Paul Gering | Tax Partner, PKF Durban

As the SARS audit division starts asserting its authority, taxpayers face the real problem that the rules of engagement were set by the South African Revenue Service (“SARS”) in the drafting of the Tax Administration Act (TAA) and subsequent amendments since its introduction in 2011.

Audits generally cover more than one tax period or year of assessment and the question that still needs finality and certainty from the Courts is the question of whether SARS’s right to request information in respect of prima facie prescribed years of assessment does not trample on the rights of taxpayers either remain silent or to simply use prescription as a complete defense.

In practice we note that SARS auditors hold the view that the rights of SARS to request information in terms of section 40, 41 and 46 which they deem “relevant for the proper administration of a tax Act”, provide SARS that power irrespective of a time bar and in fact will threaten taxpayers with the power of prosecution for willfully and without just cause refusing to provide information.

The counter argument is clear from the Court cases relating to the issue of prescription. ITC 1470 was very clear that “the fact of the effluxion of time would constitute a complete defense to any claim for additional tax”. In fact, the judgment went further to note “not even for knowledge on the part of the taxpayer could supply the deficiencies in the Commissioner’s case”.

SARS has the power to lift the veil of prescription beyond the general three year period in limited circumstances where it has been proven that fraud, misrepresentation or non-disclose occurred and it was that specific fraud, misrepresentation or nondisclosure that led to the non-taxation of the amount. The onus here is firmly on SARS to show that the actions of the taxpayers led to the non-taxation of the amount. If these rules are properly complied with by SARS, why must the taxpayer be forced to assist SARS – surely the right to silence cannot be administratively removed unless it has been statutorily removed?

As noted in the Brumeria case – “memories fade; witnesses become unavailable; documents are lost. That is why Section 79(1) seeks to achieve a balance; it allows the Commissioner for three years to collect the tax, which the legislature regarded as a fair period of time; but it does not protect a taxpayer guilty of fraud, misrepresentation or non-disclosure.”

So if “as far as the burden of proof was concerned; it was sufficient for the taxpayer to raise the objection for the period for raising the additional assessments had expired by the effluxion of time”, why should the taxpayer be obliged to assist the Commissioner audit a period where the Commissioner has the onus to show the fraud, misrepresentation or non-disclosure and the potential linkage of such action on the part of the taxpayer to the non-taxation of the amount after the period of three years?

Our Constitution, which is the overarching law of the land, provides for protection of lawful, reasonable and procedurally fair administration action which seeks to protect the taxpayer in these cases. SARS audits that attempt to straddle the prescription period without just cause must be challenged in the appropriate forum.

If you are currently being subjected to a SARS audit or a potential SARS audit (by way of a request for relevant information), particularly audits or requests that go beyond the prescription period, it is important that you obtain professional assistance to ensure that SARS has met their obligations in terms of the TAA to justify such audits or requests for information. Should you require assistance in this regard, please contact your nearest PKF office.