Proposed new tax court rules

In February 2013, the South African Revenue Service (SARS) released a draft of the anticipated new dispute resolution rules to be promulgated under s103 of the Tax Administration Act, No of 2011 (TAA), generally referred to as the Tax Court rules. Members

Heinrich Louw, Associate in the Tax practice at Cliffe Dekker Hofmeyr explains that these rules are to replace the current rules that were promulgated under s107A of the Income Tax Act, No 58 of 1962.

“Essentially, the rules prescribe the procedures to be followed in respect of objection and appeal proceedings against assessments or certain other administrative decisions by 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,” he notes.

Louw says that for the most part, the proposed new rules are the same as the current rules, but there are a few noteworthy departures.

“Certain time periods within which SARS must respond to a taxpayer have been shortened,” he explains.

“Where a taxpayer requests reasons for a decision, SARS currently has 60 days to provide such reasons, where adequate reasons have not been provided. Under the proposed rules, SARS only has 45 days to provide adequate reasons.

“Also, under the current rules SARS must notify a taxpayer of the outcome of an objection within 90 days where SARS has not requested further information from the taxpayer. Under the proposed rules SARS will have to notify the taxpayer of the outcome of an objection within 60 days, where no further information was requested.

“However, SARS may extend the period by up to an additional 30 days where there are exceptional circumstances or the matter is complex,” Louw explains.

“The new rules also make provision for "test cases", which is a new concept introduced by s106(6) of the TAA. Where the determination of an objection or appeal is likely to be determinative of the issues involved in one or more other objections or appeals, SARS may designate the case as a 'test case'. The other objections or appeals may then be stayed. SARS must inform the taxpayers involved they may oppose the decision. Taxpayers whose objections or appeals have been stayed, may request a right of participation in the test case,” he says.

Louw says that probably the most radical departure from the current rules is that it is proposed that, once an appeal has been noted, the taxpayer must provide SARS with a 'statement of grounds of appeal' first, and then only does SARS have to deliver a 'statement of grounds of opposing appeal'. Under the current rules the obligation is on SARS to first provide the taxpayer with a 'statement of grounds of assessment', and then only does the taxpayer have to deliver a 'statement of grounds of appeal'.

“It is submitted that this change will place the taxpayer at a disadvantage,” says Louw, “as there will no longer be an opportunity for the taxpayer to understand exactly what SARS’s case is in respect of an assessment. The taxpayer will now have to rely solely on SARS’s reasons provided for the assessment, if any. In practice, SARS often provides inadequate reasons, or none at all, and when asked to provide reasons in terms of the rules, the response is either rather light, or completely dismissive. In light of the case of CSARS v Sprigg Investment 117 CC 73 SATC 114, it is unlikely that a taxpayer would get a detailed response from SARS when requesting reasons,” he adds.