The road to finalising a tax dispute against an additional assessment or a SARS decision can be a “protracted slog” to the Tax Court. Recent case law suggests that relief in the High Court is only available in exceptional circumstances.
The TAA process
Chapter 9 of the Tax Administration Act (TAA) and the dispute resolution rules (Rules) provide for aggrieved taxpayers to dispute assessments and SARS decisions using the objection and appeal procedures.
If SARS disallows or partly disallows the objection, the taxpayer can appeal the disallowance. At this stage, taxpayers can select alternative dispute resolution (ADR) for the appeal. If the ADR is unsuccessful, the appeal proceeds to the Tax Court, with a pre-hearing stage when SARS and the taxpayer exchange various statements of grounds of assessment and appeal.
This is followed by the discovery of documents, setting down the appeal, pre-trial conference, witness interviews, possible subpoena of witnesses, and preparation of court bundles. Finally, the actual hearing takes place and then there is a wait for the Tax Court to deliver judgment. Tax Court judgments are often appealed by taxpayers or by SARS, sometimes all the way to the Constitutional Court.
It may be tempting for taxpayers to avoid the long road to the Tax Court and approach the High Court for relief using, for example, an application for a declaratory order or a legality review of the assessment or SARS decision.
Here we summarise a few principles from recent case law on alternatives to the Chapter 9 dispute process.
- The Tax Court is a specialised court and the default route for tax disputes
The TAA provides that the Tax Court is a specialised court, with exclusive jurisdiction for tax matters and procedural issues relating to tax matters. However, the TAA does not preclude the High Court from determining tax disputes.
In both the recent UMK[1] and Rappa Resources[2] judgements, the taxpayers sought to have their additional assessments (issued after audits) set aside by the High Court. On appeal, the Supreme Court of Appeal (SCA) confirmed that a taxpayer may only dispute an assessment or SARS decision using the objection and appeal process in Chapter 9 of the TAA and the Rules, unless the High Court directs otherwise (section 105).
The wording of section 105 suggests that more than one process of dispute resolution is possible, but express permission is required from the High Court if the default route to the Tax Court is not followed.
- Exceptional circumstances required to claim relief from the High Court
Taxpayers can approach the High Court for relief in exceptional circumstances. Normally, tax disputes must be resolved in the Tax Court. An exceptional circumstance arises when the tax dispute turns wholly on a point of law.
In our view, it may be difficult to approach the High Court to review and set aside additional assessments after an audit when SARS and the taxpayer have differed on the interpretation of specific sections. The additional assessments are issued based on certain facts, and there may be a dispute about the facts leading to the legal issue. For example, how should “in respect of” be interpreted? Was there a causal link between the amount and the transaction or service in question? How close must the link be?
- The exceptional circumstances should be expressly pleaded and argued as a preliminary point
In approaching the High Court for relief, a taxpayer must first obtain a section 105 directive that the High Court has jurisdiction in their specific dispute. In other words, the pleadings must clearly set out reasons why the High Court has jurisdiction to determine the tax dispute, and why the High Court is justified in deviating from the default route leading to the Tax Court.
Case law indicates that the pleadings must deal with, for example:
- why the issue in dispute is a pure point of law,[3]
- why the denial of suspension of payment by SARS is unreasonable,[4] or
- why the refund should be paid, or the audit ended without further delays.[5]
We recommend that the founding affidavit to the application for relief should deal with the reasons why the section 105 directive should be issued, as well as the merits of the review.
Recent case law suggests that (i) procedural fairness issues in an audit; or (ii) a review of the disallowance of an objection when it appears SARS auditors have not considered the documents provided during the audit process or grounds of objection; are unlikely to meet the high standard of exceptional circumstances to justify applying to the High Court for relief. It may be practical to argue these issues as preliminary in limine points at the Tax Court before hearing evidence on the merits.
