GET HELP WHEN NEEDED, BUT ONUS TO COMPLY IS ON YOU
Two tax related judgments highlight how important it is for taxpayers to take responsibility for the accurate and timely submission of their tax returns. In addition, these cases highlight that taxpayers might be disadvantaged by not consulting specialised tax attorneys if they are challenged by the South African Revenue Service (SARS).
In X v C;SARS, case 13380, dated 27 January 2016, the Tax Court had to consider the appropriate additional taxes (now called understatement penalties) to be applied in relation to an understatement of income in the taxpayer’s 2009 income tax return.
Judge Pretorius stated: “Counsel for SARS argued that the ultimate responsibility to submit the correct tax return timeously is that of the taxpayer. That is indeed so and there can be no exception to this at all… She had a duty not to leave all her financial affairs in the hands of her attorney and her accountant, without overseeing their actions and ascertaining that all her taxes were paid timeously. She cannot rely on the fact that she thought they had dealt with her tax returns.”
This confirms the fact that a taxpayer is responsible for her own tax affairs, including timely submission of an accurate tax return, and will not escape penalties because of delegating these functions to an accountant or other tax consultant, for example.
However, the court in this case was also not willing to attribute the accountant’s actions to the taxpayer. Judge Pretorius stated: “The question is whether the appellant should be punished for Mr Z’s dilatory behaviour, or only because she did not make enough enquiries as to whether the correct tax return had been submitted timeously and making sure that all was done to have the correct tax return furnished to SARS timeously… The court has to be careful, especially in this instance, not to punish the appellant for her accountant’s actions, but has to consider her actions in isolation in this regard.”
In imposing the appropriate penalty, which was determined at 35%, the court therefore did not punish the taxpayer for the actions of her accountant, but only for her own actions of failing to meet the responsibility of any taxpayer of taking reasonable steps to ensure that the correct amount of tax is paid on time.
In ABC (Pty) Ltd v C:SARS, ITC case 0038/2015, dated 4 March 2016, the Income Tax Court had to consider whether or not the taxpayer had shown “exceptional circumstances” that would justify SARS condoning its late objection.
Judge Satchwell stated: “I am sympathetic to any taxpayer who is confronted with an enormous amount of tax to be paid in terms of an assessment where it was the ignorance of the taxpayer which led to his or her failure to comply with the provisions of the TAA. But the taxpayer, whose assessed liability runs to millions of Rands, should have taken its tax responsibilities seriously enough to seek tax advice from a firm of attorneys specializing in such matters as soon as the assessments were levied in December 2014 when it became apparent that the November 2014 representations of his auditor had not been successful. The lapse of time from mid December 2014 to June 2015 is not satisfactorily explained - let alone sufficiently to discharge the onus of proving 'exceptional circumstances'.”
In this respect, the court expressed the view the various reasons provided were insufficient to comprise “exceptional circumstances” for the delay in lodging the objection, including a purported series of meetings with SARS to negotiate the matter, and replacing tax advisors. The court specifically held that the taxpayer could and should have appointed appropriate tax attorneys to deal with the matter, immediately upon receiving the assessments.
A further need for tax attorneys can be identified in another statement made by Judge Satchwell in the judgment: “A number of issues were argued. None were based upon documents or proof. All were no more than argument but were, regrettably, presented as though there were facts or evidence contained somewhere in the papers before the court which (unfortunately) could not be found.”
It is unfortunately common practice that, when dealing with SARS, taxpayers submit letters that purport to contain the facts of the matter, but no real evidence (documentary or otherwise) is provided to SARS. If actual evidence had been submitted to SARS in the first place, it is possible that SARS may have been compelled to exercise its discretion to condone the late objection. However, this evidence was not even provided in court.
Unfortunately for the taxpayer, since its late objection was not condoned, this procedural non-compliance resulted in the entire case being lost. This was in spite of having taken advice from its accountants, and then later advice from counsel. The use of accountants and tax consultants did not, in this instance, protect the taxpayer from complying with its strict responsibilities in terms of the tax law.
These recent tax court cases act as a strong warning to taxpayers that the responsibility for accurate and timely submission of tax returns remains with the taxpayer concerned. In addition, non-compliance with procedural requirements, such as deadlines or evidentiary standards, could jeopardise the entire tax case, which clearly identifies the need for advice and assistance from specialised tax attorneys in these cases.
Article by Patricia Williams, partner, Tax Practice, Bowmans South Africa. This article first appeared in Business Day: Business Law & Tax Review 10 October 2016.