Resolution of tax disputes

Highlights
There are various tax laws that may require a taxpayer to disclose information, pertaining to economic transactions undertaken by it, on a prescribed return.

Based on the return submitted, SARS will make an assessment of the tax that is payable by
the taxpayer. The final amount of tax payable is based on this assessment.

A dispute arises between SARS and the taxpayer if the taxpayer disagrees with the assessment. There are specific rules, which govern the procedures to be followed by the taxpayer and SARS when such a dispute arises. These rules also prescribe strict time limits within which the various procedures must take place. The current rules took effect on 1 April 2003 and pertain to all assessments, objections and appeals noted after that date.

Dispute procedures
The procedures may be conveniently divided into a preliminary dispute resolution phase, and a final dispute resolution phase.

Preliminary dispute resolution phase
The preliminary steps are taken to initiate the resolution of the dispute between the parties. These steps do not involve any third persons and provide a mechanism 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.

Step 1: Reasons for the assessment
The taxpayer can request reasons for the assessment from SARS, if these are not known. This request must be made within 30 business days from the date of assessment.

Step 2: Objection to an assessment
The taxpayer must lodge an objection if he/she disagrees with the assessment. The objection must be made in writing on a prescribed form (ADR1), it must be signed and must specify the grounds for the objection. If these requirements are not met, the objection may be invalid.

The objection must be delivered to SARS within 30 business days after the date of the assessment. However, if SARS fails to supply adequate reasons for the assessment, the taxpayer may request SARS to provide such reasons for the assessment. The grounds of objection must be lodged within 30 days of receiving the requested reasons.

Step 3: Appeal against disallowance of objection
SARS may uphold or disallow an objection lodged against an assessment. If the objection is upheld the dispute will be settled. If the objection is disallowed, the taxpayer may appeal against the decision to the Tax Court or Tax Board.

The appeal must be in writing on a prescribed form (ADR2) and must indicate which of the grounds specified in the objection will be relied upon. It should also indicate if the taxpayer wishes to make use of the alternative dispute resolution (‘ADR’) procedures discussed below.

Final dispute resolution phase
If the dispute is not settled in the first phase, the parties need to enter into the final phase. The final phase requires the involvement of a third person or persons who either facilitate or adjudicate on the dispute.

Alternative dispute resolution (ADR)
Initiation of ADR
The taxpayer may initiate the ADR by requesting this 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.

Period of the ADR
The ADR proceedings commence 20 business days after the date of receipt by SARS of the Notice of Appeal. The proceedings must be finalised within 90 business days of receipt of the Notice of Appeal or such further period that SARS may agree to.

ADR Proceedings
SARS appoints a facilitator (normally a trained and experienced SARS official) to facilitate the proceedings. The parties participate with full reservation of their rights (i.e. they will not be bound by what they have said if the matter proceeds to court).

When the matter comes before the facilitator, he will facilitate the resolution of the dispute between SARS and the taxpayer. Once this is done, SARS must issue an assessment to give effect to the agreement or settlement within a period of 60 business days from the date of concluding the agreement or settlement.

Role of the court
The dispute will come before the Tax Board or Tax Court if the ADR process does not resolve the dispute or if the parties did not agree to the ADR process.

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 thereto) or, if it exceeds that amount, it will be referred to the Tax Court.

A number of formalities are prescribed to limit the issues in dispute and crisply define the issues to be adjudicated on by the Tax Court.