On October 5 2017 the South African Revenue Service (SARS) released a string of Tax Court decisions, including the case of ABC (Pty) Ltd v The Commissioner for SARS (Case 0018/2016), which deals with the question of whether a taxpayer is entitled to condonation for the late filing of an appeal under Section 107(2) of the Tax Administration Act (28/2011).
Once a taxpayer has been issued with an assessment, the dispute resolution process can be summarised, in simple terms, as follows:
- To the extent that the grounds provided in the assessment do not sufficiently enable the taxpayer to understand the basis of the assessment, the taxpayer may request SARS to provide reasons for the assessment.
- The taxpayer may object to the assessment and SARS must consider the objection and disallow or allow it in whole or in part.
- If the taxpayer is dissatisfied with SARS's decision following the objection, it may lodge an appeal.
- The dispute may be resolved through alternative dispute resolution, the Tax Board or the Tax Court.
Objections or appeals against assessments or SARS decisions must be lodged in the manner, under the terms and within the periods prescribed in the rules promulgated under Section 103 of the Tax Administration Act. Objections must be lodged within 30 days of the date of the assessment or decision. Similarly, appeals against the disallowance of an objection must be lodged within 30 business days of the date of the disallowance.
Objections or appeals that are not lodged within the prescribed timeframe are deemed to be invalid. However, taxpayers may request a senior SARS official to extend the period in which an objection or appeal may be lodged. Section 107(2) of the Tax Administration Act states that a senior SARS official may extend the appeal period for:
- 21 business days if satisfied that reasonable grounds exist for the delay; or
- a maximum of 45 business days under exceptional circumstances.
The Tax Administration Act does not prescribe the manner in which discretion to extend the appeal period must be exercised. As a result, regard must be had to SARS Interpretation Note 15 (issue four) which deals with the exercise of discretion in the case of a late objection or appeal. Page four of the note provides that the senior SARS official's decision "must comply with the requirements for administrative justice which are contained in [Section] 33 of the Constitution of the Republic of South Africa, 1996 read with the Promotion of Administrative Justice Act" and must be reasonable. For a decision to be reasonable, the senior SARS official must consider all relevant matters, including:
- the reasons for the delay;
- the length of the delay;
- the prospects of success on the merits; and
- any other relevant factors.
On December 9 2013 applicant ABC Pty Ltd lodged a timely appeal against SARS's partial disallowance of an objection for the 2012 assessment. The applicant's accountant uploaded the appeal through e-filing and submitted that at the time of doing so the asymmetric digital subscriber lines (ADSL) in the neighbourhood where he conducts business had been disrupted. He made a note on a hard copy of the appeal stating that ADSL "repaired faulty line 6.12.2013".
On June 30 2014 the accountant was advised that SARS had no record of the appeal notice and that a further appeal should be filed, in which he requested condonation for the late submission of the appeal. Two days after becoming aware that the appeal had not been filed, the accountant followed the advice and submitted a second appeal in which he cited the disruption of the ADSL as a basis for the condonation.
SARS refused to grant the condonation on the grounds that the second appeal was submitted too late. Following the submission of a third appeal and the further refusal by SARS to grant the condonation, the applicant appealed to the Tax Court by way of an interlocutory application.
SARS argued that the main reason for its inability to grant the condonation was that Section 107 of the Tax Administration Act "curtails its powers to come to the assistance of the Applicant" on the basis that it may extend the appeal period granted under the Tax Administration Act Rules (ie, 30 days) by only:
- 21 days (ie, 51 days in total) where there are reasonable grounds; or
- 45 days (ie, 75 days in total) under exceptional circumstances.
However, the applicant contended that Section 107(2) should be interpreted to mean that the appeal period must be calculated from the date of the request. The applicant argued that SARS's interpretation of Section 107 would render the discretion given to SARS by the legislation meaningless, especially in circumstances where the taxpayer became aware of the fact that the appeal had not been submitted in the prescribed manner only after the expiration of 75 business days.
The Tax Court referred to the Constitutional Court judgment in Ferris v First Rand Bank Limited (2014 (3) SA 39 (CC)), which found that a delay cannot be a determining factor in condonation applications. In addition, the Tax Court noted that when dealing with a request for condonation, other important considerations should be taken into account, namely:
- Whether the omission or failure was the fault of the applicant – the court found that the late filing of the notice of appeal was not an omission or a failure on the applicant's part, as the first appeal was lodged within the prescribed 30-day period.
- The extent of the delay and steps taken by the applicant as soon as it became aware of non-compliance with the Tax Administration Act Rules – the court held that the first appeal was not recorded on the e-filing platform due to a technical problem and that the second appeal was lodged within two days of the accountant becoming aware of the fact that the first appeal had not been lodged.
- Whether the condonation would prejudice SARS – the court found that granting the condonation would not prejudice SARS on the basis that the appeal notices and supporting documents had been available on the applicant's e-filing profile since December 2014. In addition, it found that there would be significant prejudice to the applicant if the request for condonation was declined.
- There must be reasonable prospects of success on appeal – the court found that SARS had not provided reasons for the disallowance of the objection at the time. The court stated that the fact that SARS had failed to tender any explanation was a strong indication that there were good prospects of success on appeal.
On these grounds, the Tax Court granted the condonation with leave to the applicant to file its appeal notice.
Taxpayers will clearly welcome this Tax Court judgment. However, those who wish to dispute an assessment issued by SARS must lodge their objection or appeal within the prescribed period. Where taxpayers do not comply with the relevant periods, they must ensure that they have adequate reasons to support their request for condonation.
For further information on this topic please contact Gigi Nyanin at Cliffe Dekker Hofmeyr by telephone (+27 115 621 000) or email ([email protected]). The Cliffe Dekker Hofmeyr website can be accessed at www.cliffedekkerhofmeyr.com.
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