Lodging a Complaint against the South African Revenue Service

The Tax Administration Act No. 28 of 2011 (“TAA”) which took effect on 1 October 2012 created the Office of the Tax Ombud to deal with complaints against the South African Revenue Service (“SARS”) empowering that office to deal with complaints made by a taxpayer regarding a service matter or procedural or administrative matter arising from the application of the provisions of a tax Act by SARS.

Before a taxpayer can lodge a complaint with the Office of the Tax Ombud, it is important that they have exhausted the internal complaints resolution mechanisms within SARS, unless there are compelling circumstances to do so. The TAA prescribes what constitutes compelling circumstances and those are not dealt with further in this article.

During September 2015 SARS refined the process a taxpayer must follow when lodging a complaint regarding the manner in which they have been dealt with by SARS. According to the SARS website  a complaint is a grievance or some other type of dissatisfaction experienced by a taxpayer, trader or representative relating to a process, including queries, returns or any other service request or a service experience that is not adequately resolved.

The SARS guidelines dealing with complaints makes it clear that SARS’ processes should be fully exhausted to resolve a taxpayer’s query before a formal complaint is lodged. Where the taxpayer remains dissatisfied with the service after their normal interaction with SARS, they are entitled to complain against SARS. It must be noted that where a taxpayer disagrees with an assessment or any decision taken by SARS, it is necessary to follow the formal dispute resolution process and to lodge an objection against the assessment raised. The complaints process cannot deal with the merits or otherwise of an assessment issued by SARS.

Where a taxpayer is dissatisfied with SARS’ service or processes, it is necessary to have a case number first, particularly where a taxpayer wishes to complain about missing documentation, quality or speed of service or unresolved issues.

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Taxpayers are required to submit a complaint via e-filing which means that the complaint will be tracked electronically or alternatively by calling the SARS Complaints Management Office (“CMO”) on 0860121216. In order to complain via e-filing, the taxpayer must be a registered e-filer to complete and submit the complaint form. Previously taxpayers were unable to lodge complaints electronically which meant that complaints were not capable of comprehensive tracking and follow up.

Where a taxpayer is unable to file a complaint via e-filing, they may seek assistance from a SARS agent to complete the complaints form on their behalf when contacting the CMO. When lodging a complaint, a taxpayer is required to indicate the nature of the complaint and to categorise the complaint into one of the specified categories. According to the SARS website, the categories of complaints and examples relating thereto are as set out below:

            “No.        Category                                               Example

                1              Legal/Policy                                          For example, debit cards not accepted for payments.

                2              Employee behaviour/Competence For example, agent X was rude, or agent did not know how to assist

                                                                                                me.

                3              Channel experience/environment/  For example, contact centre is very slow to answer, or there is no

                                technical issues                                   parking at branch X.

                4              Quality and speed of service            For example, incorrect resolution of request, or it took 6 months to

                                                                                                process my banking detail change.

                5              Unresolved service/operational       For example, turn-around-time exceeded and my return has not yet

                                matter                                                    been processed.

                6              Missing or lost documentation          For example, I have submitted my return, but SARS cannot find it.”

Where a taxpayer wishes to lodge a complaint relating to the quality and speed of service, or an unresolved service operational matter or missing or lost documentation, the taxpayer must submit a case number first. Thus, the taxpayer’s complaint will only be accepted if there is already a case logged on SARS’ systems and the case number is inserted on the complaints form.

SARS has indicated that once a taxpayer has complained, they will receive either a text message or email notification at various stages of the process confirming that the complaint has been received. It is intended that the resolution date will be a maximum date of 21 days after the complaint has been logged with SARS. Where the taxpayer remains dissatisfied with the outcome utilising the SARS internal complaints process, the taxpayer may lodge a formal complaint with the Office of the Tax Ombud.

SARS published a document entitled “Guide to the Complaints Functionality on E-filing” setting out how taxpayers and tax practitioners can lodge complaints via e-filing in respect of the taxpayer’s own affairs or in respect of the affairs of taxpayers managed by a tax practitioner.

