Common Myths Regarding “Pay Now, Argue Later”
03 June 2016
Posted by: Author: Lucia Hlongwane
amendments to S163(3) of the TAA and the Metcash case, "pay now, argue later” is
not in all instances irrefutable.
Since last year January, when the
number of factors that SARS is required for take into account when considering an application to suspend the "pay now, argue later” principle was reduced from eight
to five, it seems to have had an effect on the mind set of taxpayers seeking to
suspend the "pay now, argue later” principle.
In many people’s minds, it has
created the impression that the taxpayer now carries a greater evidential
burden when it comes to successfully proving that SARS should suspend the
principle. However, these changes should not cause taxpayers to think that they
have no option but to pay, pending finalisation of the dispute. "Pay now, argue
later” is not set in stone and many misconceptions exist regarding the burden
of proof required to successfully appeal against pay now argue later.
For instance, although it is indeed in the
taxpayer’s best interest to address all five factors stipulated in section
163(3) of the TAA, this does not necessarily mean that the taxpayer must show
that they comply with all these factors in order to successfully discharge the
onus of proof. In addition, no one factor is more important than the other.
Every case must be judged on its
own merits, and while a particular factor might carry a lot of weight in
certain circumstances, it might not be so relevant in another. Take the "compliance
history of a taxpayer” or the requirement regarding "the prima facie involvement of fraud in the origin of the matter”, SARS
cannot rely on the fact that the taxpayer has filed a return differently from
SARS’ own interpretation of how the return should have been filed to draw
judgement. Nor can SARS rely on the benefit of hindsight to decide on the
compliance history of the taxpayer. A compliant taxpayer is not necessarily a
taxpayer that files returns in line with SARS’ internal views as this view
might ultimately, as shown by case law, be proven to be incorrect. A taxpayer
is required to take reasonable steps to ensure that the filing position they
have taken is supported by external advice. The percentage of penalties levied
as a result of incorrect filing is likely to be less punitive when an external
opinion is available.
Similarly the allegation of fraud,
as opposed to misrepresentation or non-disclosure of material facts, is a very serious allegation and if
successfully proven, lends itself to tax evasion and criminal activities. This
takes the matter in a different direction completely. The taxpayer must thus
take seriously any communication from SARS starting with correspondence during
the audit leading to the letter of findings. Again, the fact that the taxpayer
has taken a different interpretation in filing returns does not make the
taxpayer fraudulent per se. An
intention to defraud the tax authorities must be apparent from the facts and
the onus of proof must be successfully discharged. The test here is different
from a taxpayer’s endeavours to be tax efficient.
While irreparable hardship to the
taxpayer will be weighed against the prejudice that SARS’ would suffer should
the money not be collected (which can only be financial if one thinks about it),
for the taxpayer irreparable hardship is not only measured in financial terms.
All other commercial reasons which are likely to have an adverse effect on the
taxpayer’s business must be considered.
Finally, the fact that the
taxpayer has tendered adequate security is not an overriding factor to sway the
matter in the taxpayer’s favour. It is but one of the factors to be taken into
account. It is important to note that the taxpayer does not have to tender
security. The test is merely whether she has and whether that satisfies SARS.
SARS is a creature of statute and
must operate within the parameters of the enabling statute. It is not only the
taxpayer that is bound by the provisions of the Act. Any ultra vires action by SARS officials must be challenged. The
exercise of the discretion granted by section 164(3) constitutes an
administrative action, which is legally required to be lawful, reasonable and procedurally
fair. If considered unfair or unjust, such decision can be taken on review to
the courts. SARS must be found to have acted reasonably when it exercised its discretion and should SARS be
found lacking in this regard, the matter will be referred back to SARS for a
reasonable decision taking into account all the facts of the case.
In this regard, it is important
to note that section 164 (3) factors are not exhaustive and any other matter
may be taken into account in deciding whether or not to suspend payment pending
the conclusion of the matter.
Given the prominence of the ‘pay
now, argue later’ principle after the Metcash case, an incorrect view has been
prevalent about taxpayers being under an obligation to always discharge the
amount of the assessment, even if they
hold a strong, informed belief that the
merits of the case warrants a delay of the payment. Metcash was decided on the
facts relevant only to it and each subsequent case has to be judged on its own
merits too. From the taxpayer’s side, an assessment of the merits of the case
and the likelihood of success is always important to ensure that the objection
and appeal process is not used frivolously but legitimately. From SARS’ side,
it is unreasonable to insist on pre-payment of the disputed amount where it is
clear from the facts that a real possibility exists that the assessed amounts are
inflated or out of touch with commercial reality and that the taxpayer has a
reasonable chance of succeeding in the matter.
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This article first appeared on the May/June 2016 edition on Tax Talk.