Resolving disputes with the Receiver of Revenue is a much fairer and more streamlined process than it once was, thanks to the introduction of the alternative dispute resolution process by SARS, complete with stringent deadlines for action on the Receiver's part, as well as yours. No longer should you have to "pay now, argue forever".
Taxpayers who disagree with the taxman need no longer feel helpless. Bureaucracy is now on your side, and your objections will in future be fast-tracked through, rather than lost in, the labyrinths of the South African Revenue Service (SARS).
The revenue service has introduced a new deadline-driven process for resolving disputes, and should it miss the due dates, your objection could be upheld without further ado.
While a policy of "pay now, argue later" will in most cases prevail, you can apply for a suspension of payment while your objection is being heard. Even if that application fails, the new system guarantees that there won't be cases of "pay now, argue forever".
The deadlines in the new system are designed to prevent disputes taking months, and in some cases even years, to be resolved.
And a further concession to taxpayers is that there is now a way to resolve disputes without hiring lawyers and going to court. The new alternative dispute resolution (ADR) process allows you to argue your case, with or without legal representation, with the very officials who made the decision. And if you don't like the outcome of that debate, you still have the right to take the matter to a Tax Court.
The new measures were introduced in April last year. Before that, if SARS did not entertain your objection, you would have had to pursue it with the Tax Board if the dispute involved an amount of less than R100 000, or in the Tax Court if the dispute involved an amount greater than that.
Now the ADR process offers you a round-table discussion with SARS and the opportunity to reach a compromise at no cost. If you are still not happy, you can then approach the Tax Board or the Tax Court.
You are not limited to using this dispute resolution process for income tax assessments with which you disagree. You can also use it for disputes about assessments made under:
- The Marketable Securities Act;
- The Transfer Duty Act;
- The Estate Duty Act;
- The Stamp Duties Act;
- The Value-Added Tax Act;
- The Tax on Retirement Funds Act;
- The Uncertified Securities Tax Act;
- The Skills Development Levies Act; and
- The Unemployment Insurance Act.
If you are already in the throes of a dispute with SARS, you can still apply to take the dispute through the ADR process.
Objecting to an assessment
If you receive an assessment with which you do not agree, the first thing you should do, regardless of whether you plan to take the matter through the ADR process or to the Tax Board or Tax Court, is to establish whether or not SARS has given you adequate reasons for its decision. Adequate reasons would enable you to understand why SARS came to a decision, even if you do not agree with it, and to formulate the grounds on which you will object to the decision.
If you are not given adequate reasons, you need to send a written request for these reasons to the SARS office that issued your assessment within 30 days of receiving your assessment. If you have reasonable grounds for not sending your request within 30 days, SARS may extend the time period to 60 days in which it will consider a request for reasons. These are working days and exclude the period between December 16 and January 15.
Once SARS has received your request to provide reasons, it will either send you the reasons or tell you that it has already given adequate reasons. If SARS believes you have already been given the reasons for a specific assessment, you will be notified within 30 days of SARS receiving your request.
If SARS does entertain your request to provide reasons, it must send those reasons to you within 60 days of receiving your request. This deadline may be extended by a further 45 days if SARS notifies you that it needs more time.
Once you have the reasons why SARS came to an assessment, you can decide whether or not to object to the assessment.
If you decide to object to the assessment, you must do so within 30 days of receiving the assessment or the reasons for the assessment.
Again, if you have reasonable grounds for objecting late, SARS will accept an objection after the first 30 days have passed.
Your objection should be sent to SARS on a particular form, the Notice of Objection, or ADR1 form. The form is available from the SARS website ( www.sars.gov.za), under the heading "Forms". Alternatively, you can collect a form from your local SARS office, which has access to the website and can print a form on request.
SARS plans to make this form the only acceptable way to submit an objection from February 28, 2004. It is a good idea to use the ADR1 form, so that SARS employees who open the mail will know that they must fast-track this form to the right department within SARS.