Where the taxpayer remains dissatisfied after having followed the internal complaints process at SARS, they are entitled to file a complaint with the Office of the Tax Ombud, which office will determine whether the complaint falls within the mandate of that office and advise the taxpayer accordingly. The Tax Ombud intends to finalise complaints made by taxpayers within 15 business days of receipt of the taxpayer’s complaint. Where the Tax Ombud anticipates that the complaint will not be resolved within the specified time period, the Office will advise the taxpayer thereof.

The Tax Ombud recently tabled its annual report for 2014/2015 in Parliament as required under the TAA. That report indicates that during the twelve months under review, 1277 complaints were received from taxpayers, of which 861 were rejected on the basis that the complaints fell outside of the ambit of the Tax Ombud’s mandate or that the taxpayer had failed to exhaust SARS’ internal complaints process. Of the 409 complaints accepted by the Tax Ombud, 75% were resolved in favour of the taxpayer.

The Tax Ombud’s report identifies the most important categories of complaints lodged by taxpayers against SARS and these related to problems relating to the following areas:

·                Withdrawal of assessments by SARS

·                Delays in refunds

·                Changes in banking details of taxpayers

·                Identity theft

·                Turn-around time on objections and appeals

·                Outcomes of objections/appeals not implemented by SARS

·                Debt procedures not adhered to by SARS

·                Undue delay in issuing of tax clearance certificates

It must be remembered that the Office of the Tax Ombud cannot compel SARS to adhere to the finding made by the Ombud’s office but where SARS chooses not to adhere to the recommendations made by the Tax Ombud, that will be reported to Parliament. Thus, SARS must have  very sound reasons not to accept the recommendations made by the Tax Ombud, particularly when reference is made to the provisions of the Constitution.

In conclusion, where taxpayers are aggrieved with the manner in which they have been dealt with by SARS officials or SARS has failed to resolve the taxpayer’s complaint properly, they are entitled to take that up with the Office of the Tax Ombud and based on experience in practice, the Office of the Tax Ombud is having the desired effect in resolving complaints made by taxpayers against SARS. Taxpayers are therefore urged to lodge complaints with the Office of the Tax Ombud once they have failed to resolve the matter utilising SARS’ internal complaints processes.

Dr Beric Croome is a Tax Executive  at ENSafrica This article first appeared in Business Day, Business Law and Tax Review, November 2015. 

Preservation Order and the South African/Australian Double Taxation Agreement

On 20 August 2015 the Supreme Court of Appeal delivered its judgment in the case of M Krok & Jucool Enterprises Inc. v The Commissioner for the South African Revenue Services which related to an appeal from the Gauteng Division of the High Court regarding the correctness of the confirmation of a preservation order granted by Fabricius J in the context of the South African and Australian Double Taxation Agreement (“DTA”).

The DTA was concluded by the two countries on 1 July 1999 and subsequently altered by way of a Protocol signed on 31 March 2008 which catered for the states to assist each other in the collection of taxes. During January 2012 and February 2013, the Australian Tax Office (“ATO”) requested the assistance of the Commissioner: South African Revenue Service to assist it in the collection of taxes allegedly due by Mr M Krok to the Australian Commissioner of Taxation in the sum of Australian $25 361 875.79 plus interest for the period 30 June 2004 to 30 June 2009. The ATO therefore required SARS’ assistance in the conservancy of Mr Krok’s assets located in South Africa pending the collection of the tax debt and a formal request was made accompanied by the certificate required under section 185 of the Tax Administration Act, No. 28 of 2011 (“TAA”).

Image courtesy of https://www.ato.gov.au 

Mr Krok emigrated to Australia from South Africa during April 2002 and prior to his emigration a trust of which he was a beneficiary vested the capital assets of that trust in Mr Krok. Thus, Mr Krok held the assets received from the trust in addition to his personal assets.

