute resolution rules under section 103 of the Tax Administration Act. These rules prescribe the procedures to be followed in lodging an objection and appeal against an assessment or a decision subject to objection and appeal referred to in section 104(2), procedures for alternative dispute resolution, the conduct and hearing of appeals before a Tax Board or Tax Court and transitional rules.

The submission follows below:

RE: CALL FOR COMMENT: DRAFT 2 FOR PUBLIC COMMENT OF DRAFT RULES TO BE PROMULGATED UNDER SECTION 103 OF THE TAX ADMINISTRATION ACT, 2011 (‘TAA')

Thank you for the opportunity to contribute commentary and assist in developing the Rules in terms of section 103 of the Tax Administration Act. We set out below first the issues there were previously included in our submission that have not been taken into consideration in the second draft as well as other new issues that have come to our attention.

 

1 PREVIOUS COMMENTS PROVIDED – NOT INCLUDED IN DRAFT 2

We are of the opinion that the following comments made in our previous submission have merit and should still be taken into consideration before finalizing the legislation:

 

1.1 Concern regarding completeness of the definition of "assessment”

 

Problem statement:

 

The definition of "assessment” in the current rules does not appear to include reference to other decisions made by SARS that are not subject to objection and appeal in the TAA.

 

Proposed solution / recommendation:

 

Inclusion is warranted in terms of the principles laid down in KBI v Transvaalse Suikerkorperasie Bpk 47 SATC 34 where it was held that any decision is subject to review in the Tax Court.

 

 

1.2 Rule 9: Decision on objection

 

Problem statement:  

Rule 9 provides for the allowance or disallowance of the objection, without requiring SARS to provide reasons for this decision.

Proposed solution / recommendation:

In terms of section 33 of the Constitution of the Republic of South Africa, 1996 (‘the Constitution') everyone has the right to administrative action that is lawful, reasonable and procedurally fair. Accordingly, in terms of section 5 of the Promotion of Administrative Justice Act (PAJA) an administrator, including a SARS official, is required to furnish adequate reasons for an administrative action. In practice, should a taxpayer request reasons for the disallowance of an objection, SARS provides these reasons. This practice could be construed as a practice generally prevailing.It is submitted that the decision to disallow an objection is administrative action that affects the rights of a taxpayer. We recommend that the rule be amended to require SARS to provide adequate written reasons for any disallowance of an objection.

The effect of SARS not providing reasons for the disallowance of an objection is that when a dispute reaches the hearing stage and the taxpayer is required to deliver a statement of the ground of appeal (see point 4 below), the taxpayer is severely disadvantaged because he/she has only been furnished with reasons for the assessment – not the disallowance of the objection.

In practice, even when SARS does provide reasons, such reasons are often not adequate. For instance, declaring that an accrual is deemed to be of a revenue nature and not capital, without stating why, makes it very difficult for a taxpayer to prepare his or her case. Similarly, a statement that a taxpayer does not meet the requirements of a certain provision is of no help when SARS does not indicate specifically which requirements were not met and why.The restrictive interpretation of "adequate reasons” in CSARS v Sprigg Investment 117 CC t/a Global Investment [2011] 3 All SA 18 (SCA) does not aid the taxpayer in this predicament.

If the Rules are not amended to require SARS to provide adequate reasons for the disallowance of an objection, such taxpayer's may seek recourse by requesting the reasons in terms of section 5 of the PAJA and, should SARS fail to do so, institute proceedings in terms of section 6 of that Act for judicial review.Section 34 of the Constitution may also provide recourse if it can be proven that the taxpayer has been denied his/her right to a fair trial.

From a practical point of view, a taxpayer might even decide not to proceed with an appeal if the reasons provided by SARS for the disallowance are adequately detailed and convincing; avoiding the need for ADR or a hearing. It is thus submitted that SARS be required to first provide a taxpayer with reasons for an assessment before the taxpayer has to provide SARS with a "statement of grounds of appeal” – see next point.

