Do revised prescription rules bear serious consequences for the taxpayer?
03 June 2016
Posted by: Author: Zweli Mabhoza
Mabhoza (Priority Tax)
to Section 99 now allows SARS to extend
prescription. But does this also mean extending uncertainty regarding a businesses’
tax authority now has more powers to decide on the prescription of an
assessment, following recent amendments to the Tax Administration Act (TAA), No
28 of 2011. Prior to the amendment of Section
99, an assessment prescribed after three years in respect of returns assessed
by SARS and after five years in respect of self-assessment taxes.
it has become common practice for SARS to negotiate the extension of the
prescription period with taxpayers. It has not always been clear why SARS
required this extension, given the amount of time they had to perform the
audit, ask for information and make enquiries after the assessment date.
will normally advise taxpayers during the negotiations that it is in their best
interest to allow the authority to do what has not yet been completed during
the initial three year prescription period.
some instances, a SARS official would promise (if not threaten) that if SARS is
not afforded an extension, the authority would be left with no option but to
revise the assessment to the detriment of the taxpayer.
these circumstances taxpayers agreed, often reluctantly, to the extension of
the prescription period. Tax professionals have, upon previous occasions of
this occuring, expressed their dissatisfaction with this practice.
order to legitimise the above practice, paragraph 3 and paragraph 4 have now
been added to section 99. These paragraphs
read as follows:
Commissioner may, by prior notice of at least 30 days to the taxpayer, extend a
period under subsection (1) or an extended period under this section, before
the expiry thereof, by a period approximate to a delay arising from:
Commissioner may, by prior notice of at least 60 days to the taxpayer, extend a
period under subsection (1), before the expiry thereof, by three years in the
case of an assessment by SARS or two years in the case of self-assessment,
where an audit or investigation under Chapter 5 relates to—
by a taxpayer to provide all the relevant material requested within the period
under section 46(1) or the extended period under section 46(5); or
an information entitlement dispute, including legal proceedings.
application of the doctrine of substance over form;
(ii) the application
of Part IIA of Chapter III of the Income Tax Act, section 73 of the Value-Added
Tax Act or any other general anti-avoidance provision under a tax Act;
(iii) the taxation of
hybrid entities or hybrid instruments; or (iv) section 31 of the Income Tax
introduction of these changes into the act raised some cynical questions and
views. Previously taxpayers relied on
case law to argue against the extension of prescription period by SARS.
Brummeria Renaissance (Pty) Ltd vs the Commissioner of the South African
Revenue Service, Cloete JA said that it was also in the public interest that
disputes should come to an end ─ interest reipublicae
ut sit finis litium (in the interest of society as a whole, litigation must
come to an end); and it would be unfair to an honest taxpayer if the
Commissioner were allowed to continue to change the basis upon which the
taxpayer was assessed until the Commissioner got it right ─ memories fade;
witnesses become unavailable; documents are lost.
is clear that the amendments to section 99 favour the tax authorities. Perhaps Corbett JA had this in mind when he
observed in CIR v Nemojim (Pty) Ltd 1983 (4) SA 953, 45 SATC 241, that "there
is no equity about tax”. The new
amendments does not seem to address the concern from taxpayers that tax
authorities wait until the prescription period is about to expire before asking
for the so-called "relevant information”. People who have prepared the returns
may have left the organisation, memories can fade and documents may have been
this legislation refers to an audit or investigation relating to the
application of substance over form. The
amendment comes after SARS lost a case involving substance over form in CSARS v
Bosch M, which was decided by the Supreme Court of Appeal.
it is possible that taxpayers could have the prescription period of their
assessments extended, incur the costs to defend their tax position and go
through all this without any consequences for tax authorities who may have
caused the taxpayer to incur those costs.
taxpayers have a policy of raising accounting provisions in respect of matters
that are under SARS audit or investigation.
The recent amendments could mean that these accounting provisions will
have to be maintained for longer given the lack of certainty on the final tax
could affect future funding needs, as the taxpayer’s financial position could
be affected by these provisions. The
challenges associated with these amendments must be considered together with
the existing provisions of section 164 of the TAA. Any audit or investigation
is likely to be followed by a revised assessment. Section 164 states that the
obligation to pay will not be suspended by an objection or appeal or pending a decision
of a court, unless a senior SARS official directs otherwise. This clearly demonstrates the potential effect
on cash flows.
should also be noted that the discretion of the Commissioner is not subject to
any objection or appeal.
Please click here to complete quiz.
This article first appeared on the May/June 2016 edition on Tax Talk.