59087 0 Tax Guide on Dispute Resolution Guide 20051

8/6/2019 59087 0 Tax Guide on Dispute Resolution Guide 20051

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Guide on

Tax DisputeResolution

LawAdministration


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Guide on Tax Dispute Resolution

This document is a general guide dealing with the reso-

lution of tax disputes in South Africa.

It is an introductory guide and does not deal with all the

legal detail associated with dispute resolution.

It should therefore not be used as a legal reference.

The guide is based on the tax legislation as at

3O NOVEMBER 2004

Should you require additional information you may:

Contact your own advisors

Contact your local SARS branch offi ce

Visit the Dispute Resolution webpage at http://

www.sars.gov.za/dr/

Prepared by:

SARS Law Administration: Litigation Section

January 2005

Update Information

Date of 1st issue: 30 May 2003

Date of last update: 30 November 2004

Updated by: SARS Law Administration:

Litigation Section

The updating of this guide is done by the SARS Law

Administration: Litigation Section

For any commentary or input for purposes of updates

please contact the editor:

Catinka Smit

Tel: (012) 422 5132

Fax: (012) 422 4035

Email: [email protected]


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Dispute Resolution | i

Contents

1. Introduction .........................................................................................................1

2. Glossary...............................................................................................................1

3. Background to the new rules .............................................................................3

3.1. The request for reasons for an assessment (section 107A rules) 3

3.2. The objection and appeal procedure against an assessment (section 107A rules) 3

3.3. Alternative dispute resolution (section 107A rules) 4

3.4. The conduct and hearing of appeals before the Tax Court & Board (section107A rules) 4

3.5. Settlement circumstances (section 88A-H of Income Tax Act) 4

3.6. Application to other taxes 5

4. Tax Disputes ........................................................................................................5

4.1. When & how does a tax dispute arise? ................................................................................5

4.2. When may a taxpayer lodge a complaint about a tax dispute at the SARS Service

Monitoring Offi ce (SSMO)? ...................................................................................................5

5. Reasons for an assessment ................................................................................6

5.1. When & how do I request reasons for an assessment? 6

5.2. When will reasons be adequate? 6

5.3. What are the remedies where inadequate reasons are given? 6

5.4. May reasons also be requested in terms of the Promotion of Administrative Justice Act? 6

6. Objections 6

6.1. When may I object to an assessment? 6

6.2. How do I object to an assessment? 9

6.3. When will my objection be invalid? 9

6.4. Request for further information by SARS 9


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ii | Dispute Resolution

6.5. What must SARS do with my objection? 10

6.6. What happens if SARS does not deal with my objection within the prescribed time period? 10

6.7. What may I do if SARS disallows my objection or alters the assessment in a manner that

does not satisfy me? 10

6.8. Do I need to pay the amount of tax in dispute? 10

7. Refunds & Reduced Assessments ....................................................................11

7.1. Must I object to an assessment which I am dissatisfi ed with? 11

7.2. When do I request a reduced assessment as opposed to lodging an objection? 12

7.3. When am I entitled to a refund? 12

8. Alternative Dispute Resolution ..........................................................................13

8.1. What happens after I lodged an appeal? 13

8.2. What is Alternative Dispute Resolution (ADR) and how does it work? 13

8.2.1. Access to ADR 14

8.2.2. Terms and agreement on ADR 14

8.2.3. Period of dispute resolution 14

8.2.4. The facilitator 14

8.2.5. Proceedings 14

8.2.6. Reservation of rights 14

8.2.7. Agreement or Settlement 14

9. Settlements .......................................................................................................15

9.1. When and in what circumstances may a tax dispute be settled? 15

9.2. Circumstances under which it will be inappropriate to settle 15

9.3. Circumstances under which it will be appropriate to settle 15

9.4. What are the reporting requirements for settlements? 16


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Dispute Resolution | iii

10. Appeals to the Tax Board ................................................................................16

10.1. What is the Tax Board? 16

10.2. When does the Tax Board deal with my appeal? 16

10.3. Who convenes the Tax Board? 17

10.4. What happens before the Board? 17

10.5. What if the outcome of the appeal before the Tax Board is dissatisfactory? 17

11. Appeals to the Tax Court .................................................................................17

11.1. When does the Tax Court deal with my appeal? 17

11.2. What happens before my appeal is enrolled in the Tax Court? 18

Stage 1: Limitation of Issues 18

Stage 2: Discovery 19

Stage 3: Pre-Trial Conference 19

Stage 4: Enrolment 29

Stage 5: Subpoena of witnesses & documentary preparation 20

11.3. What happens during the hearing of my appeal before the Tax Court? 21

11.4. When may a Tax Court make an order for costs? 22

11.5. What happens after the hearing of my appeal before the Tax Court? 22

11.6. How do I appeal against the judgment by the Tax Court? 22

12. Extension of time periods, condonation and non-compliance with rules 23

12.1. How does extension of prescribed periods work? 23

12.2. How does condonation of non-compliance with the rules work? 23

12.3. How may non-compliance with the rules be challenged? 23

13. New rules: Transitional arrangements 24

13.1. What are the transitional arrangements (Part C of the section 107A rules)? 24


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iv | Dispute Resolution

13.2. Assessments before 1 April 2003 24

13.3. Objections before 1 April 2003 24

13.4. Appeals before 1 April 2003 24

14. Application on notice to Tax Court 25

14.1. How does an application on notice work (Part B of the section 107A rules)? 25

14.2. What must the applicant who brings an application on notice do? 25

14.3. What must the respondent who wishes to oppose the application on notice do? 25

Annexures

A. Flowchart - Dispute Resolution ..........................................................................................27

B. Table Time Periods in Dispute resolution ........................................................................28

C. Rules in terms of section 107A ITA ...................................................................................30

D. Settlement circumstances in terms of section 88A-H ITA .................................................47

E. ADR1 ..................................................................................................................................50

F. Example: Power of Attorney ..............................................................................................54

G. ADR2 ..................................................................................................................................55

H. SARS Interpretation Note 15 .............................................................................................59

I. Legislative extracts ............................................................................................................64

J. Example: Notice of Motion .................................................................................................75

K. Example: Notice of intention to oppose .............................................................................76

L. Example: Founding/Opposing/ Replying/ Replicating Affidavit .........................................77

Update Note ..........................................................................................................78


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Dispute Resolution | 1

1. Introduction

The Income Tax Act, 1962, provides for specific procedures in order to resolve a tax dispute.

On 1 April 2003 new dispute resolution rules commenced with regard to:

The request for reasons for an assessment (section 107A rules);

The objection and appeal procedure against an assessment (section 107A rules); Alternative dispute resolution (section 107A rules)

The conduct and hearing of appeals before the Tax Court and Board(section 107A rules);

Settlement circumstances (section 88A-H of the Income Tax Act).

Initially, the settlement circumstances were issued in terms of regulations under section 107B of the Income Tax Act, and applied with

effect from 1 April 2003. These regulations have now been repealed and the settlement of dispute provisions have now been incorpo-

rated into Part IIIA of Chapter III of the Income Tax Act in the form of sections 88A-H, which new sections apply to all settlements on

or after 22 December 2003.

These rules and settlement circumstances can be broadly described as the new tax dispute resolution rules. A chart demonstrating the

flow of the new rules is attached as Annexure A. The new rules were published for general comment on the SARS website during the

period 1 to 29 November 2002. Extensive commentary was received and quite a number thereof were incorporated into the final rules.

The SARS Service Monitoring Office (SSMO), launched on the 3rd of October 2002, and the new tax dispute resolution process

were introduced to improve service delivery to taxpayers and tax professionals. The two initiatives will respectively enhance service

delivery to taxpayers in respect of administrative processes and procedural difficulties (relative to the SSMO), on the one hand, as well

as disagreements in respect of substantive matters (relative to the new rules), on the other hand.

2. Glossary

ADRAlternative Dispute Resolution.

ADR1This is the prescribed form which must be completed by a person who is aggrieved by an assessment and wishes to object thereto.

It is attached as Annexure E.

ADR2This is the prescribed form which must be completed by a person who is aggrieved by the disallowance of his/her objection or the

alteration of his/her objection, and who wishes to appeal to the Tax Board or Tax Court against such disallowance or alteration. It is

attached as Annexure G.