The distribution was made by the South African trust in order to reduce capital gains tax in the future and also to allow for the remittance of income under the exchange control regulations. Pursuant to Mr Krok’s emigration from South Africa, he contended that he ceded all South African income and assets to a foreign company, Polperro, held by a foundation located in Lichtenstein. Subsequently during December 2008 Mr Krok emigrated from Australia to the United Kingdom. Mr Krok contended that as part of his emigration planning to United Kingdom, Polperro was liquidated and the assets owned by him were transferred to Jucool Enterprises Inc., a company incorporated in the British Virgin Islands and held by a Jersey Trust.

During 2009 the ATO conducted an audit of Mr Krok’s tax affairs covering the period February 2003 to February 2010.

As a result of the ATO’s investigation into Mr Krok’s affairs, the ATO concluded that Mr Krok had failed to declare income derived by him for Australian tax purposes in respect of assets held by him in South Africa while an Australian resident. The various transactions whereby assets were transferred from Mr Krok to the foreign companies were never disclosed to SARS or the ATO. 

The ATO reached the conclusion that Mr Krok retained legal and beneficial interest in the assets and that the alleged assignment of his rights and interest of the capital and income of the assets to the foreign company violated South African exchange control regulations and was a sham. Consequently, the ATO adjusted Mr Krok’s tax returns and issued notices of assessment reflecting tax and penalties. The objections lodged by Mr Krok to those assessments were disallowed by the ATO.

As a result of the ATO’s request for assistance under the DTA, SARS launched an application for a preservation order under section 163 of the TAA. Mr Krok contended that the tax claimed by the ATO fell outside of the scope of the DTA on the basis that the Protocol came into effect on 12 November 2008 and therefore should only apply in respect of income or profits and gains of any year of income beginning after 1 July 2009.

Jucool contended that it had legal title to the assets and that the assets were therefore not owned by Mr Krok. Thus, Mr Krok’s primary argument was that the DTA did not apply on the basis that the tax in issue did not arise on or after 1 July 2009. The court considered the Vienna Convention on the Law of Treaties of 1969 and reached the conclusion that the Protocol concluded by South Africa and Australia applied to all tax debts, whether they arose before or after the date on which the Protocol was agreed to.

The court referred to the fact that the arguments raised by Mr Krok were dismissed in the case of Ben Nevis (Holdings) Ltd and Metlika Trading Ltd v Commissioners for HM Revenue and Customs. That case considered the provisions of the tax treaty between South Africa and the United Kingdom regarding an appeal in which similar issues to those raised in the Krok case were considered in the context of a similar article to a 2002 DTA between those two countries as amended by a 2010 Protocol. 

In the Metlika case the taxpayer argued that the 2010 Protocol precluded mutual assistance in the collection of tax debts which arose before 1 January 2003. The United Kingdom court disagreed with Metlika and accordingly allowed the United Kingdom Revenue to assist SARS in the collection of amounts allegedly due to it. The Supreme Court of Appeal therefore held that there was no merit in the taxpayer’s point on retrospectivity and that the provision of Article 25A allowing for reciprocal assistance in the collection of tax applied regardless as to when the income tax debt arose.

Furthermore, the court rejected Jucool’s contention that it was the beneficial owner of the assets in question and not Mr Krok.

Thus, the Supreme Court of Appeal confirmed the decision of the High Court authorising SARS to assist the ATO in recovering the tax allegedly due by Mr Krok to the ATO, despite the fact that the tax arose prior to the date on which the Protocol took effect.

Taxpayers therefore need to be aware that where they incur a tax debt in one country, that country may seek assistance in the recovery of those amounts from the assets held by a taxpayer in another country with which a DTA has been concluded.

Dr Beric Croome is a Tax Executive  at ENSafrica This article first appeared in Business Day, Business Law and Tax Review, October 2015. 

Procedures Governing Objections and Appeals to SARS

A taxpayer who receives an assessment from the Commissioner: South African Revenue Service with which they do not agree, is entitled to lodge an objection against that assessment and Chapter 9 of the Tax Administration Act, No. 28 of 2011 (“TAA”) sets out the procedures that must be followed. 

Taxpayers also need to be mindful of the rules governing objections and appeals promulgated under section 103 of the TAA, which sets out in greater detail the steps to be followed in the objection and appeal process.