The form on which you lodge your objection must be signed by you to indicate that you take responsibility for lodging the objection. It is not enough to get your tax adviser to do so for you. If you are not able to sign the form yourself, you will have to explain to SARS why you have given the person submitting your form authority to sign on your behalf.
If you do not sign the form, supply details of your objection, or give an address to which SARS can send notice of its decision, your objection may be rejected. In this case, SARS will give you 10 days in which to amend your objection and to submit it again.
Once SARS has received your objection, it must consider it within certain deadlines.
Within 90 days of receiving your objection, SARS must inform you whether it is altering, reducing or withdrawing your assessment, or if it is disallowing your objection. If the matter is particularly complex, SARS can extend this deadline by a further 90 days, but you must be informed of the extension in writing.
If officials at SARS need more information, they must ask you for this information within 60 days of receiving your objection. You will have a further 60 days to supply that information. This 60-day period may be extended by a further 45 days if you can show good reason for needing an extension.
From the time SARS receives the information, it has another 60 days to decide for or against your objection. Again, this period may be extended by a further 60 days if the matter is complex, but you will be informed in writing.
If SARS does not deal with your objection within the specified periods, you may apply to the Tax Court, which may make an order that the objection is allowed and that SARS must alter your tax assessment accordingly. The Tax Court can also make other appropriate orders, such as an order of costs.
If your objection fails
If SARS decides not to accept your objection or you are not satisfied with the adjustments made to your assessment, you can appeal against the decision. You must notify SARS of your intention to appeal a decision within 30 days of receiving notice of that decision, unless you can provide good reason why you cannot do so within this time.
In order to appeal against a decision, you must fill in a Notice of Appeal, or ADR2 form, which you can also obtain from the SARS website or from your local SARS office.
You must state on the form the grounds on which you are appealing and, at this stage, you can indicate whether or not you are prepared to have the matter dealt with through the ADR route.
If you do not state that you are prepared to have the matter dealt with through the ADR process, SARS may ask you to consider doing so, but you have the right to refuse the ADR process.
SARS also has the right to refuse your request to participate in the ADR process. An internal policy on this is being developed, but, for example, SARS would deny ADR when the dispute concerns the interpretation of new legislation.
If you lodge an appeal and state that you are prepared to use the ADR process, SARS must inform you within 20 days whether ADR is the appropriate route.
Understand the process
The ADR process involves a series of discussions between yourself and the SARS officials who decided not to allow your objection.
You must attend meetings personally and you may have a representative present if you want, but only in exceptional circumstances can a representative appear on your behalf in your absence.
Appearing in person is necessary, SARS says, so that factual disputes can be resolved, outstanding information obtained, or agreement reached on certain facts or interpretations of the law. The aim of ADR is to reach consensus, and to do this, you need to be present. Your representative might not be able to make decisions on your behalf.
The discussions are chaired by a facilitator, who in most cases, will be a SARS official. But SARS has been at pains to point out that this is not like setting a fox to watch the geese and is merely a cost-saving measure. Only in rare situations, when the case requires it, will an impartial facilitator from outside SARS be appointed. Otherwise the facilitator will be someone who has not been involved in any way in your case, but who has the knowledge to decide on the matter. And all facilitators will be trained in impartiality by mediation specialists and will have to abide by a code of conduct. The code states that they must declare any conflicts of interest and they must resist any influences.
If you and SARS are unable to come to an agreement, an attempt at settlement may be made under certain circumstances. SARS may not settle a matter if:
- It is of the opinion that you have committed fraud or evasion;
- A settlement would be contrary to the law or established practice;
- It is in the public's interest to have the matter clarified in court;
- Pursuing the issue in court would encourage other taxpayers to comply with the law; or
- SARS is of the opinion that your non-compliance with the law is of a serious nature.
The whole ADR process must be completed within 90 days and the clock starts running when SARS receives your notice of appeal (ADR2). The period can only be extended if SARS agrees that it should.