Clerk of the Tax BoardThe Tax Board is administered by a clerk of the board, who is a SARS officer at the SARS Branch Office responsible for the administra-

tion of the Board in that area. The contact details of the clerk of the Board for each office can be found on the Dispute Resolution

webpage at http://www/sars.gov.za/dr.

CommissionerIs the Commissioner for the South African Revenue Service (SARS). Any reference in this guide to a decision taken by SARS would

be a decision that the Commissioner or a SARS officer may take in terms of the relevant tax act.

Date of assessmentIn relation to any assessment, means the date specified in the notice of the assessment as the due date or, where a due date is not so

specified, the date of the notice of assessment.

DayAny reference to day in this guide means a business day. A business day is any day other than a Saturday, Sunday or Public Holiday.

For purposes of the s107A rules, all the days between 16 December of a year and 15 January of the following year, must be excluded

in calculating the days of any period contemplated in the s107A rules.


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DeliverIn terms of rule 1 of the section 107A rules, deliver means-

(a) handing the relevant document to the relevant person;

(b) sending the relevant document to the relevant person by registered post;

(c) telefaxing the relevant document to the relevant person;

(d) transmitting the relevant document to the relevant person by electronic means; or(e) any other means of service authorised by the Court consisting of the President of the Court sitting alone:

However, in the case of paragraphs (c) and (d), the original signed document must also be handed to the relevant person or sent by

registered post to that person within ten days of it being so telefaxed or transmitted by electronic means.

Exceptional CircumstancesThis concept is not defined in the Income Tax Act, but it is accepted law that when an Act refers to exceptional circumstances it

contemplates something out of the ordinary and of an unusual nature. The South African Constitutional Court has held that the law-

giver cannot be expected to prescribe that which is inherently incapable of delineation - if something can be imagined and outlined in

advance, it is probably because it is not exceptional.

ITAThe Income Tax Act, 1962 (Act No. 58 of 1962).

New RulesAre the rules issued by the Minister of Finance in terms section 107A of the Income Tax Act, which rules commenced on 1 April 2003.

It is attached as Annexure C.

Practice Generally PrevailingThe practice generally prevailing at the time, is the practice known to and applied by the Commissioner personally or, in view of his

powers of delegation, through a duly delegated division at the SARS Head Office. A practice generally prevailing is therefore one that

has been expressly authorized by the Commissioner (personally or through the delegated Head Office Division) and is being applied

throughout the country - it cannot be said that a practice that has its origin in a branch office of SARS falls within the concept of a

practice generally prevailing.

Since 30 November 2001, the Law Administration Division of SARS Head Office has commenced with the issue of Interpretation

Notes, published on the SARS website. The purpose of the Interpretation Notes is to provide guidelines to SARS employees and

taxpayers regarding the interpretation and application of the provisions of the various laws administered by SARS. These Notes and

general rulings to be issued in terms of the proposed new rulings system, will ultimately replace all the existing Practice Notes before

30 November 2001, to the extent that they relate to the interpretation of the various laws. The Interpretation Notes will be amended in

line with policy developments and changes in the legislation.

Reasonable GroundsThe ordinary dictionary meaning of reasonable is having sound judgement; moderate; ready to listen to reason; not absurd; within

the limits of reason; not greatly less or more than might be expected; tolerable, fair (Concise Oxford Dictionary).

Essentially, for a decision to be reasonable the Commissioner is required to consider all relevant matters. The Constitutional Court

has held that there is no absolute standard of reasonableness what is reasonable would depend on the particular circumstances

of each case.

Registrar of the Tax CourtThe Registrar of the Tax Court is appointed by the Commissioner in terms of section 83(20) of the Income Tax Act, and includes any

other person authorised to act in the place of the Registrar. The Registrar administers the placing and hearing of tax appeals before

the Tax Court. The contact details of the Registrar can be found on the Dispute Resolution webpage at http://www.sars.gov.za/dr

SSMOThe SARS Service Monitoring Office, or SARS SMO, is a special office operating independently of SARS branch offices. The SARS

SMO facilitates the resolution of complaints of a procedural nature (i.e. complaints about the manner in which a taxpayer or a matteris being dealt with by SARS). The SARS SMO reports directly to the Commissioner and provides regular reports to the Minister of

Finance.


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SARSIs the South African Revenue Service as established in terms of the South African Revenue Service Act, 1997 (Act No. 34 of 1997).

Settlement Circumstances/Provisions

Initially, the regulations issued in terms of section 107B of the Income Tax Act enabled the Minister of Finance to prescribe the circum-

stances under which SARS may settle a dispute between SARS and a taxpayer, where the settlement would be to the best advantage

of the state. With effect from 22 December 2003, however, the settlement circumstances have been incorporated as a new Part in the

Income Tax Act, i.e. Part IIIA of Chapter III (sections 88A-H). The settlement provisions are attached as Annexure D.

TaxpayerFor purposes of the Income Tax Act, a taxpayer is any person chargeable with any tax leviable under this Act and includes every person

required by this Act to furnish any return. However, for purposes of this guide, any reference would include a person involved in a tax

dispute with SARS in terms of any of the other Acts in respect of which the new rules and settlement regulations apply (see par 3.6).

Tax BoardIs the Tax Board established by section 83A of the Income Tax Act. The Tax Board consists of an advocate or attorney as chairperson

and may deal with tax appeals where the amount of tax involved is less than R100 000. This amount has been increased to R200 000

in respect of appeals noted on or after 1 January 2005.

Tax CourtIs the Tax Court established by the President of the Republic in terms of section 83(3) of the Income Tax Act. It is a court of record

and the presiding officer is a judge or an acting judge of the High Court, assisted by an accountant and a representative from the

commercial community.

Terms of ADRThe terms governing the alternative dispute resolution proceedings are set out on the reverse side of the prescribed ADR2 notice of

appeal form. ADR will only take place if the taxpayer accepts these terms.

3. Background to the new rules

3.1. The request for reasons for an assessment (section 107A rules)The new rules provide that reasons for an assessment may be requested. Where a taxpayer requests such reasons, the taxpayer may

object to the assessment after receipt of the reasons, unless he or she is informed by SARS that adequate reasons have already been

provided. The reasons will enable the taxpayer to properly understand the basis of the assessment and assist in the formulation of the

grounds to object thereto.

Reasons for an assessment may be requested in terms of rule 3 in respect of an assessment issued after 1 April 2003.

3.2. The objection and appeal procedure against an assessment (section 107A rules)

Before the introduction of the new rules, a taxpayer who was aggrieved with an assessment had the right to object to the assess-ment. In the event of SARS disallowing such objection, the taxpayer also had the right to lodge an appeal to the Special Board or the

Special Court for Income Tax Appeals against such disallowance of the objection if he or she was still dissatisfied. These provisions

were, however, reviewed to improve the process.

The reason for the review of the objection and appeal procedures is that there has been numerous complaints from taxpayers that tax

disputes take extended periods of time to be resolved. A particular area of concern was that the period between the lodging of the

objection by the taxpayer and the time it takes for the objection to be allowed or disallowed was too long. The new rules are much

more formalistic and driven by time limits within which a matter must be attended to once an objection has been lodged.

The provisions in the various tax laws relating to objections and appeals were amended by the Second Revenue Laws Amendment Act,

2001. These amendments came into operation on 1 April 2003 by proclamation in the Gazette.

The enabling provisions prescribing the procedures to be observed in lodging an objection and noting an appeal and the procedures to

be followed in the Tax Court are contained in the Income Tax Act. In this regard, section 107A of the Income Tax Act enables the Minister

of Finance to make rules after consultation with the Minister of Justice and Constitutional Development to prescribe these issues.

The rules issued in terms of section 107A apply with effect from 1 April 2003 in respect of all assessments issued, objections lodged or


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appeals noted on or after that date. However, in terms of transitional arrangements contained in Part C of the section 107A rules, ob-

jections and appeals lodged before 1 April 2003 may in certain circumstances be dealt with in terms of the new rules. This will normally

happen in circumstances where the taxpayer and SARS agree that certain of the new rules will apply from an agreed date onwards.