Under section 96(2) of the TAA, the Commissioner is obliged to supply the taxpayer with the grounds of the assessment so that the taxpayer can understand the basis on which the assessment has been issued. 

Unfortunately, far too many cases are seen where the Commissioner summarily disallows deductions claimed by taxpayers without supplying any information as to the legal basis on which the deduction was denied. 

In these cases the taxpayer is entitled to demand that the Commissioner complies with his statutory obligation to supply the grounds for the assessment in compliance with section 96(2) of the TAA. 

The taxpayer is required to submit the request for grounds of assessment where SARS has failed to fulfil its legal obligation to do so at the time of issuing of the assessment within 30 business days of the date of the assessment in question.

Once the taxpayer has received the grounds of assessment, they are entitled to submit an objection against that assessment within 30 days of receiving the grounds for the assessment. Where the Commissioner has supplied the grounds of the assessment as required at the outset, the taxpayer is required to lodge the objection within 30 business days of the date of the assessment.

According to the SARS’ website, taxpayers need to submit the correct documentation for the objection to be valid. In the case of personal income tax, a notice of objection or form NOO is required to be submitted via e-filing. Corporate income taxpayers are also required to file the objection electronically by using the form NOO. 

Where a trust disputes an assessment issued by SARS, it is necessary to complete form ADR1 and submit that either by hand or by email to an appropriate official at SARS. In the case of value-added tax, payroll related taxes and all other taxes , such as donations tax, dividends tax etc. a taxpayer can only file the objection using form ADR1 and is unable to lodge the objection electronically. 

Unfortunately, it does not appear that SARS officials are familiar with the procedure set out on the SARS website and officials have often rejected objections on the basis that they are invalid on the grounds that the taxpayer has not used an NOO form in respect of value-added tax or donations tax, secondary tax on companies. 

Once the legal position and SARS guidelines are pointed out to SARS officials, a letter of apology is issued and the objection is then acknowledged and confirmed as being properly filed. It is most unfortunate that SARS officials do not appear to be familiar with their own procedures.

It is critical that when the taxpayer decides to object to the assessment, that they also consider whether to pay the tax in dispute or whether they wish to apply for a suspension of payment of the tax in dispute in terms of section 164 of the TAA. 

The rules regulating the suspension of payment of tax in dispute is not discussed further here, except to point out that too often SARS does not respond timeously or at all to the letters requesting suspension of payment, as a result of the fact that the requests for suspension are not capable of being submitted to SARS electronically and are therefore not properly tracked within SARS’ systems. 

Too often taxpayers who have lawfully applied for suspension of payment receive demands for payment or in a worst case scenario, are informed that judgment has been taken against them even though SARS has sat on their request for suspension for many months.

When the taxpayer submits their objection, it is most important that the grounds of the objection are properly considered and fully set out in the letter of objection submitted to the Commissioner.

Where SARS has failed to supply the grounds of assessment or failed to supply proper reasons for the decision to issue the assessment, the taxpayer should insist that SARS complies with their statutory duty to inform the taxpayer for issuing the assessment in question. The taxpayer cannot properly object to an assessment without knowing the basis on which SARS has issued the assessment concerned.

It is also important that when the objection is prepared, that statements made in the letter of objection can be supported subsequently by documentary evidence should the case proceed on appeal to the Tax Court, or another court. The letter of objection needs to be carefully contemplated and drafted, so that the taxpayer sets out their case properly and knows that they can support the statements made in their letter of objection. There is nothing worse for a taxpayer to lodge an objection only to discover that documents which they believe to exist, which would support their case, in fact are no longer available or do not exist.

Under the rules governing objections and appeals, taxpayers also cannot unilaterally add to the grounds of objection without following proper procedures laid down in the rules governing objections and appeals and this applies equally to SARS insofar as its grounds of assessment are concerned.

On 8 December 2014 Rogers J delivered judgment in the case of ABC (Pty) Ltd v Commissioner for SARS,  as yet unreported.

In ABC’s case, the Commissioner submitted an application to the Tax Court for consent to amend its grounds of assessment under rule 10 of the rules which previously governed the objection and appeal process.

