Fair Treatment Required Over Tax Certificates
10 July 2012
Posted by: SAIT Technical
By Beric Croome (ENS)
In Zikhulise Cleaning Maintenance & Transport CC v the Commissioner for the South African Revenue, the North Gauteng High Court was required to pronounce on the manner in which the Commissioner withdrew a tax clearance certificate issued to a taxpayer. This is the first case which deals with tax clearance certificates and it is appropriate to consider the various tax clearance certificates which may be obtained from the Commissioner, including the legal framework.
Surprisingly, the Income Tax Act, 1962, does not refer to the manner in which such certificates should be applied for; neither when they are required nor the manner in which the Commissioner is required to deal with the issue thereof.
Currently, taxpayers are required to obtain tax clearance certificates as evidence that they are a taxpayer in good standing, or, alternatively, when they wish to submit a tender to a state organ. Individuals are required to secure a tax clearance certificate in order to remit funds under the concession available by the Reserve Bank to invest funds abroad.
Where a resident taxpayer wishes to emigrate, they are required to apply for a certificate for the purposes of emigration, which will facilitate the transfer of assets held by the taxpayer in SA to the country to which they are immigrating.
It is unfortunate that, to now, the Income Tax Act did not contain any provisions regulating the manner in which tax clearance certificates should be issued or applied for. It would appear that certificates have become a mandatory requirement for those taxpayers wishing to conduct business with the state.
When applying for a certificate for purposes of a tender, the taxpayer must supply their particulars, and all tax numbers for the various taxes for which they are registered. At the same time, the taxpayer must indicate whether they are aware of any audit into their affairs by SARS.
The application for the certificate will be processed by SARS and this will include checking whether the taxpayer has any outstanding tax returns. SARS will review its records to establish whether the taxpayer has settled all tax liabilities. Where the taxpayer is not in arrears with either tax returns or tax payments a tax clearance certificate will be issued.
Those individuals wishing to invest funds offshore will be required to submit their personal particulars, as well as details of the nature of the investment to be made offshore.
In addition, the taxpayer will be required to supply information regarding the nature of the investment to be made, including the income to be derived therefrom. The taxpayer is also required to indicate the source of the funds to be invested offshore and to supply proof in substantiation of the funds to be transferred. This will enable SARS to ensure that the taxpayer has reflected assets in their return to substantiate those funds.
Those persons who decide to emigrate from SA are required to submit more comprehensive information, and SARS will usually conduct an audit into the person's affairs prior to issuing a tax clearance certificate for emigration purposes. This process may take a matter of weeks before the certificate is issued.
In the case of Zikhulise Cleaning Maintenance & Transport CC, the close corporation conducted business by constructing affordable housing as a result of government tenders it was awarded. It applied for a tax clearance certificate on January 17 2012, and SARS initially issued the tax clearance certificate to the taxpayer. On March 16, SARS advised the taxpayer that the tax clearance certificate had been rendered inactive with effect from the date of the SARS letter. This letter was received by the taxpayer only on April 18 and contained SARS's reasons for withdrawing the certificate.
The taxpayer subsequently queried SARS's decision to withdraw the certificate, and was then invited to make representations by May 11, if it wished to dispute SARS's decision. Judge Wright made the point that, by March 16, SARS had already taken a decision for reasons it deemed valid to withdraw the certificate in question, and that SARS's subsequent decision to call for the taxpayer's reasons why SARS should change its mind, was not competent in law.
The court decided that the taxpayer was entitled to reasonable notice of SARS's intention to withdraw the tax clearance certificate, and that this should have taken place prior to the decision to withdraw the certificate on March 16. The court decided that SARS's decision was of no force and effect.
The court decided that the taxpayer should be awarded costs of the litigation on the customary basis but, awarded costs on an attorney own client basis regarding the perusal and copying of the annexures to the answering affidavit relating to the pending criminal proceedings.
For SARS to call for an explanation from a taxpayer after a decision has been made is a clear violation of the taxpayer's right to fair administrative justice enshrined in section 33 of the constitution, and, also, a violation of the taxpayer's rights contained in the Promotion of Administrative Justice Act, 2000.
It is clear from Goldfields Ltd v Connellan NO, that a court will come to the relief of an applicant where a state organ has made a decision adverse to a person where that person has not been invited to make representations prior to the decision being made.
Once the Tax Administration Bill takes effect, clause 256 thereof will regulate the issue of tax clearance certificates by SARS. This clause provides that taxpayers may apply to SARS for tax clearance certificates in the prescribed form and manner.
Furthermore, SARS is required to issue or decline to issue the certificate within 21 business days from the date the application is filed by a taxpayer. SARS is required to provide a taxpayer with a tax clearance certificate only where it is satisfied the taxpayer is registered for tax and does not have any tax debt outstanding or any outstanding returns, unless an arrangement acceptable to SARS has been made for the submission of that return.
The bill also provides that the tax clearance certificate must be in the prescribed form, and must set out the tax clearance number assigned to that certificate and as reflected in SARS records. It must reflect the name and taxpayer reference number and other identifying details. It is also important that the certificate specifies the expiry date of that tax clearance certificate. In addition, the bill contains a provision which allows SARS to confirm the validity and expiry date of the certificate upon request by any sphere of government or parastatal, despite the secrecy provisions contained in the bill.
Furthermore, the bill specifically provides that SARS may withdraw a certificate with effect from the date of issue thereof, if that certificate was issued in error or was obtained on the basis of fraud, misrepresentation or non-disclosure of material facts.
The fact that the new legislation specifically caters for the issuing of tax clearance certificates is an improvement over the current legislation which does not refer to the issue of certificates at all.
Clearly, the failure to invite representations from the taxpayer before SARS makes the decision to invalidate a tax clearance certificate will be struck down by a court.