- Application for declaratory order in limited circumstances
In the recent MTN case[6], MTN applied for a binding private ruling (BPR) that section 10(18) of the VAT Act applied to its sale of pre-paid vouchers. Effectively, MTN argued it should account for output VAT only when the vouchers were used to receive services, not when the vouchers were purchased. SARS disagreed. SARS argued that section 10(19) applied and that output VAT should be accounted for when the vouchers were purchased. In light of the disagreement, MTN applied to the High Court for a declaratory order that section 10(18) should apply to these multi-purpose airtime vouchers.
The SCA referred to and cited with approval many cases where courts have entertained applications for declaratory orders in tax matters in limited circumstances. The SCA held that there should at least be a discrete legal issue for the court to decide, and no factual dispute or lack of clarity on the facts.
Even when there is a clear legal issue with no dispute over the facts, the court will still decline to exercise its discretion to grant a declaratory order to prevent “the opening of floodgates for applications to court where certainty is sought from the court prior to applying a new strategy“. The SCA concluded that MTN wished to obtain clarity from the High Court to depart from its prior practice of applying section 10(19) and held that the dispute should be resolved using the usual TAA process.
It appears from the arguments raised that the SCA considers “the usual TAA process” would be for:
- MTN to submit its VAT 201 return applying section 10(18);
- SARS will reject the return and issue an additional assessment using section 10(19);
- MTN will then object to the additional assessment;
- SARS will disallow the objection;
- MTN will appeal the disallowance, and
the long road to the Tax Court will continue. MTN will be able to lead evidence at the Tax Court why section 10(18) should apply. The road to finality may be even longer if the losing party appeals the decision as far as the Constitutional Court.
- Application for rule 56 default judgement
If SARS has not complied with the timelines or its obligations in the dispute process set out in the Rules, taxpayers may apply for a default judgement against SARS at the Tax Court in terms of rule 56. This can be a powerful and efficient remedy for taxpayers but must be preceded by a notice to SARS to remedy its default within 15 business days of delivery of the notice.
In the recent Taxpayer N v CSARS[7] case, the taxpayer applied for a rule 56 default judgement due to the lateness of SARS’ rule 31 statement.
The Tax Court held that the overarching consideration in determining whether default judgement should be granted is the broader interests of justice. The interests of justice are much broader than the interests of the immediate disputing parties, in other words, broader than the reasons for the delays, their bona fide actions and prospects of success.
The Tax Court held that it was in the public interest for the dispute to be fully ventilated and for the Tax Court to determine the lawfulness of the taxpayer’s claim for employment tax incentives, which SARS had disallowed.
The Tax Court condoned the late rule 31 statement despite the January to July 2022 delays by SARS in filing the statement and the court finding that “the matter simply slipped through the cracks” at SARS. The taxpayer’s rule 56 application to uphold the appeal and for SARS to issue reduced assessments was dismissed.
The only win for the taxpayer in this rule 56 application was that SARS was held liable for costs on an attorney and client scale.
Conclusion
It is possible in very specific circumstances for aggrieved taxpayers to approach the High Court rather than the Tax Court for relief. It is necessary for the taxpayer to seek the express permission of the High Court to circumvent the default route, setting out the reasons why the High Court has jurisdiction in this matter. We urge taxpayers to seek expert advice on these issues.
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[1] United Manganese of Kalahari (Pty) Ltd v CSARS (1231/2021) [2023] ZASCA 29 (24 March 2023).[2] CSARS v Rappa Resources (Pty) Ltd (1205/2021) [2023] ZASCA 28 (24 March 2023).
[3] Absa Bank Limited and another v CSARS (2019/21825 [P]) [2021] ZAGPPHC (11 March 2021).
[4] Africa Cash & Carry (Crown Mines) (Pty) Ltd v CSARS [2021] ZAGPPHC (31 Ma 2021).
[5] Rappa Resources (Pty) Ltd v CSARS (20/18875) [2020] ZAGPPHC (5 November 2020).
[6] Mobile Telephone Networks (Pty) Ltd v CSARS (805/2021) [2022] ZASCA 142 (24 October 2022).
[7] Taxpayer N v CSARS Case number 2022/37 (23 February 2023).