 

 

1.3 Part B, Rule 10: Appeal against assessment

 

Problem statement:  

Once an appeal has been noted by a taxpayer, the taxpayer is in terms of the new draft rules required to provide SARS with a "statement of grounds of appeal” before SARS provides the taxpayer with a "statement of grounds opposing an appeal”. This is opposite to how the current rules operate where SARS is under the obligation to first provide a taxpayer with a "statement of assessment” before the taxpayer has to provide SARS with a "statement of grounds of appeal”.

This change will no longer provide the taxpayer with an opportunity to understand what SARS' case is in respect of an assessment. SARS' reasons provided for an assessment (if requested from SARS after raising the assessment in terms of Rule 6), will be the only information that the taxpayer has to rely on.

Proposed solution / recommendation:

The reasons provided by SARS are often inadequate and not of a detailed nature as mentioned above and it is thus submitted that this proposed change will put the taxpayer at a severe disadvantage and needs to be amended. It is proposed that the current rules be retained (and the proposed amendments be disregarded) so that SARS is required to provide the taxpayer with a "statement of assessment” before the taxpayer is required to provide SARS with a "statement of grounds of appeal”. This will aid the taxpayer in understanding what SARS is disallowing/taxing, thereby ensuring that the taxpayer can appropriately address the issues under appeal.

 

1.4 Part B, Rule 12: Test cases

 

Problem statement:

The new rules make provision for "test cases" introduced by section 106(6) of the TAA. According to this section, where the determination of an objection or appeal is likely to be determinative of the issues involved in one or more other objections or appeals, SARS may designate the case as a 'test case'. Taxpayers are not afforded the opportunity to request their case to be regarded as a ‘test case'.

Proposed solution / recommendation:

Due to the huge costs that are involved in taking a matter to Court, (especially if SARS will appeal against an unfavourable decision) individual taxpayers are not in a position to take a matter to court. In situations where there are similar circumstances experienced by various taxpayers, it would be recommended that taxpayers be afforded the opportunity to request a ‘test case' that is funded by SARS. This is to avoid a multiplicity of actions and the waste of costs that will go with such actions on the same issue.

 

In this regard, SARS should consider following the Australian Tax Office's ‘Test Case Litigation Program' where the ATO provides financial assistance to taxpayers whose litigation is likely to be important to the administration of the country's revenue system. The aim of the program is to develop legal precedent - that is, legal decisions that provide guiding principles on how specific provisions administered by the revenue authority should be applied more broadly.

 

Cases selected for funding would need to involve issues where:

· there is uncertainty or contention about how the law operates

· the issue is of significance to a substantial section of the public or has significant commercial implications for an industry, and

· it is in the public interest for the issue to be litigated.

 

A test case litigation panel (the panel) should be formed to provide independent views on the merits of cases and on the significance of issues to the community. The panel should consist of accounting and legal professionals and senior tax officers. The panel should consider applications in light of the program's criteria and should recommend whether or not funding is appropriate.

 

The funding of these cases by SARS would ultimately be in the best interests for all and would help to ensure that the cases proceed to hearing and are decided as soon as possible.

 

 

2 NEW COMMENTS PROVIDED

 

2.1 Rule 1: Definition of "deliver”

 

Problem statement:

2.1.1. In certain instances when SARS has issued an assessment on efiling, the taxpayer and/or generally the tax practitioner assisting the client is/are not notified that the assessment has been issued. Taxpayers and their tax practitioners are thus not aware of the assessment unless they regularly log into their efiling profiles and check for any assessments that have been recently issued. Regularly checking whether assessments etc. have been "delivered” by SARS is not practical for either the taxpayer or the tax practitioner (that would, in most cases, need to do this from numerous clients). The definition of "deliver” does not require SARS to provide notification of the assessment being issued to the taxpayer/tax practitioner which could lead to frustrations being experienced by taxpayers and tax practitioners, and in certain instances might lead to late objections and payments being made.

