SAIT TAX INDABA 2016
TOPIC: PRESCRIPTION: S99 OF TAA Betsie Strydom 011 669 9396 / 082 900 1442 betsie.strydom@bowmanslaw.com Mogola Makola 011 669 9398 / 073 123 1373 mogola.makola@bowmanslaw.com
SECTION 99 (1) Section 79 Additional assessments repealed in 2011. Section 99 Period of limitations for issuance of assessment replaced section 79. Difference: subjective test used in section 79, objective test in section 99. Section 99: Rules which prevent SARS from issuing additional assessments, protect taxpayers and provide certainty. General prohibition contained in section 99: SARS cannot issue an additional assessment three years after the date of the original assessment (for income tax); five years after the date of the original assessment in self-assessment taxes (e.g. VAT and PAYE); if an additional assessment was not issued due to a practice generally prevailing; in respect of a dispute that has been resolved under Chapter 9. Page 3
SECTION 99 (2) Section 99(1) limitation does NOT apply (i.e. 3 or 5 year limitation) if in the case of assessment by SARS, the full amount of tax chargeable was not assessed, due to fraud; misrepresentation; or non-disclosure of material facts. in the case of self-assessment (VAT or PAYE), the full amount of tax chargeable was not assessed, due to fraud; intentional or negligent misrepresentation; intentional or negligent non-disclosure of material facts; or the failure to submit a return or, if no return is required, the failure to make the required payment of tax. SARS and the taxpayer agree that the limitations period does not apply, prior to the expiry of the limitations period; it is necessary to give effect to the resolution of a dispute under Chapter 9; SARS issues a reduced assessment in terms of section 93(1)(d) (where SARS becomes aware of the error before expiry of the period for the assessment). Page 4
SECTION 99 (3) Introduced by TALA Act of 2015 Taxpayer certainty is removed. SARS can extend the limitation period by a period which is determined by SARS. Section 99(3) gives the Commissioner a discretion to extend the prescription period: - SARS must give taxpayer 30 days prior notice (i.e. before the limitation period ends) SARS can extent the limitation period to a period approximate to a delay from i.e. the period is not prescribed in the statute:- the failure of taxpayer to provide relevant material requested in terms of sections 46(2) or 46(5); the resolution of a dispute (including legal proceedings) about information entitlement. Reason in Explanatory Memorandum (para 2.51): Taxpayers fail to provide information requested by SARS, or dispute SARS right to information. Complex matters e.g. Application of GAAR or TP disputes, make it impossible for SARS to meet the prescription deadline. The requirement of prior notice before extension of prescription is to allow the taxpayer to make representations why it should not be extended. The grounds for the extension will be included to demonstrate that the jurisdictional requirements for the extension have been met. Page 5
SECTION 99 (3) What is relevant material? Section 99(3) refers to all the relevant material requested. Section 1 of TAA: Relevant material means any information, document or thing that in the opinion of SARS is foreseeably relevant for the administration of a tax Act as referred to in section 3. 2014 Explanatory Memorandum The proposed amendment aims to clarify that the statutory duty to determine the relevance of any information, document or thing for purposes of e.g. a verification or audit, is that of SARS and the term foreseeable relevance does not imply that taxpayers may unilaterally decide relevance and refuse to provide access thereto, which is what is happening in practice. Limitation period extended by a period approximate to a delay What does this mean? Synonyms for approximate Correlate; Match; Equal. Dictionary meaning of approximate - Near or approaching a certain state, condition etc; Near, close together; Nearly exact, close together. Page 6
SECTION 99 (4) Section 99(4) allows Commissioner to extend the limitation period by 3 years (in case of assessment by SARS); or 2 years (in case of self-assessment), where an audit or investigation relates to: Application of substance over form doctrine; The application of GAAR, section 73 of the VAT Act (scheme for obtaining undue tax benefits) or any other anti-avoidance provisions; The taxation of hybrid entities or hybrid instruments; or Section 31 of the ITA But Commissioner must give taxpayer 60 days prior notice, before the expiry of the limitation period. At what stage of an audit/investigation must CSARS make the determination? Page 7
SECTION 99 Words the Commissioner is satisfied removed Section 99(2) the fact that the full amount of tax chargeable was not assessed, was due to - fraud misrepresentation non-disclosure of material facts, etc. The removal of the words the Commissioner is satisfied does not relieve SARS of the onus of showing that the failure to assess the correct amount to tax, was caused by fraud, misrepresentation or non-disclosure. If SARS issues additional assessment outside the limitation periods, the taxpayer should: request reasons for the assessment; SARS ought to disclose whether there was (in its view) fraud, misrepresentation or non-disclosure. It will be necessary for SARS to inform the taxpayer of the reason why the correct amounts were not assessed to tax. Page 8
