Taxpayers’ right to have disputes resolved

Tax , , , ,

In a recent Tax Court decision[1], the Tax Court confirmed that taxpayers have a right to have their disputes resolved in a court of law as enunciated in section 34 of the Constitution. However, they cannot rely on this right when they are using delaying tactics to prevent the matter from being heard.

 

In this regard, the South African Revenue Service (“SARS”) issued a revised assessment to the taxpayer in 2013 based on the under-declaration of income. The taxpayer’s objection to this assessment was disallowed and the taxpayer filed a notice of appeal at the end of 2014.

 

An appeal meeting was then held at the beginning of 2017 and in July 2017 SARS filed its statement of grounds of assessment.[2] The taxpayer appointed a representative and requested an extension to April 2018 to file his statement of grounds of appeal.[3] SARS, however, only granted extension until middle December 2017.

 

No further extension was requested by the taxpayer and by February 2018 SARS informed the taxpayer of its intention to apply for a default judgement against the taxpayer and thereafter obtained a date for the hearing in November 2018.

 

Days before the hearing the taxpayer (via a new representative) requested that the matter be postponed in order for him to obtain all relevant information. The Tax Court granted such postponement until the end of February 2019 and ordered the taxpayer to file his grounds of appeal on or before the date of the hearing. No such grounds were filed. Also, on the date of the hearing, the taxpayer applied for condonation and a further postponement to obtain information.

 

The Tax Court found that the taxpayer had sufficient information to lodge the objection (in 2014 already) and that he was also not entitled to expand on his grounds of appeal beyond that contained in his objection. The taxpayer also did not make use of the proper rules for discovery of information[4] if he believed that he needed additional information for his grounds of appeal.

 

The Tax Court held that the taxpayer was intentionally delaying the legal process in order to prevent it from being finalised and disobeyed a court order without providing substantial reasons for his non-compliance. SARS’ request for a default judgement was therefore granted.

 

The takeaway is that taxpayers must duly take note of the rules and timelines provided for with regards to dispute resolution and that the courts (and likely SARS) will not tolerate any unnecessary delaying tactics.

 

[1] TCIT 13868 BLF 27 February 2019.

 

[2] In terms of Rule 31(2) of the rules promulgated under section 103 of the Tax Administration Act, No. 28 of 2011. See Public Notice 550 (GG37819 of 11 July 2014).

 

[3] In terms of Rule 32.

 

[4] Rule 36.

 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Application for reduced assessments

Business , ,
Where taxpayers are aggrieved by assessments issued by the South African Revenue Service (SARS), the Tax Administration Act[1] makes provision for a dispute resolution process, whereby a taxpayer can request reasons for an assessment, object to an assessment, and if necessary, further appeal procedures are available. Dispute resolution is process-orientated, and strict rules prescribe the form, dates and general procedures applicable to both taxpayers and SARS. Given the involved process, dispute resolution is often costly, with professional assistance being required to ensure compliance with the system. When there are obvious mistakes in an assessment (as opposed to matters of substance or interpretation), going through a dispute resolution process can be a frustrating process for taxpayers, since amounts assessed should never have arisen in the first place. 

Fortunately, the Act makes provision (in section 93), for SARS to make reduced assessments if SARS is satisfied that “there is a readily apparent undisputed error in the assessment” by SARS or the taxpayer in a return. SARS may make such reduced assessments even though no objection has been lodged, or no appeal has been noted. There are however some difficulties in applying section 93, both practically and in substance.

 

On a practical level, neither the Act nor any dispute resolution rules make provision for the process to be followed in terms of section 93. In a recent tax court decision,[2] the judge concluded the following regarding the process:

 

However, the basis on which a taxpayer can have a matter considered under s 93(1)(d) is clearly not by way of objection to, or appeal against, an assessment. A separate procedure is available for these. Neither does it envisage a formal application. It seems to me that it is simply by way of a request.

 

The request procedure, unfortunately, leaves the taxpayer out in the cold, since it is doubtful that an outcome to the request would have been obtained within 30 business days after an assessment was issued – the period within which an objection was required to be lodged. An application in terms of section 93 will not suspend the period during which an objection is required to be lodged – should the request ultimately be denied; the taxpayer has severely damaged his chances on success if objection is the next recourse, since the objection may potentially be submitted late.