 

2.1.2 There currently appears to be inconsistent treatment by different SARS branch offices with regard to the ”delivery” of objections to an assessment submitted by a taxpayer/tax practitioner. Certain branches permit the delivery either by hand or email whereas other branches have indicated that any form of delivery other than efiling is invalid. The latter treatment is not supported by the legislation and furthermore, causes practical difficulties for tax practitioners that merely assist taxpayers with objections and appeals as they do not have access to the taxpayer's efiling profiles as they do not submit their client's returns/payments etc.

 

 

Proposed solution / recommendation:

2.1.1. The definition of "deliver” under paragraph (b) should be expanded by requiring SARS to notify the tax practitioner (should a tax practitioner have lodged the underlying return in relation to which is a dispute has been lodged) or the taxpayer (in cases where a tax practitioner has not lodged the underlying return) of the posting of the assessment on efiling. This notification should be done by means of electronic mail on the date of the posting of the assessment by SARS on efliling.

2.1.2. The definition of "deliver” clarifies the acceptable manner of delivery by a taxpayer/tax practitioner of an objection to an assessment. SARS branch offices should be made aware of the alternatives of delivering the objections to ensure consistent treatment amongst the various SARS branch offices.

 

2.2 Rule 2: Date of delivery

 

Problem statement:

Rule 2(2) provides for two separate dates of delivery, one for SARS and another for the taxpayer. Where the taxpayer is the recipient, the date of delivery is the date SARS remits or sends the document. If SARS is the recipient, the date of receipt is the date of delivery. In the case of personal or electronic delivery, this does not make much of a difference. However, if a party makes use of registered mail, the taxpayer will be disadvantaged by this dual system. Since the dispute system in essence follows the civil procedures as opposed to criminal, the question arises if it is justifiable to have different principles applying to the two parties.

 

Proposed solution / recommendation:

Inequity will be avoided if the date of receipt is regarded as date of delivery in all instances.

 

2.3 Rule 6: Reasons for assessment

Problem statement:

Rule 6(5) requiring SARS to provide reasons why the taxpayer was not provided with adequate reasons to formulate an objection to an assessment, does not stipulate how these reasons should be communicated to the taxpayer.

Proposed solution / recommendation:

The rule should clearly stipulate that SARS should be required to provide these reasons in writing to the taxpayer.

 

2.4 Rule 7: Objection against assessment

Problem statement:

Section 3(4) of the Income Tax Act and section 32 of the Value Added Tax Act subject a number of decisions to the Chapter 9 dispute process. The preamble to the draft rules, as well as section 104 of the Tax Administration Act, make it clear that the dispute process applies not only to objections to assessments but also to objections to decisions. The amendment to Rule 7(1)(b) referring to ‘part or specific amount of the disputed assessment' appears to cater for objections to assessments and does not adequately provide for objections against decisions. Furthermore, from a practical point of view, the eFiling system makes no provision for objections other than objections to assessments. However, it is the only form of objection at the disposal of an individual or company as far as income tax is concerned. The manual ADR forms are similarly designed with only objections to assessments in mind.

 

Proposed solution / recommendation:

As a decision may not necessarily always involve a monetary amount, the provisions in the draft rules need to be amended to cater for these situations. From a practical perspective, clarity is required with regard to the manner and format in which objections against decisions need to be handled and completed.

 

2.5 Rule 8: Request for supporting documents after objection lodged

Problem statement:

Although Chapter 5 of the Tax Administration Act permits SARS access to documents to ensure proper administration of the Act, Rule 8(1) could be read so as to imply that SARS may not request supporting documents from a taxpayer after the expiration of the 30 day period mentioned in that rule.

Proposed solution / recommendation:

Clarity on whether SARS may request supporting documentation after the expiration of the 30 day period is required.

2.6 Rule 9: Decision on objection

Problem statement:

2.6.1 No recourse is provided for the taxpayer should SARS not adhere to the time limits set out in rule 9(1) and 9(2).

2.6.2 SARS is not afforded the opportunity, on receipt of an objection, to alter an assessment by issuing a reduced assessment or by withdrawing an assessment as was catered for in the previous rules.