SECTION 46 Request for relevant material 1. SARS may, for the purposes of the administration of a tax Act in relation to a taxpayer, require the taxpayer or another person to, within a reasonable period, submit relevant material (whether orally or in writing) that SARS requires. 2. A senior SARS official may require relevant material In respect of taxpayers in an objectively identifiable class of taxpayers; or Held or kept by a connected person, in relation to a taxpayer, located outside the Republic. 3. A request by SARS for relevant material from a person other than the taxpayer is limited to material maintained or kept or that should reasonably be maintained or kept by the person in respect of the taxpayer. 4. Relevant material required by SARS under this section must be referred to in the request with reasonable specificity. 5. If a taxpayer fails to provide material referred to in subsection (2)(b), the material may not be produced by the taxpayer in any subsequent proceedings, (unless a court directs otherwise on the basis of circumstances outside the control of the taxpayer and any connected person). Page 9
CASE LAW SIR v Trow [1981] 43 SATC 189: AD had to consider whether section 79 applied Taxpayer sold property in income tax return he answered no to question whether he had sold property during the year; taxpayer showed profit on sale of property in balance sheet. SARS issued an additional assessment in terms of section 79 four years after assessment. Taxpayer argued that section 79 precluded SARS from issuing additional assessment. HELD THAT: SARS can only raise an additional assessment if the Commissioner had satisfied himself that : There had been a non- disclosure of material facts by the taxpayer; and The fact that the profit was not assessed to tax was DUE TO the non disclosure, i.e. that the non- assessment was causally related to the non-disclosure of material facts. The court held that: it was not enough to say that the SIR was satisfied that there was a non-disclosure of a material fact. He also had to say that he was satisfied that it was the non-disclosure which caused him not to assess the amount to tax. It was only the respondent s satisfaction on this score that could have displaced the immunity conferred on the appellant by the proviso in question. Section 99 now objective test. Page 10
CASE LAW ITC 1855 74 SATC 58 Section 79A: Commissioner may not reduce an assessment more than 3 years from date of assessment. Taxpayer requested reduced assessment. Issue: Whether letter of May 2007 from SARS headed Income Tax: Revised Assessment for the years 2001 to 2004 is a revised assessment? SARS failed to issue IT34 Held: May 2007 letter stated that: Tax assessments would be issued in due course; Appellant informed that he had right to object within 30 days. The use of IT34 is practice, but is not prescribed by law. The May 2007 letter constituted an intentional published act of assessment Page 11
CASE LAW COMMISSIONER FOR THE SOUTH AFRICAN REVENUE SERVICE v VAN DIJK 64 SATC 7 Application of s 79(1). Original notice of assessment for 1988 and 1989 tax years issued on 1 July1989 and 1 September 1990 allowing losses. On 1 November 1990 CSARS cancelled original assessments by issuing further assessment described as 'revised assessments' reversing the original assessment. CSARS issued assessments for the 1988 and 1989 years of assessment on 30 June 1994 disallowing taxpayer's deductions for the losses. CSARS contended that s 79(1) was not applicable since it pertained to additional assessments and there was no additional assessment in this case since the first assessment had been neutralised by the so called 'revised assessment' and that the 1994 assessments were therefore 'fresh assessments'. In other words, the 'fresh assessments' of 1994 could not be regarded as 'additional assessments' in terms of s 79(1). Issue: Whether Commissioner had power in terms of s 79(1) to issue assessments on 30 June 1994 being more than three years after the date of the original assessments. Held: That it was patently clear that no assessment, in the ordinary sense of the word, had been issued on 1 November 1990 reflecting a fresh determination and all that was intended was to cancel or neutralise a 'mistaken' communication of an earlier determination. That the Commissioner was not entitled to raise an additional assessment in 1994 as by then more than three years had elapsed since both the original assessments and those purportedly cancelling them were issued. Page 12
QUESTIONS AND COMMENTS What does the case law teach us? Check all the facts carefully. Is there an assessment? What was the date of the assessment? The fact that it bears the name assessment, does not mean that it is an assessment for the purposes of the legislation. If it is an assessment, notice of assessment must be given to the taxpayer. NOTE: Assessment must comply with requirements of sections 91 to 96 of the TAA. Is the revised assessment issued because the full amount of tax chargeable was not properly assessed in the original assessment, DUE TO the fact that there was fraud, misrepresentation (intentional or negligent) or non disclosure of material facts? SARS bears the onus to prove this and they should refer to this aspect in sufficient detail in the revised assessment or in the notice to the taxpayer (for extension of the limitation period). In terms of Rule 6 of the Dispute Resolution Rules, the taxpayer can request reasons for an assessment. Therefor, a taxpayer receiving an assessment that seeks to interrupt prescription, would be entitled to ask for reasons to establish that the requirements of section 99 have been met. Page 13
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