Tax Administration Laws Amendment Bill (B14 of 2014) will effect amendments to the TAA
17 February 2015
Posted by: Author: PwC South Africa
Author: PwC South Africa
Tax Administration Laws Amendment Bill (B14 of 2014) will effect amendments to the Tax Administration Act 28 of 2011
A significant amendment is to an aspect of the statutory pay-now-argue-later rule
The pay-now-argue-later rule
The fearsome pay-now-argue-later rule, as currently laid down in section 164(1) of the Tax Administration Act, provides that, unless a senior SARS official otherwise directs, the obligation to pay tax is not suspended by an objection or appeal against a disputed assessment.
Section 164(3) goes on to say that a senior SARS official may, at the request of a taxpayer, suspend the obligation to pay the whole or a portion of the disputed tax that is due in terms of an assessment.
The decision of the SARS official in response to such a request will constitute administrative action as envisaged in Promotion of Administrative Justice Act 3 of 2000, and the taxpayer would be entitled to apply for a judicial review of an adverse decision.
Such a resort to the courts would entail a review by the High Court of the decision by the senior SARS official, not an appeal against that decision.
A review is concerned, not with whether the decision was right or wrong, but with whether it was arrived at by a proper process,inter alia whether relevant factors were taken into account in making the decision, and irrelevant considerations ignored.
Consequently, the statutory criteria that the senior SARS official is required to take into account in reaching his decision will be a central concern of the reviewing court in deciding whether the adverse decision should be set aside.
The Tax Administration Act specifies in section 164(3) what those criteria are, and it is this sub-section that is now to be significantly amended.
Old versus new statutory criteria to be applied in deciding on obligation to pay a disputed tax assessment to be suspended pending a decision by the Tax Court
It is worth bearing in mind that there has to date been no reported judgment in which the court has weighed and applied the statutory criteria for suspension of the taxpayer’s obligation to pay assessed but disputed tax.
Several speculative inferences can be drawn from the dearth of reported judgments involving litigation between taxpayers and SARS in regard to a taxpayer’s request for suspension of the obligation to pay disputed tax. One possibility is that SARS did not dare take the risk of a pro-taxpayer judgment, which might have opened the floodgates of requests for suspension of the obligation to pay disputed tax.
The new amendments have now made the task of a reviewing court even more difficult.
Firstly, the amended text no longer sets out a closed list of relevant factors. This provision now says that the official must have regard ‘to relevant factors including …’ Hence, the list that follows is not comprehensive, and the range of relevant factors is now unlimited. (No relative weight is assigned to the various factors, nor are they ranked in relative importance.) However, a taxpayer would be entitled, in requesting reasons for an adverse decision by SARS in response to a request for suspended payment, to require SARS to specify each and every factor that was taken into consideration in reaching the decision in question.
The factor of ‘the amount of tax involved’ has been deleted from the list of relevant factors, presumably because this aspect is covered by the criterion relating to whether the taxpayer will suffer hardship if he has to pay the disputed tax up-front.
A serious ambiguity that has been introduced by making the list of factors merely inclusive is whether the merits of the taxpayer’s objection to the assessment must be taken into account.
The most problematic new criterion introduced by the foreshadowed amendments is that account must be taken not merely of whether payment will result in irreparable financial hardship to the taxpayer (which was the previous criterion) but whether there will be ‘irreparable financial hardship’ (and apparently nothing less than ‘irreparable’ hardship is relevant) that is not justified by the prejudice to SARS or the fiscus if the disputed tax is not paid or recovered. The language is strange, for it suggests that it is only in circumstances where there will be ‘irreparable’ financial hardship to the taxpayer that it becomes necessary to balance such hardship against the potential prejudice to SARS. Since it is scarcely possible that the financial prejudice to SARS could ever be ‘irreparable’ (if this means prejudice from which SARS could never recover), is it conceivable that the scales could ever tilt against a taxpayer whose prejudice would be irreparable?
Moreover, any balancing of prejudice between the taxpayer and SARS will be difficult, and sometimes impossible. On review, the High Court is going to have to ask itself, for example, what weight to accord to the non-financial prejudice to the taxpayer of having to dispose of his principal residence, rely on public transport to reach his workplace, or move his children from private educational institutions, so that he can pay the disputed tax? On what scale can such lifestyle detriment be balanced against the purely financial loss that SARS could potentially suffer if the due tax was never recovered? In short, this criterion would require a reviewing court to compare apples with oranges.
If a taxpayer can provide security for payment of the disputed tax, would it ever be rational for SARS to insist on payment?
And how is the countervailing financial prejudice to SARS going to be quantified, given that the amount involved in any single tax dispute, even the largest, is a mere drop in the ocean in relation to the overall amount of tax collected by SARS?
In short, the criteria for the suspension of the obligation to pay disputed tax will present a reviewing court with great difficulties of interpretation and application.
It is arguable that this provision should simply have said that SARS can suspend the obligation to pay the disputed tax if liability is bona fide disputed on reasonable grounds (admittedly not an easy criterion, since it requires at least some consideration of the merits of the taxpayer’s objection to the assessment) or where there are reasonable grounds to believe that the taxpayer may dissipate assets to defeat the claim of the fiscus.
Further than this the law can’t realistically go without becoming mired in quicksand.
The major remedy available to a taxpayer where SARS seeks to take and execute a fast-track ‘judgment’ in respect of a disputed assessment
The taxpayer’s right to request a suspension of the obligation to pay an assessed but disputed amount of tax is his major defensive stratagem where SARS has taken a fast-track ‘judgment’ against the taxpayer in terms of section 172 of the Tax Administration Act 28 of 2011, which provides that –
If a person has an outstanding tax debt, SARS may, after giving the person at least ten business days’ notice, file with the clerk or registrar of a competent court a certified statement setting out the amount of tax payable and certified by SARS as correct.
Section 174 goes on to say that –
A certified statement filed under section 172 must be treated as a civil judgment lawfully given in the relevant court in favour of SARS for a liquid debt for the amount specified in the statement.
Notwithstanding the draconian nature of SARS’s powers in this regard, the constitutionality of the similar powers and process provided for in the Value-Added Tax Act was upheld by the Constitutional Court in Metcash Trading Ltd v Commissioner, South African Revenue Service 2001 (1)SA 1109 (CC).
Where the taxpayer has requested that his obligation to pay a disputed amount of tax be suspended, pending a decision by the Tax Court in relation to the assessment, SARS is required to take a decision in response to that request.
Such a decision constitutes administrative action as envisaged in the Promotion of Administrative Justice Act 3 of 2000. Consequently, where SARS gives a negative response to the request, that response can be taken on review to the High Court in terms of that Act.
As Binns-Ward J said in Capstone 556 (Pty) Ltd and Kluh Investments (Pty) Ltd v CSARS  ZAWCHC297 at para  –
The exercise of the power to grant a suspension in terms of [what is now s 164(2) of the Tax Administration Act] constitutes administrative action within the meaning of s 33 of the Constitution and of the Promotion of Administrative Justice Act 3 of 2000 (‘PAJA’). Any decision by the Commissioner in the exercise of the power is accordingly susceptible to judicial review in terms of s 6 of the Promotion of Administrative Justice Act.
In that judicial review, the issue will be, not whether the refusal of the request to suspend the obligation to pay the tax in question was ‘right’ or ‘wrong’, but whether the decision was rational, for if it was not, the court can set it aside.
The rationality or otherwise of the decision will be greatly influenced by the criteria laid down in section 164(3) of the Tax Administration Act, which SARS is required to apply in responding to a request for a suspension of the obligation to pay the disputed tax.
This article first appeared on pwc.co.za.