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.
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 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
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