On 11 July 2014, the new dispute resolution rules (new Rules) under s103 of the Tax Administration Act, No 28 of 2011 (TAA) were promulgated in Government Notice 550, published in Government Gazette No 37819.
These new Rules replace the rules promulgated under s107A of the Income Tax Act, No 58 of 1962 (old Rules) with immediate effect. The Rules essentially prescribe the procedures to be followed in respect of objection and appeal proceedings or certain administrative decisions by the South African Revenue Service (SARS). These decisions are listed under s104(2) of the TAA. The Rules also deal with the procedures to be followed in respect of alternative dispute resolution, and various other issues relating to the Tax Court.
Importantly the new Rules are a lot more comprehensive than the old Rules. Some of the most noteworthy departures, amongst others, relate to the following:
- A taxpayer who is aggrieved by an assessment may, prior to lodging an objection, request SARS to provide reasons for the assessment to enable the taxpayer to formulate an objection. In terms of the old Rules, SARS had 60 days within which to provide the taxpayer with such reasons. The new Rules now prescribe that SARS has 45 days to provide the taxpayer with reasons, where adequate reasons were not provided.
- Further, in terms of the TAA, when a taxpayer lodges an objection, SARS is required to notify the taxpayer of the allowance or disallowance of the objection and the basis thereof. In terms of the new Rules, SARS now has 60 days, after delivery of the taxpayer’s objection, to notify the taxpayer of the outcome of the objection, whereas prior to the promulgation of the new Rules, SARS was afforded 90 days. SARS may extend the 60 day period for a further period not exceeding 45 days, if in the opinion of a senior SARS official, more time is required to take a decision on the objection due to exceptional circumstances, the complexity of the matter, or the principle or amount involved.
- Another important provision in the new Rules relates to 'test cases'. S106(6) of the TAA states that if a senior SARS official considers that the determination of an objection or an appeal, whether on a question of law or question of fact or both, is likely to be determinative of all or a substantial number of issues involved in one or more other objections or appeals, the official may:
- designate that objection or appeal as a test case; and
- stay the other objections or appeals by reason of the taking of a test case on a similar objection or appeal before the tax court.
- The aforementioned provision gives effect to s106(6) of the TAA and provides that a SARS official who designates an objection or appeal as a test case, must provide the taxpayer with a notice informing such a taxpayer of the common issues involved in the objections or appeals that the test case is likely to be determinative of, the questions of law or fact or both, and the importance of the test case to the administration of the relevant tax Act. The taxpayer involved may, within 30 days of receiving the notice, oppose the decision to designate an objection or appeal as a test case or alternatively oppose the staying of an objection or appeal pending the final determination of a test case. If the objection or appeal is to be stayed, the taxpayer may request a right of participation in the test case.
- One of the most notable changes brought about by the new Rules relates to the exchange of pleadings between SARS and a taxpayer who has lodged an appeal. According to the old Rules, after the taxpayer had delivered its notice of appeal, SARS was required to deliver to the taxpayer a statement of the grounds of assessment and opposing appeal.
- This statement would contain the consolidated grounds of appeal, the facts in the notice of appeal that were admitted and opposed to by SARS, and the material facts and legal grounds upon which SARS based its assessment. Thereafter the taxpayer would deliver its statement of grounds of appeal which listed the grounds upon which the taxpayer’s appeal was based, the facts in the statement of grounds of assessment and opposing appeal that the taxpayer admitted and opposed, and the material facts and legal grounds the taxpayer relied on.
- The new Rules have added one further step to this process. Following the taxpayer’s statement of grounds of appeal, SARS may deliver a reply to the statement of grounds of appeal setting out a clear and concise reply to any new grounds, material facts or applicable law.
Having regard to the above, it is interesting to note that the draft rules (released in February 2013) proposed that the taxpayer would first have to provide SARS with a statement of grounds of appeal and only thereafter would SARS be required to deliver a statement of grounds of assessment. SARS would therefore only be required to provide its statement after the taxpayer had provided its defence.
We welcome the decision by SARS to not follow through with the proposal to invert the order of the pleadings as that would have been to the prejudice of the taxpayer and most probably in breach of the principles of administrative justice.
The new Rules brought about some notable changes that could assist in ensuring that taxpayers are treated in an administratively fair manner when engaged n disputes with SARS. It will be interesting to see whether these rules, and specifically the prescribed time periods, will be adhered to in practice.