Prescription of a tax assessment is an important and powerful tool for a taxpayer when it comes to obtaining certainty in respect of one’s tax affairs and can serve as an important defence when disputing an assessment. Prescription is governed by section 99 of the Tax Administration Act No. 28 of 2011 (“TAA”).
A three year prescription period applies where the South African Revenue Service (“SARS”) has had a previous opportunity to assess a taxpayer (such as in the case of income tax) and a five year prescription period applies in the case of a self-assessment tax (such as value-added tax (VAT) and employees’ tax (PAYE)).
Generally, the prescription period that prohibits SARS from issuing an assessment does not apply if the reason why the full amount of tax was not charged was due to fraud, misrepresentation or non-disclosure of material facts. When the tax is a self-assessment tax, the basis on which the period of limitation does not apply differs in that it refers to fraud, as well as intentional and negligent misrepresentation or non-disclosure.
The prescription period that prohibits SARS from issuing an assessment will also not apply where SARS and the taxpayer so agree prior to the expiry of the limitations of time. Practically, such agreements are often entered into when SARS is conducting an investigation into a complex matter which involves the auditing of substantial information and facts.
Clause 34 of the 2013 Draft Tax Administration Laws Amendment Bill (“the Bill”) provides for an additional circumstance where the period of prescription can be extended. It proposes to amend section 99 of the TAA by inserting a new subsection (3) which will provide for the extension of the prescription periods where “a taxpayer without just cause fails to submit relevant material requested by SARS for purposes of verification, inspection or audit ... commencing on the day that the relevant material was required to be submitted and ending on the day that the taxpayer submits the relevant material.”
The proposed amendment accordingly appears to have the effect of allowing SARS to extend the prescription periods provided for in section 99 of the TAA where a taxpayer exhibits a certain behaviour vis a vis the provision of information to SARS, assuming SARS was entitled to request the information in the first place. What is unclear from the provision is what would constitute “without just cause” where there is a delay in a taxpayer providing information and practically, what interaction is required, if any, where the period for prescription is extended in terms of this provision. In challenging any assessment, a taxpayer can raise prescription as a ground of objection. Accordingly, where SARS has relied on this proposed new provision in issuing an adverse assessment on the basis that the period of prescription has been extended due to the taxpayer’s behaviour, this should be able to be dealt with by a taxpayer in the objection and appeal process.
This new proposed provision certainly places an additional burden on taxpayers as regards the timeous provision of information to SARS and may have the effect of weakening the important defence for a taxpayer which prescription presents. It is certainly a departure from the tool which is currently available to SARS to extend a prescription period which involves participation by the relevant taxpayer, namely where SARS and a taxpayer may enter into an agreement in respect thereof and it could be used by SARS to its strategic advantage when it comes to late requests for information when the prescription date for an assessment is looming.
Due to the important role which prescription can play in tax disputes, it is crucial for taxpayers to be aware of the prescription status of assessments and what rights are available in respect thereof. Should the new proposed amendment to section 99 of the TAA be adopted by Parliament in the form discussed in this article, taxpayers should be vigilant in respect of information requests from SARS and deal with same fully and timeously.