Disputes with Sars may become quicker and cheaper to resolve

The rising number of tax disputes with the South African Revenue Service (Sars) and the time and money it takes to resolve them has resulted in a widely welcomed proposed legislative change.

Taxpayers may soon rely on the much cheaper and faster alternative dispute resolution (ADR) process at the objection stage of their dispute rather than battling until the appeal stage. 

Currently, ADR proceedings can only be accessed at the appeal stage of a dispute. The Draft Tax Administration Laws Amendment Bill proposes bringing it forward to the objection phase of the dispute.

Generally, when taxpayers and Sars chose the ADR route after spending a lot of time and money, most appeals were resolved. The aim is to improve the efficiency of the dispute resolution process by introducing ADR at the initial stage of the dispute.

Improved engagement

During the ADR process, Sars and the taxpayer engage in a roundtable discussion and exchange documents early in a dispute.  

“Generally, the first opportunity to sit with Sars around a table is typically during an ADR on appeal,” says Elle-Sarah Rossato, head of tax controversy and dispute resolution at PwC.

“That is far down the line and requires a lot of time and money. 

“Sars now builds in an opportunity for ADR at objection stage. This will expedite resolutions.”

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Noticing the increase in disputes and the time it takes to resolve them, National Treasury announced its intention to review the ADR proceedings in the February budget.

At the time, Nico Theron, founder of Unicus Tax Specialists SA and dispute resolution expert, welcomed the review. However, he was of the view that it would only be accessible under certain qualifying criteria and not for all objections. 

There are thousands of objections, but not all decisions are appealed, and of those that are, not all proceed to ADR, he added.

Rules and regulations

According to Rossato, the rules and regulations of the ADR process will also have to be amended. Currently, the ADR process at the appeal stage must be concluded within 90 days. 

Tax practitioners raised questions about the timeframes and facilitators under the new process.

Another uncertainty is whether the taxpayer can still appeal if the ADR process is unsuccessful at the objection phase.

The long-awaited set of rules outlining the procedures for tax objections and appeals in the ADR process was only published at the beginning of last year.

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Several dispute resolution experts have welcomed the new rules, describing them as a “positive step forward in many ways” and, by and large, in favour of taxpayers.

The biggest and best change under the new rules is the time taxpayers now have to object to an assessment or decision by Sars. Under the old rules, they had 30 business days, but this has now been extended to 80 business days.

Lodging an appeal 

Another welcome change in the draft bill is the extension of the time allowed for lodging an appeal. Currently, if a taxpayer has not lodged an appeal within the time provided under the rules or an extended period, the taxpayer’s appeal will be invalid. 

Treasury introduced a subsection in the draft bill that will allow the tax court to extend the period within which an appeal may be lodged – allowing for an extension of up to 120 business days if in the “interest of justice”. 

“Hence the taxpayer can make an application to the tax court under the dispute resolution rules for extension where a senior Sars official refuses to grant extension or is no longer empowered to do so,” Treasury notes in its explanatory memorandum. 

Tax practitioners questioned the introduction of the criteria that the extension must be “in the interest of justice”.

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Rossato says the criteria could have been aligned with a common law test.

This could include the prospect of the appeal being successful, whether there is a reasonable case for allowing the delay, or whether there will be any prejudice to the parties should the delay be granted.

“Interest of justice is almost a constitutional criterion,” she notes. 

Most ADR proceedings are conducted in a confidential forum, and for something to be in the interest of justice, it should be of public interest. The tax affairs of an ordinary taxpayer may not necessarily be of public interest, says Rossato.

There is also the question of who will determine whether it is in the interest of justice. 

Interested parties have until the end of August to comment on the proposed amendments.

This article was republished from Moneyweb. Read the original here.