3.3. Alternative dispute resolution (section 107A rules)The new rules introduced alternative dispute resolution procedures (ADR) and settlement regulations to allow for the resolution of tax

disputes outside the litigation arena. This is a new procedure creating a structure with the necessary checks and balances within which

disputes may be resolved or settled. In the past, SARS could settle disputes, but without such specific structures. Such settlements

may continue to happen outside the ADR structure. The ADR process will be less formal and expensive than the court process and

will allow for disputes to be resolved within a much shorter period. It was introduced in pursuance of enhancing SARS client services

by introducing a more cost effective remedy (ADR) for resolving tax disputes.

Rule 7 of the new rules issued in terms of section 107A of the Income Tax Act, makes provision for alternative dispute resolution (ADR)

procedures after an appeal by a taxpayer is noted.

3.4. The conduct and hearing of appeals before the Tax Board and Tax Court (section 107A rules)Under the new rules, the Special Board and the Special Court have been retained, but are now known as the Tax Board and the Tax

Court respectively. Previously, the procedures followed in the Special Court were to a large extent based on those followed in the

Magistrates Court. There were, however, a number of shortcomings in the provisions, especially with regard to discovery of docu-

ments and properly defining the issues in dispute before a case is heard. The new rules provide that the High Court rules will mainly

apply in the Tax Court.

The provisions in the various tax laws relating to the hearing of an appeal before the Special Board and the Special Court were similarly

amended by the Second Revenue Laws Amendment Act, 2001, which amendments came into operation on 1 April 2003.

Rules 8 29 of Part A, Part B and Part C of the rules issued in terms of section 107A of the Income Tax Act, apply to the hearing of

appeals by the Tax Board or the Tax Court.

The new provisions inter alia deal with: The manner in which an appeal is placed before and heard by the Tax Board;

Where an appeal is to be heard by the Tax Court, certain pre-trial proceedings including the identification of the issues in dispute,

discovery of documents, pre-trial conferences, the subpoena of witnesses and experts and the preparation of the dossier and

documentary evidence;

The conduct of the appeal before the Tax Court, including the placement of the case, postponement, withdrawal, the court

procedure, taxation of costs and the procurement of the record of the hearing before the Tax Court in the event of an intended

appeal to the High Court or the Supreme Court of Appeal.

3.5. Settlement circumstances (sections 88A-H provisions)

By law SARS is not entitled to forego any tax which a taxpayer is legally liable to pay. Sections 88A-H of the Income Tax Act, however,prescribe the circumstances under which SARS may settle a dispute between SARS and a taxpayer, where the settlement would be to

the best advantage of the state. Initially, the settlement circumstances were issued in terms of regulations under section 107B of the

Income Tax Act, and applied with effect from 1 April 2003. These regulations have now been repealed and the settlement of dispute

provisions have now been incorporated into Part IIIA of Chapter III of the Income Tax Act in the form of sections 88A-H, which new

sections apply to all settlements on or after 22 December 2003.

These settlement circumstances were inserted in the Income Tax Act in line with the approach that more emphasis should be placed

on resolving disputes otherwise than by way of litigation. In this regard, more flexibility was required to enable SARS to settle a matter.

It must be emphasised that the basic rule still remains that SARS must enforce all legislation administered by SARS and is obliged

to assess and collect all amounts due to the State. There are, however, certain circumstances which justify that the basic rule be

tempered for purposes of good management of the tax system and where it would be to the best advantage of the State. This is an

internationally recognised principle.

The purpose of sections 88A-H is not to prescribe the process for settlement. It is an enabling provision which enables SARS to settle


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a dispute which is to the benefit of the State, provided the matter is appropriate for settlement having regard to the prescribed circum-

stances. A dispute may be settled at any time, and is not limited for use only in the ADR process.

During ADR in terms of rule 7 of the section 107A rules, the parties may settle a tax dispute in terms of the settlement circumstances

where they were unable to reach agreement on the interpretation and application of the relevant tax law.

For purposes of the settlement of a tax dispute, the Commissioner personally or any person specifically designated by the Commis-

sioner for this purpose, must be of the opinion that the matter is appropriate for settlement having regard to the settlement circum-stances issued in terms of sections 88A-H.

3.6. Application to other taxesVarious other tax Acts administered by the Commissioner were also amended to provide that the objection and appeal procedures

and rules relating thereto and the settlement circumstances as contained in the Income Tax Act, will also apply to any dispute in terms

of those Acts.

These Acts include the

Transfer Duty Act, 1949 (Act No. 40 of 1949);

Estate Duty Act, 1955 (Act No 45 of 1955); Stamp Duties Act, 1968 (Act No. 77 of 1968);

Value-Added Tax Act, 1991 (Act No. 89 of 1991);

Tax on Retirement Funds Act (Act 38 of 1996);

Uncertificated Securities Tax Act, 1998 (Act No. 31 of 1998);

Skills Development Levies Act (Act No 9 of 1999);

Unemployment Insurance Contributions Act (Act No. 4 of 2002).

The Customs and Excise Act, 1964, contains its own provisions relating to dispute resolution.

4. Tax Disputes

4.1. When and how does a tax dispute arise?An assessment is defined in the Income Tax Act and is served on a taxpayer in a manner regulated in section 106(2) of the Income

Tax Act. Any taxpayer who is aggrieved by an assessment in which that taxpayer has an interest may object to that assessment. A

taxpayer may also object to any decision of SARS which is in terms of the relevant Act, subject to objection and appeal.

Once a taxpayer has objected to an assessment or a decision subject to objection and appeal, a dispute will exist between the tax-

payer and SARS. The dispute will arise in the sense that there may be a disagreement on the interpretation of either the relevant facts

involved or the law applicable thereto, or of both the facts and the law.

4.2. When may a taxpayer lodge a complaint about a tax dispute at the SARS Service MonitoringOffice (SSMO)?

Any taxpayer who is dissatisfied with the manner in which his or her objection and/or appeal are being dealt with may lodge a com-

plaint with the SSMO. Although the SSMO will not be able to deal with the substance or merits of the objection, it may investigate the

manner in which it is being dealt with. The SSMO therefore facilitates the resolution of complaints of a procedural nature.

A taxpayer, who is dissatisfied with the amount of an assessment and/or the basis of any inclusion and/or exclusion of an amount, may

lodge an objection against the assessment with the relevant SARS Branch Office.

More details about the SSMO are available on the SARS website at http://www.sars.gov.za./smo


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5. Reasons for an assessment

5.1. When and how do I request reasons for an assessment?In terms of rule 3, any taxpayer who is aggrieved by any assessment may request SARS to furnish reasons for the assessment. This

must be done in writing and delivered to the SARS office where the assessment was issued, within 30 days after the date of the assessment.

A taxpayer may request SARS to extend the 30 days period within which reasons may be requested. If SARS is satisfied that reason-

able grounds exist for the delay in complying with the 30 day period, the first 30 day period may be extended with a maximum of

another 30 day period. If SARS refuses to extend the period as requested, the taxpayer may apply by application on notice to the Tax

Court for an order granting such extension.

Where SARS is of the opinion that adequate reasons have already been provided, SARS must, within 30 days after receipt of the

notice wherein reasons were requested, notify the taxpayer thereof in writing. The notice must refer to the documents wherein such

adequate reasons were provided.

There is no prescribed form that must be used for requesting reasons. The written notice must, however, specify the address at which the tax-

payer will accept notice and delivery of such reasons and all documents in terms of the proceedings contemplated in rule 26 (see par 11).

5.2. When will reasons be adequate?The concept adequate reasons is not defined in the Income Tax Act or other tax act.

The Supreme Court of Appeal has stated that adequate reasons requires the decision-maker to explain his decision in a way which

will enable a person aggrieved to say, in effect: Even though I may not agree with it, I now understand why the decision went against

me. The aggrieved person, ideally, should be in a position to decide whether that decision is worth challenging.

5.3. What are the remedies where inadequate reasons are given?Where a taxpayer is of the view that adequate reasons for the assessment were not provided and are able to demonstrate this on

good cause shown, the taxpayer may apply in terms of rule 26 to the Tax Court for an order:

Remitting the matter for reconsideration by SARS;

With or without directions to SARS to provide such reasons as in the opinion of the Court are adequate.

The application on notice procedure is explained below in par 14.

5.4. May reasons also be requested in terms of the Promotion of Administrative Justice Act?A taxpayer may choose whether to request reasons in terms of rule 3 of the section 107A rules, or to request reasons for the assess-

ment in terms of section 5 of the Promotion of Administrative Justice Act, 2000 (Act No. 3 of 2000 the (AJA)) where the taxpayer

is of the view that the assessment materially and adversely affected his or her rights.

