Section 99 of the Tax Administration Act, 28 of 2011
("Tax Admin Act") regulates prescription
in relation to tax assessments and provides for a three year
prescription period in respect of income tax assessments and a five
year prescription period in the case of self-assessment taxes (e.g.
value-added tax and employees' tax).
Generally, the prescription period that prohibits SARS from issuing
an additional assessment does not apply if the reason why the full
amount of tax was not charged was due to fraud, misrepresentation
or non-disclosure of material facts by the taxpayer. When the tax
is a self-assessment tax, the basis on which the prescription
period does not apply differs in that it refers to fraud, as well
as intentional and negligent misrepresentation or
non-disclosure.
In terms of the draft Tax Administration Laws Amendment Bill, 2015
("draft Bill"), released for public
comment on 22 July 2015, it has been proposed that the Commissioner
for the South African Revenue Service ("the
Commissioner") may extend the relevant
prescription period prior to the expiry thereof, inter alia, if an
audit or investigation relates to a complex matter such as the
application of the general anti-avoidance provisions
("GAAR") under a tax Act, an audit or
investigation under section 31 of the Income Tax Act, 58 of 1962
(which deals with transfer pricing), or a matter of analogous
complexity. It is proposed that, in these circumstances, the
relevant prescription period may be extended by the Commissioner by
a period of up to three years. The proposed amendment appears
to have the effect of allowing the Commissioner to unilaterally
extend the prescription period provided for in section 99(1) of the
Tax Administration Act, in the case of income tax, to a maximum of
six years.
A number of issues arise from this proposed amendment.
Firstly, the terms "complex matter" and "analogous
complexity" are wide, and no objective standard is given by
which SARS must measure the alleged complexity of a matter.
The citing of examples of complex matters as being GAAR and the
transfer pricing rules is in our view not helpful, and does not set
an objective standard against which the complexity of a matter may
be measured. The decision as to the complexity of a matter and
whether an extension of the legislative prescription periods is
thus warranted, and therefore appears to be a largely subjective
matter which is left to the discretion of the Commissioner. This
will lead to uncertainty for taxpayers in relation to whether a
decision by SARS to extend the prescription period in relation to a
particular tax aspect in this context is justified or
appropriate.
Secondly, the proposed amendment does not stipulate that SARS has
to notify the taxpayer that prescription has been extended. Section
3 of the Promotion of Administrative Justice Act 3 of 2000
("PAJA") provides that administrative
action which materially and adversely affects the rights or
legitimate expectations of any person must be procedurally fair. In
terms of section 3(2) of PAJA, in order to give effect to this
right, an administrator (i.e. SARS) must give adequate notice of
proposed administrative action. It is trite law that any decision
taken by the Commissioner constitutes administrative action and
therefore has to comply with the provisions of PAJA. It is
therefore submitted that, in order to create certainty for
taxpayers and to bring the proposed amendment in compliance with
section 3 of PAJA, a requirement should be added that the
Commissioner notifies the taxpayer of its intention to extend
prescription.
Thirdly, there is no procedure for a taxpayer to challenge a
decision by the Commissioner to extend prescription on the basis
that it regards a matter as being complex, as a taxpayer is not
given the ability to object to such a determination by SARS in
terms of section 104 of the Tax Administration Act. Therefore,
since such a decision by the Commissioner would constitute an
administrative action, a taxpayer's only remedy would be to
request reasons in terms of PAJA, and, following the receipt of
reasons and if considered necessary, to take such a decision on
review under PAJA. This is a costly and time-consuming process, and
does not seem to be an appropriate manner in which to deal with
this issue. Presumably, the taxpayer would have to wait for SARS to
issue an additional assessment after availing itself of the
additional time, and then raise this aspect as a ground of
objection against the raising of the assessment.
Lastly, the proposed effective date of this amendment is the date
of promulgation of the draft Bill. The question arises how this
will affect a taxpayer's existing rights in relation to
prescription and in particular where an assessment was issued prior
to the date that the proposed amendment comes into effect. The
untenable situation could arise where a taxpayer's 3 year (or 5
year) prescription period is close to expiry, the draft Bill is
promulgated and the Commissioner, prior to expiry of such period,
unilaterally decides to extend the prescription period based on a
subjective determination of the complexity of a particular tax
aspect. It is therefore submitted that the proposed amendment
should only apply to years of assessment commencing on or after the
date of promulgation of the proposed amendment.
Due to the importance of prescription for taxpayers in obtaining
finality as to their tax affairs, it is crucial for taxpayers to be
aware of the prescription status of assessments and their rights in
this context. ENSafrica is submitting comments to National Treasury
in respect of, inter alia, this proposed amendment, as it has far
reaching implications on the rights of taxpayers and will result in
great uncertainty for taxpayers in relation to prescription of
assessments, will severely impact on a taxpayer's ability to
reach finality in relation to their tax affairs and will widen the
already considerable powers of SARS in the context of tax
disputes.
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