Dispute Resolution

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SARS says you owe them money. What can you do?

In this blog you will learn:

  • To understand what to do if you do not agree with the assessment from SARS
  • What to do when you agree with your outstanding debt to SARS
  • What options you have and how to move forward with this
  • What the implications are based on the new Act relating to negligence
Tax Dispute Resolution or Tax Debt Negotiation.

Broadly speaking, if you do not agree with SARS regarding the amount of money outstanding to them, Tax Debt Resolution is the route to go. If you do agree with SARS regarding the outstanding amount to them, you can engage in tax debt negotiations.

Jashwin Bajoo is the legal manager at Tax Consulting South Africa. He is an expert at formally engaging SARS in the dispute process on behalf of the taxpayer, especially with regards to the Request For Reasons & The Letter Of Objection.

Taxpayers seldom know what to do if they don’t agree with the debt they owe SARS? Where do you start? How does the process work? Are there tax or legal consultants who can assist?

Example 1:
SARS raises an assessment and claims that you owe them R2 mil. You are of the opinion that you owe SARS only R200,000. The first step is to engage with SARS, as it could be something as simple as an error on the assessment or return.

Example 2:
Alternatively, SARS may have raised an additional assessment and the information may not be accurate. The first step here is to submit a request for reasons. SARS will then provide you with the full reasons for the assessment being raised and once you receive those reasons, you can object to SARS as that will provide you with grounds of objection.

The notice of objection follows on from here. It becomes a lengthy document with extensive grounds of objection. You have three years from the date of assessment to file this objection. In the event that you are late or can prove exceptional circumstances in your notice of objection, the objection outcome will either be allowed, disallowed or partially allowed. Consider the following results to your objection of R1,8m: If it is entirely allowed, the total amount will then be reversed from your assessment. Should there be a disallowance, there will be no adjustment made to your assessment. With a partial allowance, SARS would, for example, allow the aspect of a rental loss, but they disallow a further portion of that based on the loss not forming part of an Urban Development Zone (UDZ). You can either accept this as a partial allowance or proceed with the notice of appeal stage. Your appeal has a selection for either Litigation or Alternative Dispute Resolution (ADR).

In the case of litigation, the appeal is submitted to the tax board if the amount in dispute is less than R 1 million, or to the tax court when the amount is more than R 1 million. The appeal works very similarly to an appeal in the normal legal sense with a direct court route.

In the case of ADR, when SARS agrees to an ADR, you have a round table meeting with a senior SARS official to resolve the matter. If SARS does not agree to the ADR, the matter proceeds either to the tax board or the tax court.

We have noticed that SARS is quite often late with their response to an appeal and therefore falls outside of their expected timeframes. What happens in that instance is a notice in terms of rule 56 needs to be delivered either to the board or the tax court, depending on who the application was directed at. Should the tax board be the relevant body, the matter must still be escalated to the tax court because it is then more a legal notice than a dispute resolution notice. The board will be made aware of it, but it is ultimately a decision taken by the tax court to enforce from SARS’s side that a response is delivered timeously and that notice will provide you with 15 days within which to receive a response from SARS before preparing the rule 56 application and taking the matter on full steam as a litigious matter in the tax court.

Rule 56 is about keeping SARS accountable to their time frames, and by giving them notice and should SARS not adhere to the requirements of Rule 56, you can then apply for a final order or default judgement to the courts. Time frames are therefore very important.

You may be more than three years late or SARS did not raise their objections or appeals in that time.
What else could individuals do if they are three years late?

What do I do when I was three years late with SARS?

In the notice of objection, you need to include a request for condemnation of why the late filing needs to be accepted by SARS. In that instance, depending on the degree of lateness, you would need to justify either reasonable grounds for lateness or in the event when the degree of your lateness is not reasonable, you would need to justify exceptional circumstances in your condemnation request, which will then form part of your notice of objection. Examples of exceptional circumstances may include an audit that was done five years later with an error picked up then, or you started with a new accountant and then the error was picked up.

What happens when I agree with the debt outstanding to SARS?

In this case, there is no room for you to ask SARS to reduce the debt because of objection or appeals. However, there is another route you can take via the tax administration act. This gives you the opportunity to apply for either a deferment or a compromise. This is what we specialise in at Tax Debt Compliance.

You can apply to repay the full outstanding debt to SARS in installments, as you may have defaulted on e.g. Pay-As-You-Earn periods due to cashflow concerns. This might have happened due to lockdown, or your business not able to operate based on regulations imposed, or because of changes in the market.

Or you can apply for a compromise with SARS.

If your business is in trouble, facing lockdown or close down, you can enter into a settlement request with SARS. This is called a compromise. You propose a settlement offer to SARS on your debt to see if you can’t come to an agreement on the amount to be settled on. If this proposal is accepted, SARS will write off the tax balance. This will allow you to continue trading, and the requirement will be that you make sure to keep your current taxes up to date.

There are, therefore, a couple of options to be considered. Whichever route you take, it is good to have tax professionals on your side to advise you and plan your options going forward, instead of just leaving it and putting your head in the sand.

In Closing

A key point to keep in mind is that, with the tax laws amendment bill that was passed recently, there is a renewed focus on the intention of tax evasion or some form of misdeed, as well as negligence. This means if you are aware your matters are in a non-compliant state or you have a tax liability, but you are ignoring it, it will be seen as negligence on your part. This may even mean, if you are aware of human error on your submissions to SARS and you do not correct it, you may face serious penalties and even years in imprisonment.

From a compliance perspective, this is not the time to bury your head in the sand. Rather move forward proactively. If SARS catches you and you did not come forward, you may face imprisonment. Now is the time to work with tax professionals and to use the options of negotiation, or even compromise deferral options, to ensure that there is no negligence.

As business owners, we know what we do in our businesses and we are experts at this. If you are in control of the finances of a business or a business owner, you also need to keep your tax affairs in order.

Ignorance isn’t an excuse, and the Act does not make provision for it. Even if you employ someone to look after your tax, it is not an excuse if you are in debt with SARS, you need to know what is happening with your tax affairs.

Some things you need to know are:

  • the filing dates
  • if you are registered for provisional tax
  • what are the due dates
  • keep abreast of your PAYE & VAT payment dates

Make sure you know what is going on, instead of claiming ignorance and giving total control to your tax consultant or accountant or auditor or whoever manages your affairs.

If you are looking for advice in terms of dispute resolutions or to put a tax compromise in motion, connect with us at Tax Debt Compliance and Tax Consulting SA, and we will guide you through the process.

Thank you to Jashwin Baijoo, legal manager at Tax Consulting SA – specialising in the dispute process for objections and appeals. This blog was written as a combined effort with Jashwin and Gerhard Linde.

Gerhard Linde is the Director at Tax Debt Compliance – taking your business from Tax Indebted to 100% compliance in 5 easy steps. Take the first step with TDC and let us help you manage your tax debt with SARS.

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