The case related to the application or otherwise of section 103(2) of the Income Tax Act, No. 58 of 1962 (“the Act”) and in his Rule 10 Statement, the Commissioner indicated that he was relying not only on the first change in shareholding but also on the subsequent change of shareholding which occurred during November 2003. 

These factors were important in determining whether section 103(2) of the Act could apply to the transaction in dispute or not. From a review of the decision of Rogers J, it would appear that the Commissioner informed the taxpayer of the grounds of assessment setting out the basis on which the assessment was issued, without reference to the second change of shareholding and now sought the court’s consent to supplement his grounds of assessment.

The new rules governing objections and appeals took effect on 11 July 2014 and the court indicated that the Commissioner’s Rule 10 Statement was filed at the time that the old rules applied. Rogers J indicated that he was required to establish what could lawfully be contained in a Rule 10 Statement and he reached the conclusion that the coming into force of the new Tax Court rules did not affect that evaluation.

The court referred to the fact that the question as to whether the Commissioner or the taxpayer could introduce new grounds into their Rule 10 and 11 Statements not covered by the earlier steps in the assessment process is not entirely settled in law. In ITC 1843 Claasen J held that the Commissioner and the taxpayer were entitled to depart from their previously stated positions in letters of assessment and letters of disallowance of objection.

Subsequently in HR Computek (Pty) Ltd v The Commissioner for the South African Revenue Service the Supreme Court of Appeal indicated that the taxpayer does not have the freedom of amendment which Claasen J accepted in ITC 1843.

Rogers J reached the conclusion that a distinction should be made between a tax appeal which relates to objective questions of fact and law and tax appeals which relate to the exercise by the Commissioner of discretionary powers. The court analysed section 103(2) of the Act extensively and reviewed the grounds of assessment set out in the Commissioner’s Rule 10 Statement. 

The court indicated that the Commissioner cannot support the existing assessment made by the him on the basis of matters on which he was not satisfied when he first issued the assessment in dispute. The court therefore came to the conclusion that the Commissioner’s application to amend its grounds of assessment set out in their Rule 10 Statement should be refused and that the taxpayer’s counter application to strike out those amendments should succeed. The taxpayer in the case of ABC (Pty) Ltd therefore succeeded in preventing SARS from amending its grounds of assessment and also received an order of costs in its favour.

The lesson to be learnt from the ABC case is that the taxpayer must formulate its grounds of objection properly and likewise SARS must formulate its grounds of assessment adequately and cannot supplement that at will and thereby prejudice the taxpayer.

Dr Beric Croome: Tax Executive, ENSafrica. This article first appeared in Business Day, Business Law & TAx Review, April 2015. Photograph by Judy Croome.

Western Cape High Court Rules on Purpose of Preservation Orders

Section 163 of the Tax Administration Act 28 of 2011 (“TAA”) provides that a senior SARS official may authorise an ex parte application to the High Court for an order for the preservation of any assets of a taxpayer, or other person prohibiting any person, subject to the conditions and exceptions as specified in the preservation order, from dealing in any manner with the assets to which the order relates.

The TAA provides that a preservation order may be granted if required to secure the collection of tax. The preservation order will apply in respect of realisable assets seized by SARS in terms of section 163(2), which allows SARS to attach assets in anticipation of being granted a preservation order by the court. 

Furthermore, the preservation order would typically be granted in respect of realisable assets as may be specified in the order, and which may be held by the person against whom the preservation order is being made. In terms of section 163(4) of the TAA, the court to which an application is made may grant a provisional preservation order having immediate effect. In addition, the court may grant a rule nisi calling on the taxpayer or any other person, on a business day mentioned in the rule, to appear and satisfy the court as to why the preservation order should not be made final.

The TAA requires that the preservation order must provide for notice to be given to the affected taxpayer and the person from whom the assets are seized.