However, where a taxpayer has already been provided with adequate reasons, whether in terms of rule 3, the AJA or otherwise, a taxpayer

will not be able to request reasons in respect of the same assessment or decision again, for the simple reason that the taxpayer has already

been furnished with adequate reasons.

In respect of an assessment, the main difference between the two mechanisms for requesting reasons is that where a taxpayer requests

reasons in terms of the AJA, and not in terms of rule 3, the taxpayer must still lodge an objection within 30 days of the date of the assess-

ment unless SARS extends the period.

In contrast, where reasons are requested in terms of rule 3 of the section 107A rules, the taxpayer need only object to the assessment within

30 days after receipt of the reasons, unless the taxpayer is informed by SARS that adequate reasons have already been provided.

6. Objections

6.1. When may I object to an assessment?A taxpayer who is aggrieved by an assessment, or by any decision of SARS which is in terms of the relevant Act subject to objection

and appeal (see for example section 3(4) of the Income Tax Act), may object to the assessment or decision in terms of rule 4. This must

be done within 30 days after the date of the assessment.

The date of assessment in the Income Tax Act is defined as ...the date specified in the notice of such assessment as the due date or,

where a due date is not so specified, the date of such notice.


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The notice of assessment (IT34) normally has 3 dates on it, i.e.

1. Date of processing the assessment

2. Due date (Afrikaans Verval Datum)

3. Second Date (Afrikaans Tweede Datum)

The date for purposes of calculating the 30 day period within which a taxpayer must object is, according to Note 12 to the IT34, thedue date and not the second date. An objection must therefore be filed within 30 business days of the due date. This will not

coincide with the second date - the second date is normally 30 calendar days after the due date.

The second date is generally the date by which the tax must be paid to avoid the levying of interest. If outstanding tax is not paid

by the second date, interest will run from the due date.

For example:

Date: 2003-09-29

Due date: 2003-11-03

Second Date: 2003-11-28

In the above example, the objection must be filed within 30 days after 2003-11-03 (due date) i.e. 2003-12-15. The tax due must be paid

before/on 2003-11-28 (the second date).

Please note that where an assessment has a date of assessment on the assessment form, as well as a due date and a second date,

the 30 day period must still be calculated with reference to the due date, in accordance with the definition of date of assessment in

the Income Tax Act, The date of the notice or date of assessment only applies where there is no due date on the notice.

Where a taxpayer did not request reasons in terms of rule 3, the objection (in the prescribed form ADR1) must be delivered to the SARSaddress specified in the assessment for this purpose, within the prescribed 30 day period.

Where a taxpayer requested reasons in terms of rule 3, the objection must be delivered to the SARS address specified in the assess-

ment for this purpose, within 30 days after the date of :-

the notice by SARS that adequate reasons have been provided, or

the date that reasons were furnished by SARS, as the case may be.

The 30 day period within which an objection must be lodged, may be extended by SARS for a further 30 days in terms of section

81(2) of the Income Tax Act where SARS is satisfied that reasonable grounds exist for the delay in lodging the objection. In terms of

the proviso to section 81(2), the period for the lodging of an objection may not be extended -

a) beyond 60 days of the date of assessment, notice by SARS, or date that reasons were furnished as the case may be - unless

exceptional circumstances exist which gave rise to the delay;

b) where more than 3 years have lapsed from the date of the assessment; or

c) where the grounds for the objection are based wholly or mainly on any change in practice generally prevailing, that was

applicable on the date of the assessment in dispute.


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The objection process and timeframes can be illustrated as follows:

Any decision by SARS not to condone a late objection is subject to objection and appeal in terms of section 81(3) of the Income Tax

Act. For further guidance on this issue, see SARS Interpretation Note 15, attached as Annexure H.

An objection which, for example, contains no grounds for the objection or, if it is lodged late, offers no explanation for its late lodge-

ment, will be deficient to the extent that it will in effect not be a valid objection.

Have you lodged an objection against the assessment

within 30 days from the date of the assessment in the

prescribed format?

Is your objection based wholly or mainly on any change

in practice generally prevailing that applied on the date

of the assessment?

Have you lodged your

objection within 60

days from the date of

the assessment?

Have you lodged your

objection within 3 years

from the date of the

assessment?

Have you submitted reasonable

grounds for not objecting within

30 days from the date of theassessment?

Your late objection may not be

condoned nor may extension

be granted. Your assessment is

therefore final.

Your objection is in time and willbe considered.

If the grounds for late sub-

mission are acceptable,

your late objection will be

condoned and your objec-tion will be considered.

Your late objection may

not be condoned nor may

extension be granted.

Your assessment is there-

fore final.

Do exceptional circum-

stances exist for not

submitting your objection

within 60 days from the

date of the assessment?

Your late objection

may not be condoned

nor may extension be

granted. Your assess-

ment is therefore final.

Your late objection may not be condoned nor

may extension be granted. Your assessment

is therefore final.

If the circumstances are considered excep-

tional, your late objection will be condoned

and your objection will be considered.

No

Yes

Yes

No

NoYes

Yes

No Yes No

No YesNo


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6.2. How do I object to an assessment?The objection must be in the prescribed form, the ADR 1. This form must be completed as comprehensively as possible, and must

include detailed grounds on which the objection is founded with supporting documentation where necessary.

It must be signed by the taxpayer. Where the taxpayer is unable to personally sign the objection, the person signing on behalf of the

taxpayer must state in an annexure to the objection:-

the reason why the taxpayer is unable to sign the objection;

that he or she has the necessary power of attorney to sign on behalf of the taxpayer; and

that the taxpayer is aware of the objection and agrees with the grounds thereof.

6.3. When will my objection be invalid?In terms of rule 5, where an objection does not comply with any of the requirements listed below, SARS may inform the taxpayer by

notice within 60 days that it is not accepted as a valid objection:

It must be in the prescribed form with the information requested in the form completed;

It must specify in detail the grounds upon which the objection is made;

It must specify an address where the taxpayer will accept notice and delivery of the SARS decision in respect of such objection; and

It must be signed by the taxpayer.

However, the taxpayer may within ten days of a notice by SARS that the objection is considered to be invalid, submit an amended

objection. Where the amended objection complies with the requirements for a valid objection, SARS will treat it as such.

Where the taxpayer has failed to deliver the objection at the address specified in the assessment for this purpose, the document de-

livered in terms of rule 4 will be deemed to be invalid.

The taxpayer may, where the taxpayer is able to demonstrate on good cause shown that the objection deemed to be invalid by SARS

should be accepted as valid, make application on notice to the Tax Court, in terms of rule 26 (see par 14), for an order declaring that

the objection must be accepted as valid.

6.4. Request for further information by SARSUpon receipt of a valid objection, SARS must consider the objection and the grounds upon which it was made.

Where the taxpayer has not furnished all the information, documents or things required to decide on the objection, SARS will notify the

taxpayer accordingly and request him or her in writing in terms of rule 5 to deliver the information or documents as specified in that

notice. SARS must do this within 60 days after receipt of the objection, and the taxpayer in turn must deliver the requested information

or documents within 60 days after the date of the notice by SARS requesting the information. It must be delivered at the place and the

manner as may be specified by SARS.

A taxpayer may, within the 60 day period during which he or she must provide the information, request SARS to extend this 60 days

period. The extension by SARS may not be more than 30 days. Where SARS is satisfied that the taxpayer has submitted reasonable

grounds for the inability to deliver the requested information, documents or things, the extension may be granted. If SARS refuses to

extend the period as requested, the taxpayer may make application on notice to the Tax Court in terms of rule 26 for an order granting

such extension where the taxpayer is able to demonstrate on good cause shown why the extension should be granted (see par 13).

Where a taxpayer fails to provide information requested by SARS for purposes of considering the objection, SARS may apply to the

Tax Court in terms of rule 26 for an order that the taxpayer complies with this request. If the Tax Court so orders and the taxpayer

does not comply with this order, SARS may apply to the Tax Court for an order that the assessment, against which the taxpayer has

objected, is confirmed. In such a case the assessment shall become final and conclusive.


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6.5. What must SARS do with my objection?SARS must after receipt of the objection, or the information requested in the manner described above, deal with the objection in any

of the following ways:

Alter the assessment in terms of section 81(4) of the Income Tax Act;

Disallow the objection in terms of section 81(4) of the Income Tax Act;

Reduce the assessment in accordance with section 79A of the Income Tax Act; or Withdraw the assessment in accordance with section 79B of the Income Tax Act.

