Dr Beric Croome: June 2012

Monday 11 June 2012

Information Gathering To Ensure Law Compliance

CURRENTLY, the South African Revenue Service (SARS) has various weapons in its armoury to gather information from taxpayers to ensure compliance with the tax laws of SA. In terms of section 74A of the Income Tax Act,1962, the Commissioner may request that a taxpayer or any related person supplies information, documents or things which SARS requires for the purpose of administrating the act.

In terms of section 74B, the Commissioner may, with reasonable prior notice, carry out an audit at the taxpayer’s premises to inspect or audit the records of the taxpayer. Under the provisions of section 74C, the Commissioner is empowered to conduct an inquiry into the affairs of a taxpayer. The media has recently focused on this form of gathering information after reports appeared that an inquiry was being conducted into the affairs of persons associated with Mr Julius Malema.

The Commissioner should only resort to an inquiry
under s74C, or a search-and-seizure warrant under s74D,
where the taxpayer has failed to supply information
requested in accordance with s74A or 74B

Furthermore, the Commissioner may search premises and seize documents in terms of section 74D, where a judge has issued a warrant authorising a SARS official to conduct such a search-and-seizure operation.

It is accepted that the Commissioner requires powers to gather information, but should only resort to an inquiry under section 74C, or a search-and-seizure warrant under section 74D, where the taxpayer has failed to supply information requested in accordance with section 74A or 74B.

Under section 74C, the Commissioner may authorise any person to conduct an inquiry for the purposes of the administration of the act. Once a decision has been made to conduct an inquiry, the Commissioner or a SARS officer must apply to a judge for an order appointing a presiding officer to preside over the inquiry to be held. If the Commissioner lodges an application to a judge to appoint a presiding officer, that application is required to be supported by information supplied under oath, setting out the facts on which the application under section 74C is based.

In terms of section 74C(5), a judge may grant the order appointing a presiding officer only if he is satisfied that there are reasonable grounds to believe that there has been non-compliance by any person of their obligations under the provisions of the act or that an offence under the act has been committed by any person. The order requested may also be granted when the inquiry is likely to yield information, documents or things which may supply proof of noncompliance with the provisions of the act or the committing of any offence under the act.

It must be pointed out that, when the application is made to a judge to appoint a presiding officer to conduct an inquiry into the affairs of a taxpayer, that taxpayer is not before the court, similar to the position where the Commissioner seeks a search-and-seizure warrant under section 74D.

Any order granted by a judge under section 74C is required to name the presiding officer referred to and the non-compliance or offence to be inquired into, and, also, identify the person who is alleged to have failed to comply with the provisions of the act, and, also, to be reasonably specific as to the scope of the inquiry.

The court is required to appoint a presiding officer from persons appointed to the panel by the Minister of Finance in accordance with section 83A(4).

The presiding officer during an inquiry, is, under section 74C(8), entitled to determine the manner in which the inquiry shall be conducted and is conferred the same powers to enforce the attendance of witnesses and to compel them to give evidence or produce information as are vested in the President of the Tax Court contemplated in section 83. It is also required that the proceedings of the inquiry and evidence presented should be recorded in the manner prescribed by the presiding officer.

Section 74C(9) requires that the persons who receive a written notice issued by the presiding officer must appear at the inquiry to be questioned under oath for the purposes of the inquiry contemplated in section 74C. Any notice issued by the presiding officer to a witness or taxpayer is required to state where the inquiry will be conducted as well as the reasons for the inquiry.

Any person appearing at an inquiry is entitled to be assisted by a legal representative when they appear before the presiding officer.

Any person appearing at an inquiry conducted under section 74C is subjected to the preservation of secrecy, as defined in section 4 which also seeks to respect the right of the taxpayer to privacy.

It must be noted that any evidence given under oath at an inquiry may be used by the Commissioner when issuing assessments to the taxpayer who is subject to an inquiry.

It is specifically provided in section 74C(17) that no person may refuse to answer any questions during an inquiry, on the grounds that it may incriminate that person. However, no incriminating evidence obtained will be admissible in any criminal proceedings against the person giving evidence, other than in proceedings where that person stands trial on a charge relating to administering or taking an oath, the giving of false evidence or making of a false statement in connection with such questions and answers.

The fact that taxpayer may be engaged in civil or criminal proceedings does not prevent an inquiry conducted under section 74C from proceeding.

The press has reported on the tax affairs of Mr Dave King, particularly with regards to his disputes with the Commissioner. It is clear from The Commissioner for the South African Revenue Service v D King and four others, Case No 4745/02 unreported case of the Transvaal Provincial Division that the Commissioner obtained information about King under section 74C of the act.

Subsequently, it was reported that the Commissioner had commenced an inquiry into the tax affairs of Mr Glen Aggliotti, and, more recently, it was widely reported that the Commissioner had instituted an inquiry into persons associated with Mr Malema.

It is clear that the provisions of section 74C of the act are wide, and are used by the Commissioner to obtain information with a view to establishing the income derived by a taxpayer so that assessments may be issued to them. Any person who is required to be present a section 74C inquiry is well-advised to seek legal advice regarding the notice received from the presiding officer, and to ensure that they are properly represented at the inquiry, thereby ensuring that their rights are protected.

It is contended that the Commissioner should only resort to section 74C where a taxpayer has failed to supply information required under either section 74A or 74B. Unfortunately, it does not appear that this is always the case, as the Commissioner will, in some cases, institute an inquiry under section 74C without having requested the relevant information under one of the less intrusive means of gathering information from a taxpayer.

■ Dr Beric Croome is a tax executive at ENS. This article first appeared in Business Day, Business Law and Tax Review, June 2012. Free image from ClipArt

Dr Beric Croome

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Saturday 23 June 2012

South Africa's New Tax Administration Bill

Monday 11 June 2012

Information Gathering To Ensure Law Compliance