In our Tax Alert of 19 February (SARS’s investigative powers – a possible backstage pass to matters pending before court?), we raised concerns regarding whether it is procedurally fair for a taxpayer, who is engaged in a dispute before the Tax Court, to also be subjected to an audit or information request in terms of Chapter 5 of the Tax Administration Act, No 28 of 2011 (TAA) concerning essentially the same dispute.
A similar situation being faced by taxpayers relates to the dispute resolution procedures in Chapter 9 of the TAA, whereby taxpayers are being made to defend themselves in respect of a tax period before court while simultaneously objecting to and appealing against the same legal issues regarding earlier or later years of assessment. Again, there is more often than not an overlap of facts, law and witnesses resulting in a duplication of efforts, the potential breach of a taxpayer’s right to litigation privilege and effectively a waste of resources both on the part of SARS and the taxpayer.
Instead of proceeding to deal with each of the matters separately, there is a mechanism in s106(6) of the TAA from which taxpayers have yet to benefit. Section 106(6) (the test case provision) was first introduced with the promulgation of the TAA to resolve disputes, involving substantially similar issues, of multiple taxpayers. Essentially, the provision allows a senior SARS official to designate a particular dispute as a test case that will inform how other similar disputes are to be handled.
The mechanism is one which is invoked at the discretion of a senior SARS official (as defined in the TAA). Importantly, the TAA does not expressly exclude the taxpayer from making submissions to the relevant senior SARS official directly requesting that the discretion conferred by the Commissioner, be exercised in favour of the taxpayer. To the extent that the senior SARS official denies a reasonable request, the taxpayer will have the option of challenging SARS to a review in terms the Promotion of Administrative Justice Act, No 3 of 2000.
A taxpayer wanting to make use of this provision needs to set out clear and persuasive reasons for such a request. Rule 12 of the rules promulgated in terms of s103 of the TAA sets out the process to be followed regarding the test case. Rule 12(2) stipulates that a senior SARS official, who designates the appeal or objection as a test case, must provide the taxpayer with a notice specifying the number of common issues involved in the objections or appeals that the test case is likely to determine as well as the questions of law or fact, or both law and fact. The requirements for the Rule 12(2) notice would serve as a checklist for a taxpayer wishing to submit a request to SARS.
A potential difficulty with making such a request lies in the fact that the tax acts are amended on an annual basis and thus the tax provisions in one year of assessment may be different to that in earlier or later years. However, where there are questions regarding the facts of a particular matter, which are common for all years of assessment in issue, the test case mechanism will go a long way in streamlining disputes. All that will remain to be resolved will be those questions regarding the application of tax laws.
There is an additional and unintentional benefit of requesting a test case: a determination by the Tax Court in favour of the taxpayer may cause SARS to reassess its position on a particular matter which may in turn curb SARS’s appetite for further audits and information requests in respect of the same or similar issues.
To the extent that there is a clear benefit of staying proceedings, pending the outcome of an appeal before the Tax Court, it would be unreasonable for SARS not to consider a taxpayer’s request for a test case.