SARS must notify the taxpayer of its decision in writing:

in the case where SARS requested further information, within 60 days after receipt of that information; or

in any other case, within 90 days after the date of receipt of the taxpayers objection.

However, where SARS requires more time to deal with the objection due to exceptional circumstances, the complexity of the matter or

the principle or the amount involved, SARS may extend the above 60 day period by another 60 days, or the above 90 days period by

another 90 days. SARS must, before expiry of the initial 60 or 90 periods, whichever is applicable, inform the taxpayer accordingly.

6.6. What happens if SARS does not deal with my objection within the prescribed time period?In terms of rule 26, the taxpayer may make application on notice to the Tax Court (in the manner prescribed in Part B of the rules) for

an order that SARS must deal with the objection within such time as the Court deems appropriate. Where SARS fails to comply with

such an order made, the Court may, upon application on notice by taxpayer, make an order that the objection be allowed and that

SARS must alter the assessment in accordance with the objection. The Tax Court may also make any other order as the Court deems

appropriate, including a cost order.

6.7. What may I do if SARS disallows my objection or alters the assessment in a manner thatdoes not satisfy me?

Any taxpayer entitled to object to an assessment and who is dissatisfied with the final decision of SARS in respect of the objection,

may appeal against that decision.

A taxpayer who wishes to appeal must complete the prescribed form (ADR2) and deliver it to the SARS office that dealt with the objec-

tion or the address stated by SARS for this purpose in the notice of disallowance.

The notice of appeal must comply with the following requirements:

It must be in the prescribed form ADR2 with the information requested in the form completed;

It must be signed by the taxpayer or his or her representative;

The taxpayer must indicate in respect of which of the grounds specified in his or her objection he or she is appealing;

It must be delivered within 30 days after the date of the notice informing him or her of the decision of SARS in respect of the

objection.

The 30 day period within which an appeal must be noted (see rule 6(2)), may be extended by SARS where it is satisfied that reasonable

grounds exist for the delay in lodging the objection. Any decision by SARS in this regard is subject to objection and appeal in terms of

section 83(1A) of the Income Tax Act.

In the notice of appeal, the taxpayer may indicate that he or she wishes to make use of the ADR procedures contemplated in rule 7,

should these procedures be available.

6.8. Do I need to pay the amount of tax in dispute?The obligation to pay any assessment amount arises with the issue of the assessment.

In terms of the pay now, argue later rule (the constitutionality of which was upheld by the Constitutional Court in the Metcash case),

the obligation to pay the assessment amount is not suspended by any objection or appeal against the assessment, unless the tax-


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payer requests the Commissioner to exercise his or her discretion to suspend payment pending the finalisation of any objection and/or

appeal, and such request is granted.

It should also be borne in mind that the primary purpose of giving the taxpayer notice of the assessment is not for him or her to object

or to appeal against the assessment, but to inform the taxpayer of his/her tax liability for purposes of the payment thereof.

The way the assessment system works, is that the taxpayer is assessed by SARS and then told what his or her outstanding tax li-

ability or amount refundable is. The assessment includes a date by which payment must be effected. The taxpayer has an obligation

to pay the assessment within the specified period. This period may be shorter than the standard 30 days where, for example, there is

a danger that the taxpayer may dissipate or dispose of his/her assets to avoid his/her tax obligation.

Examples of circumstances where the Commissioner may, depending on the particular facts of each case, exercise his discretion to

suspend payment of a disputed amount are:

Where payment of the whole amount at issue would cause grave and serious hardship which could not be reversed if the tax

payer were to succeed in his appeal, and the circumstances of the case give rise to reasonable doubt;

Other relevant circumstances, for instance certainty that the amount at issue would be paid were the appeal to fail.

(See Media Release 27 of 2000).

If SARS, pursuant to a suspension request, refuses such request, its decision may be taken on review to the High Court. If the taxpayer

does not pay within the period specified in his/her assessment and does not ask SARS to suspend payment, SARS may take collec-

tion steps. If SARS grants a suspension of the payment of a disputed amount, interest will still continue to be levied in terms of section

89 of the Income Tax Act on a monthly basis as from the due date of the assessment.

In the event that a taxpayer succeeds in his or her appeal, the taxpayer must be refunded with interest. The interest is payable in

terms of section 88 of the Income Tax Act and is calculated from the date proved to the satisfaction of SARS as the date upon which

the disputed payment was received.

7. Refunds & reduced assessments

7.1. Must I always object to an assessment which I am dissatisfied with?No. There is a difference between an assessment which is the subject of a substantive dispute and just an error in assessment.

Assessment

Substantive Dispute:

e.g. Entitlement to

deduction disputed

Error in assessment:

Not disputed by SARS

Objection required i.t.o.

s 81 ITA / rule 4

No objection required

Reduced Assessment

s 102 Refund:If TP success-

ful with dispute

s 102 Refund:

Where over-

payment by TP


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7.2. When do I request a reduced assessment as opposed to lodging an objection?A formal objection need not be filed if there are certain errors in the assessment as contemplated in section 79A of the Income Tax

Act.

In terms of section 79A of the Income Tax Act, the Commissioner may, even if no objection has been lodged or appeal noted in terms

of the Income Tax Act, reduce an assessment(a) to rectify any processing error made in issuing that assessment (e.g. a loss was captured as a profit); or

(b) where an amount was taken into account by the Commissioner which should not have been taken into account (e.g. taxpayer

declared income as R10 000 instead of R100); or

(c) where an amount which should have been taken into account was not so taken into account by the Commissioner (e.g. taxpayer

did not claim admissible deductions such as medical expenses and retirement annuity fund contributions, etc).

In the case of (b) and (c) above, the relevant assessment must have been issued by SARS based on information provided in the

taxpayers return.

The Commissioner may not reduce an assessment under section 79A in the following circumstances -

after the expiration of three years from the date of that assessment; or

if the amount was assessed in terms of an assessment accepted by the taxpayer and which was made in accordance with the

practice generally prevailing at the date of that assessment.

The intention of the new section 79A in the Income Tax Act was essentially to enable SARS to alter an assessment to rectify process-

ing errors and return completion errors. Section 79A enables SARS to reduce an assessment to rectify these errors even where no

objection has been lodged against that assessment.

For purposes of an error contemplated in section 79A, a taxpayer need not file an objection. The procedure to obtain a reduced as-

sessment would be that the taxpayer furnishes full details of such an error or claim to the Commissioner, preferably in writing, together

with any necessary documentation or proof.

Before relying on section 79A, a taxpayer of course needs to be sure he or she is dealing with a processing or return completion error.

If in actual fact he or she should have lodged a substantive objection (ADR1) he or she may be out of time as a result of first requesting

a reduced assessment. Thus, if in doubt, file an objection by way of an ADR1. SARS will automatically deal with the ADR 1 in terms of

section 79A if this is appropriate.

Section 79A cannot, for example, be invoked in respect of the imposition of additional tax (penalties) by SARS (for example additional

tax imposed in terms of section 76). Additional tax is not income as defined in the Income Tax Act it is a tax imposed in addition to

the tax chargeable in respect of a taxpayers taxable income and is calculated with reference to such amount of tax.

7.3. When am I entitled to a refund?A taxpayer would be entitled to a refund in terms of section 102(1) of the Income Tax Act pursuant to:

A successful appeal in terms of section 88.

A reduced assessment in terms of section 79A.

An objection to an assessment that has been conceded by SARS in terms of section 81(4).

An amount paid in respect of an assessment that exceeds the tax assessed (overpayment).

An amount paid that exceeds the amount or tax properly chargeable under the Income Tax Act such as Donations Tax and

Secondary Tax on Companies.

A refund in terms of section 102(1) in the above circumstances must be distinguished from a refund in respect of the overpayment of

PAYE and provisional tax provided for in par 28 of the Fourth Schedule to the Income Tax Act.

In the event that a taxpayer has objected against an assessment and is successful with his or her subsequent appeal, the taxpayer

is entitled to a refund in terms of section 88 read with section 102(1) of the Income Tax Act, where he or she has paid the amount of

tax in dispute.


