Sunday 19 May 2013

Report Back on SAIT's 4th National Tax Conference

Starting with a Gala Dinner on Tuesday 14th May and running until Friday afternoon 17th May 2013, the 4th National Tax Conference was abuzz with tax talk.

At the Gala dinner South African tax icons, Aubrey Silke and Dave Meyerowitz, were honoured with posthumous fellowship awards. In addition, Judge Dennis Davis, Professor Michael Katz and Professor Duncan Bentley were awarded honorary fellowships for their contribution to South African and international tax jurisprudence.
I accepted the Honorary Fellowship award on behalf of Professor Duncan Bentley
at the SAIT 4th National Tax  Conference in Sandton, Johannesburg.

Photograph via SAIT
The three days of the conference covered topics such as how to survive a tax audit, the new Tax Administration Act (TAA), SARS powers of recovery and my favourite topic, Taxpayers' Rights under the new TAA.
My mentor and colleague Professor Michael Katz accepting his Honorary Fellowship award
at the SAIT 4th National Tax  Conference in Sandton, Johannesburg
Photograph via SAIT
I also sat on a panel which included Judge Dennis Davies, Graham Walker (Altron) and Patrick Mawire (General Electric) - we discussed how to achieve a proper balance between Taxpayers' Rights and SARS' power.

The most important impression I was left with was that as the world's economies face more austerity measures, the more difficult it will become for revenue authorities, including SARS, to collect taxes. Thus, the importance of adequate tax administration procedures, the correct implementation of them and a concern for the rights of the taxpayer become ever more important.

Thank you to Stiaan Klue and the SAIT for an excellent and informative conference.

Monday 13 May 2013

Customs Search-and-Seize Move Struck Down

ON APRIL 8 2013 Judge Rogers delivered judgment in the as yet unreported case of PLM Gaertner & 2 Others v Minister of Finance, Commissioner: SARS & 9 Others in the Western Cape High Court which decided that parts of section 4 of the Customs and Excise Act, No 91 of 1964, were invalid under the Constitution. 

The court decided that subparagraphs (i) and (ii) of section 4(4)(a) of the Customs and Excise Act, and sections 4(4)(b), 4(5) and 4(6), are inconsistent with the Constitution and are invalid.

Section 4(4)(a) of the Customs and Excise Act empowers a customs officer to enter any premises at any time whatsoever and make such examination and inquiry as he deems necessary without providing the taxpayer prior notice. The section also allows the officer to request the immediate production of any book, document or thing that is required to be kept under the Customs and Excise Act and which has been on the premises or in the possession or custody or under the control of that person or their employee.

The section also permitted the customs officer to take with him an assistant or member of the police force for purposes of the section.

Section 4(5) of the Customs and Excise Act required that any person shall furnish those facilities as may be required by the customs officer for entering the premises and for exercising the powers under section 4 of the Act. Section 4(6) of the Act conferred on the customs officer the power to break open any door, window or break through any wall on the premises for purposes of entry and search after having demanded admission to those premises and not being immediately allowed to enter those premises. 

In addition, this section allowed the customs officer or any person assisting that officer to break up any ground or flooring on any premises for the purpose of search, and, if any room, place or safe is locked and the keys thereof are not produced on demand, the officer may open such item in any manner. It is clear, therefore, that the Customs and Excise Act contains draconian powers authorising the commissioner’s officers to search premises and to remove documents without judicial intervention.

Gaertner and Klemp are directors of OCS, which conducts business as an importer and distributor of bulk frozen foodstuffs. During May 2012 officials of SARS conducted a search at OCS’s premises in Muizenberg. On June 1 2012 SARS officials also conducted a search at Gaertner’s home at Silverhurst Estate in Constantia. The SARS officials acted in terms of section 4(4) of the Customs and Excise Act, which did not require a warrant to be obtained for the searches.

Subsequently, Gaertner launched proceedings seeking orders that the relevant parts of section 4 of the Customs and Excise Act are unconstitutional to the extent that it permitted targeted non-routine searches to be conducted without judicial warrant. About 10 to 15 SARS officials arrived at the Muizenberg premises and a similar sized group at OCS’s business premises in Wynberg. At OCS they informed the receptionist that they were there to conduct a bond inspection, that is, an inspection of OCS’s licensed customs warehouse
that formed part of the business premises. It appeared as if this was a routine inspection, and, once SARS had sealed the entrance to the premises, Gaertner was then informed that SARS was investigating the under-declaration of customs values of certain imported goods.

SARS did not provide further detail to the taxpayer, nor did it present a warrant authorising the search. SARS sought copies of various documents, which were subsequently taken away. SARS failed to supply the taxpayer with an inventory of the copies made and the documents removed.
Judge rules some provisions of the law are invalid 
as they impinge on the constitutional rights of taxpayers
In his judgment, Rogers J reviewed the provisions of the Customs Act and the procedures relating thereto.

At paragraph 14 of the judgment it is indicated that SARS conceded in its heads of argument that sections 4(4) to (6) of the Customs and Excise Act were constitutionally invalid.

Rogers J reached the conclusion that the provisions of the Customs and Excise Act under consideration did not draw the distinction necessary between routine and non-routine searches and between designated and non-designated premises, nor did they provide adequate guidance as to the manner in which warrantless searches should be conducted. As a result, it was decided that subparagraphs 1(i) and (ii) of section 4(4) and sections 4(4)(b), 4(5) and 4(6) must be declared invalid in light of the Bill of Rights contained in the Constitution.

In reaching that conclusion the Court examined the taxpayer’s right to privacy and indicated that when a person enters the business arena and falls within the jurisdiction of the Customs and Excise Act, routine inspections are part and parcel of doing business and no warrant should be required for so-called routine inspections. 

However, where the Commissioner chooses to conduct non-routine searches, the Court decided that a warrant should be obtained from a judicial officer prior to the Commissioner conducting a search-and-seizure operation. The court had to weigh up the manner in which the suspension of the impugned provisions should take place; that is, whether the suspension should be retrospective or only apply to future conduct undertaken by the Commissioner’s officials.

The Court decided that the suspension of the provisions referred to in the Customs and Excise Act should be suspended for eighteen months to allow for the legislature to amend the offending provisions so as to comply with the Constitution. In addition, during the period of suspension, or until such sooner date as amendments may be made to the legislation, the Court directed that certain words should be read into the provisions of the Customs and Excise Act to ensure that the search and seizure provisions contained in section 4 do not violate the taxpayer’s right to privacy.

Thus the commissioner’s officials must obtain a warrant when they wish to conduct a non-routine search of designated premises.

Furthermore, a customs officer may enter and search premises without a warrant when the person in charge of the premises consents to the entry, and search those premises after being informed that he is not obliged to admit the officer in the absence of a warrant, or, where the officer on reasonable grounds believes that a warrant would be issued, if the officer applied for such warrant, and if the delay in obtaining the warrant is likely to defeat the object of the search.

It must be noted that under the provisions of the Tax Administration Act the commissioner may only conduct a search and seizure operation once a warrant has been issued by a judicial officer.

It remains to be seen how the commissioner will respond to the judgment, in that the case must, as a matter of course, be referred to the Constitutional Court to confirm the findings of the Western Cape High court that the impugned provisions are invalid under the constitution.

Dr Beric Croome is a tax executive at ENS.This article first appeared in Business Day, Business Law & Tax Review, May2013. Free Image from ClipArt