 

Equally challenging, is that there is no clear indication or definition for what would amount to a “readily apparent undisputed error”. What may be very apparent to the taxpayer, may not be interpreted as such by SARS. Arguably, a “readily apparent undisputed error” would be something along the lines of incorrect tax rates applied, or incorrect penalty percentages applied – requiring minimal (if any) interpretation of tax provisions.

 

Although providing an avenue for the reduced assessments for taxpayers, a request in terms of section 93 should be managed very cautiously, as it may be necessary to run a parallel objection process to ensure that taxpayers are not jeopardised in the other remedies available to them, in the event of an unsuccessful request.

 

[1] No 28 of 2011 (“the Act”).

[2] Rampersadh and Another v Commissioner for the South African Revenue Service and Others (5493/2017) [2018] ZAKZPHC 36 (27 August 2018).

 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

The audit process

Auditing , ,
To get a better understanding of the audit process, we can take a look at the definition of an audit. Audit – “an official inspection of an organisation’s accounts, typically by an independent body”. An efficient audit is one that reduces the audit risk to the targeted level, ensures that there are no material errors contained in the financial statements and gives the stakeholders an independent reassurance that their interests are taken care of. 

The audit process can be split up into what auditors do and why they do it.

 

What auditors do Why they do it
Compile the engagement letter The engagement letter sets out the terms and responsibilities of both the client and the auditor to give a clear understanding of what is required of both parties.
Audit planning To get a better understanding of the company being audited, the environment they operate in, the internal control systems in place and inherent risks of the company.
Risk assessment procedures After a better understanding of the inherent and control risks are established, the auditor will be able to determine the number and type of procedures to perform.
Perform the risk response procedures The auditor performs the procedures as determined during the planning stage to give reassurance that the accounting work is free from material misstatements and that other legislation has been complied with.
Compile a management report Give management feedback on findings from the procedures performed and make recommendations where required.
Give an independent and objective opinion (the audit report) Give stakeholders, for example, shareholders, the bank, etc. an objective opinion that the financial information as presented by management is free from material misstatement and can be trusted.
Going concern conclusion, Reassurance that the business is a going concern, in other words, the business is in a financial position to continue operating in the near future.

 

Due to the nature of testing (samples tested) and inherent limitations, an audit is not a 100% confirmation that the financial statements are free from all misstatements and that there is no fraud involved in the company. The objective of an audit is to give reassurance that the information provided to stakeholders by management are free from material misstatements. Due to the focus on specific areas of key legislation, the audit also does not guarantee that all legislation has been complied with even though during the audit fraud may be identified.

 

The goal for management is to get an unqualified audit report, meaning that the financial statements are free from material misstatements. There are no findings made by the auditor on the management report and the auditor identifies no material findings on non-compliance with legislation. To ensure an unqualified audit report, management is required to uphold high-quality governance, ethical leadership with appropriate policies and procedures in place and ensure financial and performance management of a high stand is maintained.

 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Value-added Remarks on Value-added Tax (VAT)

Tax , ,

VAT is an integral part of our economic society and is something that influences everyone, especially businesses in South Africa. In this article, we will discuss a few do’s and don’ts regarding VAT.

 

  1. Valid tax invoices

 

In South Africa’s current tax system, vendors that are registered for VAT are allowed a deduction for the tax they pay on eligible goods or services (input tax) from the tax you collect on the sales made (output tax). Tax invoices are therefore very important to vendors as failure to provide valid documentation during VAT audits will cause the vendor to lose all the input tax being claimed on the invoice. The following requirements will overcome the challenges that may be encountered because of SARS scrutinising the validity of VAT invoices.

 

When the tax invoices exceed R5 000, a full tax invoice needs to be provided. For invoices of  R5 000 or below they may issue an abridged tax invoice. There will be no tax invoice needed if the consideration is R50 or less. However, documents such as a sales docket or till slip will be necessary to verify the input tax deducted.

 

As from 8 January 2016, the following information must be reflected on a tax invoice for it to be considered valid:

 

  1. Contains the words “Tax Invoice”, “VAT Invoice” or “Invoice”
  2. Name, address and VAT registration number of the supplier
  3. Serial number and date of issue of invoice
  4. Accurate description of goods and/or services (indicating where applicable that the goods are second-hand goods)
  5. Value of the supply, the amount of tax charged and the consideration of the supply
  6. Name, address and where the recipient is a vendor, the recipient’s VAT registration number
  7. Quantity or volume of goods or services supplied

 

Note that an abridged tax invoice will only need to meet criteria 1 to 5, whereas the full tax invoice (tax invoices exceeding R5 000) must meet all criteria.