Where a preservation order is granted in terms of section 163 of the TAA, the court may make any ancillary orders regarding how the assets must be dealt with, including:

·         authorising the seizure of all movable assets

·         appointing a curator bonis in whom the assets of that taxpayer or another person liable for tax vests

·         realising the assets in satisfaction of the tax debt

·         making provision as the court may think fit for reasonable living expenses of a person against whom the preservation order is made, or

·         any other order which the court considers appropriate for the proper, fair and effective execution of the order.

The court which grants the preservation order may vary or rescind that order if the circumstances set out in section 163(9) of the TAA are complied with.

Once a preservation order has been granted, it remains in force pending the setting aside thereof on appeal, or until the assets subject to the preservation order are no longer required for purposes of the satisfaction of the tax debt.

The TAA provides that assets seized under section 163 of the TAA must be dealt with in accordance with the directions issued by the High Court which granted the relevant preservation order.

Rogers J in Commissioner for the South African Revenue Service v Tradex (Pty) Ltd (case number 12949/2013) as yet unreported, was required to decide whether to confirm the provisional preservation order granted in terms of section 163(4) of the TAA. In the Tradex case the affected taxpayers had been delinquent in that tax returns had not been submitted timeously to SARS, and it was accepted that amounts were due to SARS for various tax debts payable to SARS.

Using such an order as a tactic by Sars comes in for criticism by judge

In the case before the court, the taxpayers repeated an offer of security made in negotiations with SARS by way of continued operation of caveats in respect of various immovable property which the taxpayer contended had a value of approximately R7.5 million. In addition, Tradex offered SARS a cession in securitatem debiti of the company’s book debts to the value of R10.5 million.

SARS, in its papers filed with the court, continued to be dismissive of the value of the book debts offered as security by the taxpayer.

SARS approached the court for confirmation of the preservation order and that the taxpayers be prohibited from disposing, dissipating of any assets and that SARS be authorised to cause caveats to be registered over the taxpayer’s immovable properties. In addition, SARS sought that a Mr Nel be appointed as the taxpayer’s curator bonis with all of the taxpayer’s assets vesting in him. Rogers J expressed the view that he did not think that the legislature intended that a preservation order would routinely be available to SARS in every case of an actual or anticipated tax liability. The court was of the view that there must be a material risk that assets will be dissipated in order to justify the granting of a final preservation order.

In the case at hand, SARS did not satisfy the court that there was an appreciable risk of the assets owned by the taxpayer being diminished. SARS did not in its replying and supplementary replying papers allege that the taxpayer was causing the company to dissipate its assets by distributing dividends or paying unreasonable salaries or engaging in other suspicious transactions.

At paragraph 54 Rogers J stated as follows:

“One gains the distinct impression that SARS launched the application not so much because a preservation of the respondents’ assets was required but in order to bring the matters to a head by placing legal pressure on the respondents.”

The court expressed the view that the granting of a final preservation order would have the effect of forcing the company to shut down and the granting of a preservation order in such circumstances would not be just. The court made the point that the taxpayers had offered SARS caveats over the immovable property and had those been accepted by SARS, the litigation would have been resolved far earlier than what was the case.

In the result the court ordered that the caveats registered against the immovable properties remain in place unless the taxpayer and SARS agree thereto in writing or the court otherwise directs.

The court was critical of the appointment of the curator bonis by way of the provisional preservation order on the basis that that appointment increases the costs of the taxpayer and was not strictly necessary to preserve the assets in question. The court also made the point that section 163 of the TAA is a procedure for preserving assets and is not a means of execution on the basis that once tax has been assessed or is otherwise due and payable, the “pay now, argue later” rule applies. In terms of the provisions of the TAA, SARS has various provisions in terms of which it can institute proceedings to recover assessed tax from a delinquent taxpayer.

The court ordered SARS to pay a large portion of the taxpayer’s costs and dismissed SARS’ application to confirm the provisional preservation order.

The grant of a preservation order is an intrusion into the life of a taxpayer and confirmation of an interim preservation order will not be granted lightly by the courts, based on the Tradex decision.

Dr Beric Croome is a Tax executive: Edward Nathan Sonnenbergs Inc. This article first appeared in Business Day, Business Law & Tax Review (November 2014). Please contact me if there are copyright issues relating to use of image.