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Rules of Engagement

25 July 2017   (0 Comments)
Posted by: Author: Gert van Heerden
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Author:  Gert van Heerden (GvanHeerden@taxombud.gov.za)

Here is a look at the dispute resolution procedure between a taxpayer and SARS as well as what the Tax Ombud’s role is therein.

The Office of the Tax Ombud (OTO) has received numerous complaints in relation to SARS’ dispute resolution process. So, this article will help taxpayers understand the process and where the OTO fits in the process.

 

The idea behind the SARS dispute resolution process

 

Taxpayers have the right to dispute decisions made by SARS. In such instances, tax law specifies a particular procedure that taxpayers or their tax practitioners should follow.

 

This process starts with the taxpayer filing an objection to a decision which SARS made and which the taxpayer is unhappy with. SARS usually makes such decisions after reviewing the taxpayer’s arguments and supporting documents.

 

This decision can be appealed and resolved either through an alternative dispute resolution (ADR) procedure or through litigation, which may progress all the way to the Supreme Court of Appeal or Constitutional Court, if constitutional issues arise. This procedure is not straightforward as it has different steps that are contained in both the Tax Administration Act as well as the rules promulgated in terms of section 103 thereof (the Rules). As such, the procedure may confuse some participants.

 

While the complaints received by the OTO show that SARS does not always comply with the Rules, there are also many instances of taxpayers, or their representatives, not following the correct steps, resulting in avoidable frustrations.

 

Where does the OTO fit it?

 

From the outset, it is important to bear in mind that the OTO’s mandate does not allow it to get involved in the merits of a dispute. In other words, the OTO may not tell SARS that their assessment is incorrect and must be revised. Many people mistakenly expect this sort of action from the OTO.

 

The OTO can, however, assist where a dispute is not attended to properly in terms of the procedure. Examples include instances where objections are incorrectly invalidated, notices of disallowance do not stipulate the basis for the decision or disputes are not finalised timeously.

 

The procedure

 

Requesting reasons for the assessment

Any reference to a “day” in this article refers to a business day and excludes weekends, public holidays and the period between 16 December and 15 January.

 

If a taxpayer completes a tax return, he or she will receive an assessment from SARS. Once an assessment is received, the taxpayer must establish if they have enough information to decide whether they agree with the assessment.

 

If the taxpayer does not have enough information, they must lodge a request for reasons for the assessment within 30 days after the date of the assessment. They can lodge such a request via SARS’ eFiling system to ensure that it is attended to by the correct business unit. SARS must either, within 30 days, refer the taxpayer to the document in which the reasons were already provided, or provide reasons for the assessment within 45 days. The period within which SARS must provide reasons may be extended at its own discretion, but only by another 45 days and only if the taxpayer/practitioner is notified of the extension before the expiry of the initial 45 days.

 

Lodging an objection

An objection to the assessment must be lodged within 30 days of the date of the assessment that was issued by SARS. If the taxpayer files a request for reasons, as discussed above, this 30-day period is suspended and only starts running from the date on which SARS complies with the request for reasons.

 

The taxpayer must ensure that the objection form complies with all the formal requirements set out in the Rules. If any of the requirements are not met, SARS is required to send a notification, informing the taxpayer that the objection is invalid. The taxpayer will be provided with 20 days to lodge an amended objection, without having to request for condonation for late filing (assuming the initial invalid objection was lodged in time). If this 20-day deadline is not met, a subsequent objection is regarded as a new objection and condonation for late filing will have to be argued.

 

If SARS’ invalidation of the objection is disputed, an application may be filed in the Tax Court to have the objection declared valid. If this is not a cost-effective remedy based on the amount in dispute and the invalidation is clearly incorrect, a complaint can be lodged with SARS’ Complaints Management Office and, thereafter, with the OTO, if SARS does not resolve the objection within a stipulated period. It is not possible to appeal against the invalidation of an objection through the OTO.

 

Late filing of an objection

SARS has discretion to condone late filing, but it is the responsibility of the taxpayer to convince SARS that it had reasonable or exceptional grounds for the late filing of the objection, depending on how late it was. Once two years have passed, the assessment becomes final and the taxpayer forfeits all rights to dispute it.

