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Section 99: To extend or not to extend, that is the question

Tuesday, 11 August 2015   (0 Comments)
Posted by: Authors: Nina Keyser and others
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Authors: Nina Keyser, Nirvasha Singh and Benjamin Cronin (Webber Wentzel)

Section 99 of the Taxation Laws Administration Act, 28 of 2011 (TAA) presently deals with the issue of prescription. As it stands, SARS is prevented from raising an additional assessment beyond three years after the date of an original assessment for income tax purposes. In the case of self-assessments, such as VAT and PAYE assessments, the prescription period is five years.

The proposed new sub-section 99(3) envisages SARS being allowed to unilaterally extend prescription in three instances:

·                    if SARS believes that the taxpayer is deliberately delaying in providing them with relevant information;

·                    if SARS is involved in a litigious dispute with the taxpayer regarding relevant information to be provided to SARS; or

·                    the audit or investigation under the chapter on information gathering relates to a matter that is "complex" such as the general anti-avoidance rules (GAAR) or transfer pricing or "a matter of analogous complexity", wherein SARS could extend prescription for a further three years.

Unfortunately, the proposed means of extending prescription introduces uncertainty regarding the determination of a particular taxpayer's rights and further induces taxpayers to provide excessive information to SARS in the hope of avoiding an indeterminate prescription period.

We, however, foresee a number of potential legal difficulties arising in the future regarding the application of this provision, including:

·                     determining what would constitute an "appropriate" period to extend prescription;

·                     assessing what a "reasonable" time period would be to provide documentary requests; and

·                     what matters or disputes would be classified as "complex".

The new provision is clearly intended as a means for SARS to circumvent the procedure of having to agree with the taxpayer to extend prescription in matters dealing with the submission of relevant information. In light of this we believe it would be prudent to advise clients to consider providing SARS with substantial amounts of information with a view to ensuring that the potential for SARS to extend prescription is narrow.

Our view is that the amendment will likely make this provision more, and not less, litigious. We believe a better alternative would have been to view an original assessment as a self-assessment (as envisaged in the 2015 Budget Speech), making the prescription period five years, instead of imposing an uncertain discretionary regime.

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