If you do come to an agreement or settlement, the agreement must be put in writing and is binding on both parties.
If you do not reach a settlement or agreement, you can then take the matter to the Tax Board or the Tax Court. The facilitator may make a recommendation to the board or the court, but this is not binding.
All ADR proceedings are without prejudice and "off the record" - in other words, any documents you produce and anything you say cannot be held against you in later proceedings if you do not resolve the issue during the process.
If you do come to an agreement or settlement, SARS must issue an assessment giving effect to that agreement within 60 days.
See you in court
If you do not resolve the issues through the ADR process and decide to take it further, those procedures have been streamlined too.
If the matter involves less than R100 000, it must come before the Tax Board within 40 days of the ADR process ending. If you skip the ADR process, the matter must go before the board within 40 days of SARS receiving your notice of appeal.
The Tax Board is chaired by an advocate or attorney chosen from a list of advocates or attorneys appointed by the Minister of Finance.
The chairperson will hear the arguments from you and the SARS officials involved with your case, and will make a ruling. Usually you are not allowed to be represented legally.
If you are unhappy with the decision of the board, you may take the matter on appeal to the Tax Court.
If your case is one involving more than R100 000 in disputed tax, you can go directly to the Tax Court.
The Tax Court is a formal court and you may be represented by a lawyer or tax adviser.
The court is presided over by the president who is a judge or acting judge of the High Court and, although taxpayers are usually represented by lawyers, you do not have to be represented.
The court process has also been improved and High Court rules, rather than Magistrate's Court rules, have been introduced. The court process now allows for:
- The limitation of the issues in dispute - you and SARS meet and agree on what is in dispute and what is not disputed;
- Discovery of documents, information or other evidence which will be used in the trial;
- A pre-trial conference during which you and SARS officials attempt to reach consensus on the evidentiary issues, that is the evidence produced regarding the facts in dispute;
- The subpoena of witnesses and documents.
Alternative Dispute Resolution: A case study
On September 1, 2000, Mr X (name withheld for the sake of confidentiality) entered into an agreement to buy a property that was being used for commercial and residential letting purposes. At the time, the South African Revenue Service (SARS) ruled that the transaction could be zero-rated for VAT purposes and therefore no VAT was payable.
The purchase of an ongoing concern is usually zero-rated for VAT purposes, but the letting of residential property is exempt from VAT. Transfer duty is usually paid when property that is used solely for residential letting purposes is sold. In the case of a dual purpose property being sold by a VAT vendor, an adjustment is usually made for the exempt portion and the purchaser pays tax on that portion.
In the case of Mr X, about two years after the conclusion of the agreement, SARS conducted a VAT audit on the property transaction and then decided that an adjustment was necessary and that Mr X was liable for tax.
Faced with the prospect of having to pay about R65 000 in unforeseen taxes, Mr X lodged an objection against the assessment, but this was rejected. He then approached Grant Thornton Kessel Feinstein for assistance in appealing against the rejection of his objection to the assessment.
The strategy
When the matter went through the alternative dispute resolution process, Mr X and his advisers pointed out that SARS had not taken into account the fact that the seller had not taken advantage of a VAT deduction, and therefore there was no actual loss of tax. They referred to certain technical applications of the VAT Act. They also argued that Mr X had been prejudiced by the time it had taken SARS to resolve the issue.
As a result, the matter was settled in Mr X's favour and his assessment was amended to reflect that he did not owe the tax, all penalties were waived and the interest was reduced considerably. In addition, Mr X was spared the expense and inconvenience of having to prosecute an appeal through the Tax Court.
The successful outcome of this first alternative dispute resolution process in South Africa proves that the new system does work, if you know how to use it.
From an article by Kathy Dixon, published in The Tax Line, a Grant Thornton Kessel Feinstein publication.
This article was first published in Personal Finance magazine, 1st Quarter 2004. See what's in our latest issue