Proposed solution / recommendation:

2.6.1 Recourse similar to rule 6(8) should be provided for in rule 9 affording the taxpayer the right to apply to the Tax Court (as set out in rule 52) in these circumstances.

2.6.2 The rules should be amended to afford SARS the opportunity to amend an assessment as indicated above.

 

2.7 Rule 10: Appeal against assessment

Problem statement:

Rule 10(2)(c), 10(3), and 10(4) appear to contain opposing views with regard to new grounds of objection.

Proposed solution / recommendation:

Clarity needs to be provided between the terms "new ground on which the taxpayer is appealing” (rule 10(2)(c)), "a ground that constitutes a new objection” (rule 10(3)) and "ground not raised in the objection” (rule 10(4)).

 

2.8 Rule 13: Notice of alternative dispute resolution

Problem statement:

No recourse is provided for the taxpayer should SARS not adhere to the time limits set out in rule 13(1).

Proposed solution / recommendation:

Recourse similar to rule 6(8) should be provided for in rule 13 affording the taxpayer the right to apply to the Tax Court (as set out in rule 52) in these circumstances.

 

2.9 Rule 20: Proceedings before facilitator

Problem statement:

2.9.1 Specific provision should be made in rule 20(3) for the proceedings to include parties convening by means of video conferencing and teleconferencing.

2.9.2 No recourse is provided for the taxpayer should the facilitator not adhere to the time limit set out in rule 20(7).

Proposed solution / recommendation:

2.9.1 The rule needs to be amended to provide for these circumstances that are a reality in certain situations (such as the person is unable to walk etc).

2.9.2 Recourse similar to rule 6(8) should be provided for in rule 20 affording the taxpayer the right to apply to the Tax Court (as set out in rule 52) in these circumstances.

 

2.10 Rule 32: Statement of Grounds Opposing Appeal

 

Problem statement:

Rule 31 makes it quite clear that the appellant may not include in the statement of grounds of appeal a ground of appeal that constitutes a new objection against a part or amount of the disputed assessment not objected to under rule 7. Rule 32, however, merely states that SARS may not include a ground that constitutes a novation of the factual or legal basis of the disputed assessment.

 

Proposed solution / recommendation:

Rule 32 should categorically state that SARS is not permitted to raise a new item pertaining to the assessment in dispute or a new basis for assessing the taxpayer to tax which was not previously advised to the taxpayer.

2.11 Rule 44: Procedures in Tax Court

Problem statement:

Section 102(2) places the onus of proving whether an estimate under section 95 is reasonable or whether the facts on which SARS based the imposition of an understatement penalty on are reasonable, on SARS. Rule 44(1) does not cater for the situation of estimation of assessments under section 95 of the Tax Administration Act.

Proposed solution / recommendation:

SARS should be required to commence the proceedings in such instances in respect of the understatement penalty imposed under section 222(1) of the Tax Administration Act.

2.12 Rule 52: Application provided for under rules

Problem statement:

A taxpayer has to avail himself of this process (apply to a Tax Court) in a number of instances listed in rule 52. For example, in terms of rule 52(1)(c) a taxpayer may bring an application if the period to lodge objection has not been extended in terms of section 104(4).

But section 104(2)(a) provides that a decision under subsection (4) not to extend the period for lodging an objection may be objected to and appealed against in the same manner as an assessment.

The same principle applies to the extension of the period for the submission of an appeal (section 107(2) and rule 52(1)(d).

Thus although the Tax Administration Act provides for a low-cost remedy, the Rules seem to imply that a taxpayer is required to bring an application to the tax court, although it is noted that rule 52 uses the word ‘may' and not ‘shall' or ‘must'. This procedure is obviously more expensive, time-consuming and requires a higher level of professional intervention.

Proposed solution / recommendation:

A cost effective remedy to deal with the above situations should remain permissible but should ultimately also be effective, thus negating the need to apply to the Tax Court.


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