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Amendments to the definition of relevant material for purposes of the Tax Administration Act

09 January 2015   (0 Comments)
Posted by: Author: Dr Beric Croome
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Author: Dr Beric Croome (Edward Nathan Sonnebergs Inc.)

Introduction

The Minister of Finance tabled the Tax Administration Laws Amendment Bill No. 14 of 2014 in Parliament on 22 October 2014 at the same time that he introduced the 2014 Medium Term Budget Policy statement. The Bill as introduced by the Minister of Finance, also contained the memorandum on the objects of the Tax Administration Laws Amendment Bill of 2014. This article will consider certain of the amendments proposed to the Tax Administration Act No. 28 of 2011 which will take effect once the Bill is enacted.

Amendment of section 45 of the Value-Added Tax Act No. 89 of 1991

Clause 32 of the Tax Administration Laws Amendment Bill (‘TALAB’) proposes amending section 45 of the Value-Added Tax Act (‘VAT Act’), which regulates the payment of interest to a vendor, where SARS delays a refund payable to the vendor.

It is important to note that it was previously proposed by way of section 271, read with paragraph 134 of schedule 1 to the Tax Administration Act No. 28 of 2011 (‘TAA’) that with effect from a date to be determined by the President by proclamation in the Gazette that a delayed refund would not be payable if a person fails to, without just cause, submit relevant material requested by SARS for purposes of verification, inspection or audit of a refund in accordance with chapter 5 of the TAA. In addition, the provision applied where a taxpayer failed to furnish SARS in writing with particulars of the account required in terms of section 44(3)(d) of the VAT Act to enable SARS to transfer a refund to that account. The date on which the proposed amendment was to take effect was not determined as it related to interest which was dealt with in Government Gazette 35687 published on 14 September 2012.

Clause 32 of the TALAB now removes the reference to where a taxpayer fails to submit relevant material requested by SARS for purpose of verification, inspection or audit of a refund in accordance with chapter 5 of the TAA. Thus, the fact that a taxpayer fails to submit the necessary material to SARS will not prevent the payment of interest to the taxpayer once the refund is finalised and paid to the taxpayer. The requirement to furnish SARS in writing with particulars of the account required in terms of section 44(3)(d) of the VAT Act to enable SARS to transfer a refund to that account remains in place. Thus, where a taxpayer fails to comply with that requirement, no interest will accrue on the amount refundable from the date that the refund is authorised until the date that the person submits the bank account particulars. The proposed amendments will take effect on the date on which the TALAB is promulgated. The Explanatory Memorandum on this particular provision contained in the TALAB indicates that in practice it has proven factually difficult and impractical for SARS to apply the rules set out in the proposed amendment. 

Clause 37 of the Tax Administration Laws Amendment Bill

Clause 37(b) of the TALAB proposes that the definition of "relevant material” in section 1 of the TAA will in future provide as follows:

"means 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”

Previously, the definition of "relevant material” did not refer to "in the opinion of SARS”. The rationale for the above amendment as set out in the Explanatory Memorandum on the Objects of the TALAB is to prevent protracted disputes about the information which SARS believes it is entitled to under the information gathering powers contained in the TAA.

The Explanatory Memorandum points out that the proposed amendment seeks to clarify that the statutory duty to determine the relevance of any information, document or thing for the purposes of, for example, 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. SARS indicates that in practice taxpayers are deciding what information should be submitted to SARS and what information should not be so provided.

In addition, the Explanatory Memorandum indicates that according to the literature, which is not cited in the Explanatory Memorandum, 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 principles:

  • 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 to allow a definite determination to occur later.

The Explanatory Memorandum points out that the protection of taxpayer information received by SARS is confidential and protected under chapter 6 of the TAA and may only be disclosed to another party in certain specific circumstances referred to in chapter 6 of the TAA.

The Explanatory Memorandum indicates that SARS received comments that SARS should provide reasons for each request for information, explaining why the material requested is considered relevant. SARS indicates that this is impractical when auditing taxpayers and referred to the case of Australia and New Zealand Banking Group Limited v Konza, [2012] FCA 196, which SARS relies on as a basis not to justify why material requested is in fact relevant. It is unfortunate that SARS does not draw attention to the fact that Australia does not have a Bill of Rights enshrined in a constitution as is the case in South Africa where the right to administrative justice set out in section 33 of the Constitution of the Republic of South Africa is paramount. 

SARS indicates that where a taxpayer is dissatisfied in the manner in which SARS requests information, taxpayers have the following remedies:

  • Request SARS to withdraw or amend the decision to request material in terms of section 9 of the TAA;



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