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Where an assessment has been reduced in terms of section 79A of the Income Tax Act, and there has been an overpayment of tax as

a result of the preceding erroneous assessment, a taxpayer is entitled to a refund on terms of section 102(1).

Generally, a refund may be claimed where, in respect of any assessment, a taxpayer has paid more than the amount so assessed or,

in any other case, the amount properly chargeable under the Income Tax Act (the excess amount).

However, a taxpayer cannot claim a refund in terms of section 102(1) of the Income Tax Act where the basis of such a claim is disputed

by SARS in such event the taxpayer must pursue his or her right to object and appeal.

A taxpayer will not be able to claim a refund in the following circumstances:

The excess amount was paid by the taxpayer in accordance with the practice generally prevailing at the date of the payment; or

The refund is claimed by the taxpayer after a period of three years after the end of that year of assessment, in the case where

a) the amount constitutes an amount of employees tax deducted or withheld during any year of assessment from the remunera

tion of the taxpayer;

b) that persons income for that year of assessment consisted solely of remuneration as defined in the Fourth Schedule to the

Income Tax Act; and

c) that person was not required under any provision of the Income Tax Act to furnish a return of income for that year of assess

ment and did not render such a return during the period of three years since the end of that year of assessment; or

In any other case, after a period of three years from the date of the official receipt acknowledging such payment or, where more

than one such payment was made, the date of the official receipt acknowledging the latest of such payments.

Where no objection is made to any assessment or where an objection has been allowed in full or withdrawn, the assessment or altered

assessment, will be final and conclusive (section 81(5) of the Income Tax Act).

If a taxpayer fails to lodge and/or proceed with an appeal to the Tax Court after the rejection of an objection to an assessment, the

assessment will similarly be final and conclusive. An application for a refund in terms of section 102(1) will therefore not be possible,

as there was not an overpayment of tax as contemplated in section 102(1) as a result of such finality.

The Commissioner may set off against any amount of tax, additional tax, duty, levy, charge, interest or penalty which the taxpayer has

failed to pay, any refund payable to the taxpayer in terms of section 102(1) of the Income Tax Act.

8. Alternative Dispute Resolution

8.1. What happens after I lodged an appeal?The appeal may be referred to:

Alternative Dispute Resolution (ADR) at either the SARS Branch Office or SARS Head Office level;

The Tax Board (administered at SARS Branch Office level); and/or The Tax Court (administered at SARS Head Office level).

8.2. What is Alternative Dispute Resolution (ADR) and how does it work?The new rules introduce alternative dispute resolution procedures (ADR) to allow for the resolution of tax disputes outside the liti-

gation arena. This is a new procedure creating a structure with the necessary checks and balances within which disputes may be

resolved or settled.

During ADR, a facilitator will facilitate the discussions between the taxpayer and SARS. The parties may first try to reach an agree-

ment whereby either SARS or the taxpayer accepts, either in whole or in part, the other partys interpretation of the facts or the law

applicable to those facts or both. Where SARS and the taxpayer are unable to reach such an agreement, and the Commissioner orany person designated by the Commissioner under the settlement provisions, is of the opinion that the c ircumstances of the matter

comply with the requirements contemplated in those regulations, the parties may attempt to settle the matter in accordance with those

regulations within the ADR process.


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Rule 7 of the new rules issued in terms of section 107A of the Income Tax Act, makes provision for ADR after an appeal by a taxpayer

is noted. The ADR process is summarised below.

8.2.1. Access to ADR

ADR can be initiated by either the taxpayer or SARS. Where the taxpayer requests ADR in his or her notice of appeal, SARS must

inform the taxpayer by notice within 20 days of receipt of the notice of appeal whether it is of the opinion that the matter is appropriate

for ADR and may be resolved by way of the ADR procedures.

8.2.2. Terms and agreement on ADR

The terms governing the alternative dispute resolution proceedings are set out on the reverse side of the prescribed ADR2 notice of

appeal form. ADR will only take place if the taxpayer accepts these terms. This acceptance is effected when the taxpayer indicates

on the ADR2 form that he or she wishes to make use of the ADR procedures contemplated in rule 7, should these procedures be

available.

8.2.3. Period of dispute resolutionThe ADR process must be concluded within 90 days, or such further period as SARS may agree to.

The period within which the ADR proceedings is conducted commences 20 days after the date of receipt by SARS of the notice of

appeal, and ends on the date of termination of the proceedings in the manner provided for in the terms governing the ADR procedures.

This ADR period interrupts the periods applicable for purposes of the procedures contemplated in rules 8 to 29. Rule 8 deals with the

hearing of the tax appeal by the Tax Board and rules 9 29 with the hearing of the tax appeal by the Tax Court (see par 10).

8.2.4. The facilitator

SARS will appoint a facilitator who will, in the normal course, be an appropriately qualified officer of SARS and will be bound by a Code

of Conduct. The facilitators objective is to seek a fair, equitable and legal resolution of the dispute between the taxpayer and SARS.

At the conclusion of the ADR process the facilitator must record the terms of any agreement or settlement. If no agreement or settle-ment is reached, that must also be recorded.

The facilitator has the authority to summarily terminate the ADR process without prior notice if, for example:

any party fails to attend the ADR meeting or to carry out a request by the facilitator;

where the facilitator is of the opinion that the dispute cannot be resolved; or

for any other appropriate reason.

8.2.5. Proceedings

The ADR proceedings will be conducted in accordance with the terms set out on the ADR2 form. The taxpayer must be personally

present during the proceedings. The facilitator, in exceptional circumstances, may allow the taxpayer or his or her representative tax-payer to be represented in their absence by a representative of their choice.

8.2.6. Reservation of Rights

The ADR proceedings will be without prejudice. Essentially, this means that the ADR proceedings are not one of record, and any

representation made or document tendered in the course of the proceedings may not (barring certain exceptions) be tendered in any

subsequent proceedings as evidence by any other party.

Should SARS or the taxpayer not be amenable to the proposed settlement or agreement, the matter may still proceed to the Tax

Board or Tax Court.

8.2.7. Agreement or Settlement: Issue of assessment to give effect

During ADR, as explained above, the parties must first try to reach an agreement on the interpretation and application of the relevant

tax law. If they fail to reach agreement to resolve the matter in terms of the ordinary provisions of the Act, they may attempt to settle

the matter under the settlement provisions.


21/86


Therefore, subject to compliance with SARS policies and internal corporate governance requirements in this regard, the outcome of

successful ADR may be either -

Agreement on a basis to resolve in terms of the ordinary provisions; or a

Settlement in terms of the settlement provisions which will also be formalised by way of a settlement agreement.

Where an agreement or a settlement is concluded, SARS must issue an assessment to give effect to that agreement or settlement, asthe case may be, within a period of 60 days after the date of the conclusion thereof.

9. Settlements

9.1. When and under what circumstances may a tax dispute be settled?The purpose of sections 88A-H is not to prescribe the process for settlement. It is an enabling provision which enables SARS to settle

a dispute which is to the benefit of the State, if the matter is appropriate for settlement having regard to the circumstances of the mat-

ter. A dispute may be settled at any time, and the settlement provisions are not limited for use only during the ADR process.

Alternative Dispute Resolution (ADR) in terms of rule 7 of the section 107A rules, on the other hand, is a process to resolve disputesduring which the settlement provisions may be applied in an attempt to settle the matter. These settlement provisions may only be

applied if the circumstances of the matter comply with these regulations.

The settlement provisions therefore provide guidelines as to the circumstances when it would be appropriate and when it would be

inappropriate to settle.

9.2. Circumstances under which it will be inappropriate to settleThe settlement provisions provide guidelines as to the circumstances whereunder it will be inappropriate to settle a matter, for exam-

ple

if in the opinion of SARS, the action on the part of the taxpayer which relates to the dispute, constitutes tax evasion or fraud(with a let out that such matters may be settled where one of the circumstances under which it would be appropriate to settle

exists);

the settlement would be contrary to the law or a clearly established practice of SARS on the matter, and no exceptional circum

stances exist to justify a departure from the law or practice;

it is in the public interest to have judicial clarification of the issue and the case is suitable for this purpose;

the pursuit of the matter through the courts will significantly promote compliance and the case is suitable for this purpose; or

the taxpayer has not complied with the provisions of any Act administered by SARS and SARS is of the opinion that the non-

compliance is of a serious nature.