 

  1. When to declare output VAT/claim input VAT

 

The date on which VAT becomes due on a transaction is the earliest of either the payment date or the invoice date. For example, if a payment is received in advance of the invoice issued for the supply, the VAT will be due on the date of receipt of payment. It is important to note that output VAT should be declared in the period in which the invoice has been issued or the payment has been received. With regards to input VAT, here the 5-year rule applies.

 

This rule provides that any amount of input tax which was deductible and has not yet been deducted can be claimed in a following period but is limited to a tax period 5 years after which the tax invoice should have been issued.

 

  1. Overpayments by the customer

 

When a vendor receives an overpayment from a customer, that vendor will not declare VAT on the overpayment. If a vendor fails to refund the overpayment within 4 months of the date of the invoice, the excess amount is deemed to be a consideration and therefore output VAT should be declared on the last day of the VAT period during which the 4-month period ends at a tax fraction of 15/115.

 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

VAT Regulations dealing with the supply of electronic services

Tax , ,
Since 2015, foreign suppliers of electronic services (such as audio-visual content, e-books etc.) in South Africa are deemed to operate an enterprise for VAT locally. Although the regime has been in place for several years, new regulations in this regard are continuously published, the latest being on 18 March 2019, with an effective date of 1 April 2019. Along with the new regulations, SARS has published a “FAQ” document that addresses some of the questions that vendors and the public at large are likely to have about the implications of the updated regulations and recent legislative amendments. Below, we explore some of the more pertinent matters that SARS addresses in the “FAQ” document. 

What are electronic services? Electronic services mean any services supplied by a non-resident for consideration using –

·         an electronic agent;

·         an electronic communication; or

·         the internet.

 

Electronic services are therefore services, the supply of which –

·         is dependent on information technology;

·         is automated, and

·         involves minimal human intervention.

 

Simply put, this means that from 1 April 2019, you will have to pay VAT on a much wider scope of electronic services. The regulations now include any services that qualify as “electronic services” (other than a few exceptions) whether supplied directly by the non-resident business or via an “intermediary”.

 

Some examples include:

·         Auction services;

·         Online advertising or provision of advertising space;

·         Online shopping portals;

·         Access to blogs, journals, magazines, newspapers, games, publications, social networking, webcasts, webinars, websites, web applications, web series; and

·         Software applications downloaded by users on mobile devices.

 
What is specifically excluded from the ambit of electronic services in the updated regulations?

 

 Excluded from the updated regulations are –

·         telecommunications services;

·         educational services supplied from an export country (a country other than South Africa), which services are regulated by an education authority under the laws of the export country; and

·         certain supplies of services where the supplier and recipient belong to the same group of companies.
What is the reason for the updated regulations?

 

 The original regulations limited the scope of services that qualified as electronic services, and which must be charged with VAT at the standard rate. The intention of the updated regulations is to substantially widen the scope of services that qualify as electronic services, so that all services supplied for a consideration (subject to a few exceptions), which are provided by means of an electronic agent, electronic communication or the internet, are electronic services and must be charged with VAT at the standard rate.

 
Do the updated Regulations make a distinction between Business-to-Business (B2B) and Business-to-Consumer (B2C) supplies?

 

 No, there is no distinction between B2B and B2C supplies, therefore, B2B supplies will be charged with VAT at the standard rate. This outcome was intentional as the South African VAT system does not fully subscribe to the B2B and B2C concepts.

 
What are some examples of supplies that are not electronic services?

 

 ·         Certain educational services

·         Certain financial services for which a fee is charged

·         Telecommunications services

·         Certain supplies made in a group of companies

·         The online supply of tangible goods such as books or clothing

·         Certain supplies or services that are not electronic services by their nature, but where the output and conveyance of the services are merely communicated by electronic means, for example:

o    a legal opinion prepared in an export country, sent by e-mail; and

o    an architect’s plan drawn up in an export country and sent to the client by e-mail.

 

Given the much wider scope of application for electronic services, both local and foreign vendors need to ensure that VAT is levied at the appropriate rate on the supply of electronic services – and local vendors, where relevant, need to retain the necessary supporting documents to substantiate any input tax claims.

 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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