 

It is extremely important that taxpayers and tax practitioners do not take these periods lightly. Condonation of a late objection is not guaranteed and if it is not granted, a completely separate dispute resolution procedure must be initiated during which SARS will consider whether the grounds for late filing are reasonable or exceptional. This separate procedure may end up in the Tax Court or Higher Courts and the initial objection will only be reinstated and the procedure will only start afresh if SARS concedes or is ordered so by a court. Thus, taxpayers are cautioned that lodging an objection late can be a very costly exercise and may even result in the taxpayer losing all rights to dispute the assessment.

 

The recent changes to eFiling mean that condonation is now seen as a completely separate procedure and the OTO hopes to see fewer complaints where taxpayers are caught in a never-ending cycle of invalid objections due to condonation not being attended to properly by both

SARS and taxpayers.

 

Providing substantiating documents

It is recommend that the taxpayer attach all documents required to substantiate the dispute to the objection, regardless of whether the documents have already been provided to SARS. This will reduce the risk of relevant documents being overlooked. It will also avoid a situation where SARS invalidates the objection because substantiating documents were seemingly not provided.

 

If a filed objection is valid, SARS may, within 30 days, ask the taxpayer for any further substantiating documents it needs to make an informed decision. The taxpayer must then submit the requested documents within 30 days, following SARS’ request. This period may be extended, at SARS’ discretion, by another 20 days.

 

Receiving a decision on the objection

SARS is required to notify the taxpayer of whether the objection has been allowed, disallowed or partially allowed within 60 days after delivery of the objection. If substantiating documents were requested, the notice must be given within 45 days after the delivery of the documents or, if the taxpayer did not comply with the request for substantiating documents, on the date when the deadline for submission expires. SARS cannot invalidate the objection where the taxpayer does not comply with the request for substantiating documents. In such cases, SARS is required to make a decision based on the information it has at its disposal. SARS can extend this period by no more than 45 days, but only if it informs the taxpayer thereof before the expiry of the deadline.

 

In other words, if the taxpayer ensures the objection complies with the requirements and there is no need for SARS to request further substantiating documents, an objection should not, in terms of this procedure, take longer than 105 days to finalise, even if SARS grants itself an extension. If it does take longer than 105 days, there will be a good reason to complain.

 

Appealing a decision

If the objection is disallowed or partially allowed and the taxpayer still disputes the decision, even after SARS provided reasons, an appeal must be lodged within 30 days after the delivery of the notice of disallowance. This period may be extended by 21 days, if reasonable circumstances are provided, or by no more than 45 days, if exceptional circumstances are provided. The same principles and procedure discussed above for condonation of late filing of objections are applicable here. SARS does not have discretion to entertain an appeal, if it is filed more than 45 days late; a taxpayer loses all rights to appeal if this deadline is not met.

 

If both parties agree, the appeal can be referred for possible resolution by using an ADR procedure. The dispute must be resolved within 90 days after an ADR commences unless the parties agree to an extension before the expiry of this period. The appeal will then automatically be terminated and will only proceed to the Tax Board or Tax Court for formal arguments, if the taxpayer requests the matter to be set down within 20 days, after termination.

 

Once the dispute enters the courts, the courts will determine how the proceedings will progress and the OTO will not be able to attend to the related complaints.

 

Prevention is better than the cure

 

Many frustrations faced by taxpayers when disputing assessments are caused by a lack of understanding of the SARS ADR procedure. The OTO has had positive correspondence with SARS regarding several underlying issues which cause unnecessary complaints and these issues will hopefully be resolved in the near future.

 

It should also be noted that tax practitioners owe it to their clients to do everything in their power to ensure disputes are lodged appropriately and without defect. The OTO will gladly assist with any problems and delays encountered during this procedure as long as all the steps have been followed correctly and SARS has been given the opportunity to resolve the complaint first.

 

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This article first appeared on the July/August 2017 edition on Tax Talk. 

 


 

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