9.3. Circumstances under which it will be appropriate to settleThe settlement provisions provide that where it will be to the best advantage of the state, a matter may be settled in whole or in part,

on a basis that is fair and equitable to both the taxpayer and SARS.

In settling a matter, SARS must have regard to a number of factors, including

whether that settlement would be in the interest of good management of the tax system, overall fairness and the best use of

SARS resources;

the cost of litigation in comparison to the possible benefits with reference to:

1 the prospects of success in a court;

(ii) the prospects of the collection of the amounts due; and

(iii) the costs associated with collection.

whether there are any

(i) complex factual or quantum issues in contention; or

(ii) evidentiary difficulties,


22/86


which are sufficient to make the case problematic in outcome or unsuitable for resolution through the alternative dispute resolution

procedures or the courts;

a situation where a participant or a group of participants in a tax avoidance arrangement has accepted SARS position in the

dispute, in which case the settlement may be negotiated in an appropriate manner required to unwind existing structures and

arrangements; or

whether the settlement of the dispute will promote compliance by the taxpayer or a group of taxpayers or a section of the publicin a cost-effective way.

9.4. What are the reporting requirements for settlements?Sections 88A-H also provide for certain reporting requirements in terms of which SARS must report on an annual basis to the Minister

of Finance and the Auditor-General on settlements reached.

This report must be in a format which does not disclose the identity of the taxpayer and contain details of the number of disputes

settled or part settled, the amount of revenue forgone and the estimated amount of savings in costs of litigation, which must be re-

flected in respect of main classes of taxpayers.

10. Appeal to the Tax Board

10.1. What is the Tax Board?The Tax Board is established in terms of the Income Tax Act and consists of an advocate or attorney as chairperson. Such advocate

or attorney is appointed to a panel of suitable advocates or attorneys by the Minister of Finance in consultation with the Judge-Presi-

dent of the relevant Provincial Division. The appointment of such advocates and attorneys are for a term of 5 years but the persons

appointment may be terminated by the Minister where warranted.

If the Chairperson, the Commissioner or the taxpayer considers it necessary, an accountant or a representative of the commercial

community may co-chair the Tax Board.

The Commissioner determines the places for the hearing of appeals by the Tax Board and an appeal will be heard by the Board situ-

ated closest to the taxpayers residence, unless the taxpayer and SARS agrees that the appeal be heard at another place.

The Tax Board is administered by a clerk of the board, who is a SARS officer at the SARS Branch Office responsible for the admin-

istration of the Tax Board in that area.

10.2. When does the Tax Board deal with my appeal?If ADR is not pursued or is unsuccessful the taxpayers appeal will continue to be dealt with in accordance with the normal appeal

procedure.

The appeal will first be heard by the Tax Board where:

The amount of tax (i.e. excluding interest and penalties) involved does not exceed a fixed amount (R200 000);

The Commissioner and the appellant agree thereto; or

No objection to the jurisdiction of the Board to hear the appeal is made at or before the commencement of the hearing of the

appeal.

Where, in view of the grounds of the dispute or legal principles involved, the Commissioner or the Chairperson is of the opinion that

the appeal should rather be heard by the Tax Court, the matter will referred to SARS Head Office (Law Administration: Litigation) for

this purpose. The hearing before the Tax Court will then start afresh.

In terms of rule 8, the appeal must be placed before the Tax Board within 40 days after:

The ADR process was terminated, or

Where there was no ADR, after receipt of the notice of appeal by SARS (ADR2).


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The Judge President of the Provincial Division of the High Court having jurisdiction in the area where the Tax Court to hear the appeal

is situated, may, where:

the amount which is the subject of the dispute exceeds R50 million; or

the Commissioner and the appellant agree thereto and have jointly applied to that Judge President,

direct that the tax court hearing that appeal shall consist of three judges or acting judges of the High Court (section 83(4B) of the

Income Tax Act).

11.2. What happens before my appeal is enrolled in the Tax Court?The appeal goes through several pre-hearing stages, which are set out in rules 9 29 of the section 107A rules.

Stage 1: Limitation of issuesStage 1: Limitation of issues

Limitation of issues in dispute Meeting (rule 9)

Where the parties agree, a meeting may be arranged by SARS with the taxpayer in an attempt to limit the issues in dispute for pur-

poses of the anticipated litigation.

This meeting must be arranged within 90 days after: The notice of appeal,

The date of termination of ADR, or

The date of the notice wherein the Tax Board decision was not accepted, where applicable.

SARS must prepare and deliver to the taxpayer the minutes of the meeting within 15 days after the meeting.

Statement of grounds of assessment (rule 10)

This rule obliges SARS to deliver to the taxpayer a statement of the grounds of assessment within 60 days of the date of the limitation

of issues meeting. Where such meeting was not held, the statement must be delivered within 90 days after the date of termination of

ADR or the notice of appeal.

The statement must set out -

a clear and concise statement of the grounds upon which the objection was dismissed, and

the material facts and legal grounds upon which SARS relies for such dismissal.

Statement of grounds of appeal (rule 11)

This rule obliges the taxpayer (appellant) within 60 days after delivery of the statement of the grounds of assessment, to deliver to

SARS a statement of the grounds of appeal.

The statement must set out -

a clear and concise statement of the grounds upon which the appellant appeals;

the material facts and legal grounds upon which the appellant relies for such appeal, and

which of the facts and legal grounds alleged in the statement of the grounds of assessment are admitted and which of those

facts and legal grounds are denied.

Issues in appeal (rule 12)

This rule provides that the issues in any appeal to the Tax Court will be those defined in the statement of the grounds of assessment

read with the statement of the grounds of appeal.

Amendments of statement of grounds of assessment or statement of grounds of appeal (rule 13)

This rule provides that SARS and the appellant may agree in writing to the amendment of the statement of grounds of assessment or

grounds of appeal. In case of no agreement the Tax Court may on application on written notice grant leave to amend such statements,subject to such orders for postponement and costs as the Tax Court deems appropriate.


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Stage 2: Discovery

Discovery of documents, information or things (rule 14)

Discovery relates to the preparation for a trial and the procuring of evidence for purposes of such trial. In civil proceedings discovery is

normally utilised after the close of pleadings, when discovery may be sought of documents or information relevant to the crystallised

issues. Discovery ensures that the trial takes place with fairness to each side, and with sufficient information being placed before the

court to avoid surprises (i.e. trial by ambush) during the hearing of the appeal.

In the hearing of appeals before the Tax Court, close of pleadings would occur after receipt of the statement of grounds of appeal

from the taxpayer in terms of rule 11. The crystallised issues in the appeal to the Tax Court will be those issues defined in the statement

of the grounds of assessment read with the statement of the grounds of appeal.

Rule 14 provides for the discovery on request by either the appellant and/or SARS of documents or information relevant to the crys-

tallised issues in the appeal, within 20 days after the delivery by the taxpayer of his or her statement of grounds of appeal in terms of

rule 11.

Any party to whom a notice to discover has been delivered, must make discovery on oath of all documents or information relating to

any matter in the appeal within 40 days after delivery by the other party of the discovery notice.

In such discovery affidavit he or she must specify separately documents or information:

in his or her possession or control, or that of his or her agent;

which were previously in his or her possession or control, or that of his or her agent, but which is no longer so in his or her

possession or control or that of his or her agent; and

the documents, information or things in respect of which he or she has a valid objection to produce.

The production or inspection of the requested documents or information takes place at a venue and in a manner as agreed between

the parties.

Any document or information not disclosed may not be used for any purpose at the appeal by the party who is obliged but failed todisclose it, unless the Tax Court grants leave to do so. The other party, however, may use such document or information.

Stage 3: Pre-trial Conferencetage 3: Pre-trial Conference

Rule 16 provides for a pre-trial conference that must be held within 60 days after the delivery of the last discovery notices in terms of rule

14. Where there was no discovery, it must be held within 60 days after receipt by SARS of the taxpayers statement of grounds of appeal

in terms of rule 11.

During this conference, held at an agreed venue, SARS and the taxpayer must attempt to reach consensus on the evidentiary issues

listed in rule 16. After the conclusion of the pre-trial conference, SARS must deliver a minute of the conference within ten days of the

conclusion of the pre-trial. Where the taxpayer, however, does not agree with the content of the minute, he or she must deliver his or her

own minute to SARS within ten days of the date of the delivery of the minute by SARS.

