How to resolve a tax dispute

Managing a business’s tax affairs is daunting task for its owners and managers, who don’t often have the luxury of in-house legal or tax counsel. The consequences for non-compliance with SARS’ requirements will almost certainly result in severe financial penalties or even some time in jail. But sometimes SARS is wrong and the good news is that a system does exist that allows tax payers to dispute their assessment.

Dispute procedures

The dispute procedure is governed by specific rules that must be followed by the taxpayer and revenue. There are 2 phases to dispute resolution;

  1. preliminary dispute resolution; and
  2. final dispute resolution.

Preliminary dispute resolution phase

In this phase, preliminary steps are taken to resolve the matter. These steps do not involve any third persons but rather provides the platform for the parties to understand the nature of the dispute. The dispute may be settled during this phase without the need to progress to the final phase.

1st stage -Reasons for the assessment
The taxpayer is entitled to request reasons for the assessment from SARS provided it is done within 30 business days from the date of assessment.

2nd stage - Objection to an assessment
The taxpayer must lodge a written objection if he/she disagrees with the assessment. The objection must be on the prescribed form (ADR1) and it must be specify the grounds for the objection. The taxpayer must remember to sign the form before submitting it otherwise it will be considered invalid.

The objection must be delivered to SARS within 30 business days after the date of the assessment. If a reason for the assessment has been requested, then objection must be received by SARS within 30 days of the reasons being given.

3rd stage - Appeal against disallowance of objection
SARS may uphold or disallow the taxpayer’s objection. If the objection is upheld the dispute will be settled. But, if the objection is disallowed, the taxpayer is entitled to take that appeal further

This appeal must be in writing on a prescribed form (ADR2) and must indicate which of the grounds specified in the original objection form the base of this objection. The taxpayer should indicate if they want to make use of the alternative dispute resolution procedures discussed below.

Final dispute resolution phase

The final phase of dispute resolution begins with alternative dispute resolution (ADR). The taxpayer would have initiated the ADR by requesting it in the Notice of Appeal. SARS must inform the taxpayer within 20 business days whether it considers the dispute suitable for ADR. If ADR is not requested, SARS may initiate it by agreement with the taxpayer.

ADR offers the taxpayer a less costly way to resolve the dispute because they are allowed to represent themsleves at the ADR hearing, thereby eliminating the need to retain a tax consultant who normally comes at great expense.

Period of the ADR
The ADR proceedings will begin 20 business days after the date of receipt of the Notice of Appeal by SARS and must be finalised within 90 business days. In certain cases, SARS may agree to extend the ADR period. ADR proceedings

SARS appoints a neutral facilitator (normally a trained and experienced SARS official) to facilitate the resolution of the dispute between SARS and the taxpayer. Once this is done, SARS must issue an assessment that reflects the agreement or settlement. This should be done within 60 working days from the date of when the agreement or settlement was finalised.

If the taxpayer is not satisfied with the outcomes of the ADR process, further legal mechanisms are available to elevate the dispute to the courts. It is important to remember though, that taking the dispute further will require the services of a lawyer. So, business owners must consider the cost: benefit of the lawyer’s fees in relation to the value of the tax payment that is under dispute.

Role of the court
If the taxpayer elevates the dispute, it will come before the Tax Board or Tax Court. If the amount of tax in dispute is less than R200 000 the dispute will be referred to the Tax Board (if the commissioner and taxpayer agree) or, if it exceeds that amount, it will be referred to the Tax Court.

According to SARS’ 2009 annual report, 269 appeals were dealt with by ADR. The outcome of those appeals is as follows:

Settled in favour of SARS 29
Settled against SARS 89
Referred to Tax Court 36
Referred to Tax Board 0
Referred to branch office 8
Referred to customs litigation 11
Conceded 61
Withdrawn 35

So it really is a case of you win some, you lose some for both the taxpayer and SARS but on settlements alone, the odds certainly seem lie in favour of the taxpayer.

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LegalWrite has been prepared and developed by Softline Pastel in conjunction with Belinda Hollander Attorneys.