Stage 4: EnrolmentStage 4: Enrolment

Date of hearing (rule 17)

After delivery of the pre-trial conference minute in terms of rule 16, the Commissioner must arrange a date for the hearing of the appeal

and inform the Registrar accordingly. The Registrar of the Tax Court must deliver to the taxpayer and to the Commissioner a written notice

of the time and place appointed for the hearing of the appeal at least 40 days before the hearing of the appeal, or such shortened period

as may be agreed between the parties.

Places at which Court sits (rule 19)

The Judge President or President of the Division of the High Court by arrangement with the Registrar determines the place and the times

of the sittings of the Tax Court. Every appeal must be heard and determined by the Tax Court in the area which is nearest to the residence

or principal place of business of the appellant. SARS may, however, request the Judge President or President of the High Court having

jurisdiction in any other area that the appeal be heard by a Tax Court in such other area.

Currently, the Tax Court sits in Pretoria, Johannesburg, Durban, Cape Town, Bloemfontein and Kimberley.


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Withdrawal or concession of appeal (rule 23)

The appeal may, at any time before it has been set down for hearing, be withdrawn by the taxpayer or conceded by SARS. After set

down, the party conceding or withdrawing the appeal may consent to pay costs, failing which the other party may apply to the Tax

Court for an order for costs.

Postponement or removal of case from the roll (rule 24)An appeal may be postponed or removed from the roll by agreement. If opposed, an application by a party to postpone or remove a

case from the roll may be made to the Tax Court.

Stage 5: Subpoena of witnesses and documentary preparationStage 5: Subpoena of witnesses and documentary

Subpoenas (rule 21)

In terms of this rule, subpoenas may be issued by the Registrar at the request of either party or by the direction of the Tax Court. The

subpoena may require the person summoned to produce any book, document, information or thing which may be in the persons

possession or under his or her control.

Where a person has been subpoenaed and fails without reasonable cause to attend or to give evidence or to produce the required

book, document, information or thing, or fails to remain in attendance throughout the proceedings, the President of the court may, in

terms of section 84 of the Income Tax Act:

impose upon the witness person a fine or in default of payment imprisonment for a period not exceeding three months; or

issue a warrant for the apprehension of that person.

Notice of expert witness (rule 15)

This rule provides for prior notice of an expert witness to be called by any party not less than 30 days before the hearing of the ap-

peal. A summary of such experts opinion and his or her reasons must be delivered not less than 20 days before the hearing of the

appeal.

If the party wishing to call an expert witness does not comply with the above, such witness may not testify at the hearing unless the

Tax Court allows it.

Witness fees (rule 28)

A witness in any proceedings in the Tax Court is entitled to be paid in accordance with the tariff of allowances prescribed by the Min-

ister of Justice and Constitutional Development and published in terms of section 42 of the Supreme Court Act, 1959 (Act No. 59 of

1959), by notice in the Gazette.

Dossier (rule 18)

This rule prescribes the documents to be included in the dossier and the dates of delivery thereof (30 days before the date of the hear-

ing) to the taxpayer and the Registrar.

The dossier must include, where applicable:

all returns by the appellant relevant to the year of assessment in issue;

all assessments relevant to the issues in appeal;

the notice requesting the Commissioner to furnish reasons for the assessment;

the Commissioners notice (that reasons have been previously provided) or the reasons;

the objection to the assessment;

the notice of appeal;

the minutes of the meeting to limit the issues in dispute;

the statement of the grounds of assessment;

the statement of grounds of appeal contemplated; and

any order by the Court in terms of rule 13 (amendment of statements) or 26 or both.

Pagination of documents (rule 25)

All documents filed with the Tax Court must be paginated and arranged in chronological order as far as possible.


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11.3. What happens during the hearing of my appeal before the Tax Court?It should be borne in mind that an appeal under the Income Tax Act is not the equivalent of an appeal in the strict sense of the word.

It is not the same as an appeal which is heard in the High Court where a judgment by a lower court is taken on appeal. An appeal

of the latter kind is limited to the evidence which had been before the court of first instance, and which, on the facts at any rate, is

therefore limited to the four corners of the record of proceedings in the court of first instance. What comes before the Tax Court is not

such an appeal. Despite in the Income Tax Act being called an appeal, it is in fact a rehearing, which means that both the taxpayer

and the Commissioner are fully entitled to place before it, by way of evidence, any further information that they might feel is relevant

to the issues in dispute.

The sittings of the Tax Court may not be public, and the court may at any time on the application of the taxpayer exclude all or any

persons whomsoever whose attendance is not necessary for the hearing (section 83(11) of the Income Tax Act).

In most tax appeals before the Tax Court, the burden of proof would be on the taxpayer. Essentially, the main justification for placing

the onus of proof on the taxpayer in tax appeals, is that matters concerning the tax position taken by a taxpayer are normally primarily

within the knowledge and power of the taxpayer and originate with him or her. In several instances, however, it has been held in case

law that SARS bears a rebuttal onus. This essentially means evidence to prove that the evidence submitted on behalf of the taxpayer

is wrong.

In terms of section 82 of the Income Tax Act, the decision of SARS will not be reversed or altered by the Tax Court unless it is shown

by the taxpayer that the decision is wrong. What is required from the taxpayer to discharge this onus, is firm evidence that satisfies a

court, upon a balance of probability, that the taxpayer is entitled to the exemption, non-liability, deduction, rebate, allowance or set-off,

disregarding or exclusion of any amount claimed by the taxpayer in his or her appeal.

In terms of section 37 of the Value Added Tax Act, 1991 (Act No. 89 of 1991), the burden of proof that any supply or importation is:

exempt from or not liable to any tax chargeable; or

is subject to tax at the rate of zero per cent; or

that any value upon which tax is chargeable or any amount of tax chargeable is subject to any deduction or set-off; or that any amount should be deducted as input tax,

will be upon the person claiming such exemption, non-liability, rate of zero per cent, deduction or set-off.

In terms of rule 22, if the taxpayer or the Commissioner, or anyone authorised to appear on their behalf, does not appear before the

Court at the time and place appointed for the hearing of an appeal, the Court may, upon the request of the party who is present, finalise

the appeal in any of the following manners (as contemplated in section 83(13) of the Income Tax Act):

in the case of any assessment under appeal, order such assessment to be amended, reduced or confirmed, or may if it thinks fit

refer the assessment back to the Commissioner for further investigation and assessment;

in the case of any appeal against the amount of the additional tax imposed under section 76(1) of the Income Tax Act, reduce,

confirm or increase the amount of the additional charge so imposed; or

in the case of any other decision of the Commissioner which is subject to appeal, confirm or amend such decision.

Where, however any question of law arises, the Court may call upon the party present for argument in support of the assessment

(Commissioner) or objection (taxpayer) before giving its decision.

In short the taxpayer on the date of hearing will commence the proceedings by presenting his case to the Tax Court by way of leading

evidence or by tendering a statement of facts on which the taxpayer relies. Where oral testimony is tendered by the taxpayer the rep-

resentative of the Commissioner will be allowed the opportunity to cross examine such witnesses. At the conclusion of the taxpayers

case, the Commissioners representative will likewise be given the opportunity to present the case for the Commissioner and the tax-

payer will be afforded the opportunity to cross examine any witnesses who testifies on behalf of the Commissioner.

Both parties will, after all the evidence has been heard by the Tax Court, be afforded an opportunity to present oral argument. There-

after the Court will decide on the issues in dispute or reserve judgment until a later date to enable it to consider all the evidence and

arguments presented to court.

The President of the Tax Court may indicate which judgments ought to be published for general information. However, it may only be


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12. Extension of time periods, condonation and non-compliance with rules

12.1. How does extension of prescribed periods work?Rule 26 provides for the following:

Where SARS refuses to grant an extension within which reasons for an assessment may be requested (rule 3) or within which

information must be provided (rule 5), the taxpayer may apply to the Tax Court for an order extending the period as requested by

the taxpayer.

The taxpayer and SARS can by agreement agree to extend the following periods:

(i) The period (60 days) within which SARS may inform the taxpayer that the objection is not accepted as valid, and period (10

days) within which a taxpayer may submit an amended objection ;

(ii) The period (60 days) within which SARS must request the taxpayer to provide further informat

Documents

59087 0 Tax Guide on Dispute Resolution Guide 20051