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Can you really mess up a tax dispute? At the end of the day, it’s just a document you need to submit to SARS and add a document or two. How hard can it really be? In fact, based on past experience, objections used to be smooth sailing (apart from time delays). One might therefore be inclined to think you can’t really mess it up. You would be wrong, though – especially recently.

Incomplete objections

When filing an objection, you have to place each assessment contained in the notice of assessment that you intend to object to under dispute. A notice of assessment more often than not contains more than one determination (CSARS v Airports Company South Africa)[1] . That sounds simple enough, doesn’t it? Sure, in many cases, but most certainly not all.  The following example illustrates the point:

  • SARS raises output tax by way of additional assessment. The taxpayer’s accountant or auditor is of the view that the supply in respect of which SARS imposed output tax is actually a zero-rated supply. When completing the NOO, the taxpayer places the output tax under objection. When the objection is disallowed, and experts are roped in to deal with the appeal, it transpires that SARS’ position is actually correct. However, experts establish that the taxpayer should, as a result of the output tax raised by SARS, be entitled to an input tax credit in the same amount. Since input tax was not placed under objection, it cannot be raised on appeal, and since SARS is correct on the output tax, there is no point in pursuing the appeal.

In our experience, the reason these things tend to happen is often because the person representing the taxpayer assumes SARS is wrong, so there is no need to deal with the position of when SARS turns out to be right or the person assumes that if SARS is right, there is nothing else that can be done. The same holds true for taxpayers who object only to SARS’ audit findings and not also to the Understatement penalty. When you ask why, the answer almost always is: but if we win the capital, the USP falls away. True. But what if you don’t win the capital?

The consequence of an incomplete objection is the very high risk that the taxpayer will lose the dispute, and there is no longer anything that can be done about it. Sure, you can object again.  However, given the time that lapses between when dispute experts get involved and when the assessment was issued, chances you are going to be out of time.  Condonation applications are about to get even more difficult with the extended objection time period in the new rules published 10 March 2023.

Abandoning the fight to soon

SARS and its officials enjoy a lot of public trust. Simply meaning that, unless you are extremely well versed in tax law, one might be inclined to accept SARS’ explanation of the law and abandon the fight because, after all, SARS officials must be right simply because they are SARS. Ask yourself, how many times have your clients blamed you for something that is actually SARS’ doing? Clients do this because they believe in SARS and have trust that SARS does not make mistakes and that if something goes wrong, it must always be the accountant’s or auditor’s fault.  The truth is though, SARS does make mistakes. Identifying when this happens and how to deal with this often requires an exceptional level of skill, not least because it also requires convincing the client to pursue the case or making sure the client is duly informed of risks in pursuing the case.  

One must bear in mind that SARS will defend their assessment just as hard as you are trying to defend the taxpayer. SARS will try to negotiate a settlement in their favor just as much as you will try to negotiate it in the taxpayer’s favor. Having an open mind, is extremely important.

Coming up short on evidence

One of the most popular reasons for disallowing an objection (and indeed for raising assessments in the first place) is the taxpayer’s failure to discharge their onus of proof. Something which, for the taxpayer, their accountant or auditor is, in our experience, often very difficult to understand or accept. Probably one of the main reasons for this is that accountants or auditors are too close to the facts, just like the taxpayers themselves. Allow us to explain by way of a rudimentary example: if you, as an accountant or auditor, process an invoice for payment of an expense or checks invoices when doing assurance, then SARS’ questioning of the existence of that invoice or the purpose of the expense tends to play all sorts of tricks on your mind. This, in turn, leads to responses in terms of evidence that come up short. They come up short not because the expense is not deductible or because the expense is not, say, in the production of income but rather, because your close affiliation with the business places you in a position where you tend not to question what is, in your mind at least, blatantly clear. This can be rectified later in the process of course but more processes mean more time and money.

Placing too much reliance on SARS guidance

Too often we have been approached by auditors and accountants to assist with their client’s disputes where we are eventually told: “But that is what SARS said we must do.” Blindly following SARS’ guidance again comes down to blindly trusting SARS’ guidance. Whilst we are sure SARS does not purposively misdirect taxpayers, the fact is that, in our experience, they do from time to time (and to be fair, probably, in some cases, because of incomplete facts given to SARS or a misunderstanding of SARS’ guidance). Taxpayers are for example told they cannot object (when they can) or they cannot request a reduced assessment (when they can) or they must advance exceptional circumstances for condonation (when in fact only reasonable grounds are required) or their objection is invalid (when it’s not) or they must first ask for reasons (when they cannot) or they can’t object to an assessment that is under verification/audit (when in fact they can) or they must file an objection on e-filing (when they are not supposed to) or they cannot ask for remission, they must object (when in fact they must ask for remission) or that the recovery of salaries by way of invoice is actually not vatable (when it is). Many times, these things can be fixed later in the process but again, it comes down to spilt cost and time.

Unicus Tax Specialists SA is a niche, tax-exclusive advisory firm, meaning we don’t do accounting, auditing or offer any other service (in fact we don’t even do any tax compliance work).

Our speciality practice area is tax dispute resolution. Our team is headed by Nico Theron (Chartered Tax Advisor (SA)), author of Lexis Nexis’ Practical Guide to Handling Tax Disputes, Chairman of the South African Institute of Tax Professionals Tax Administration Work Group, guest lecturer on tax dispute resolution at post grad level at UP and WITS, head lecturer on The Tax Faculty’s dispute resolution course and founder of Unicus Tax Academy.

Unicus Tax Specialists SA, has, at the time of writing, always been able to secure a satisfactory outcome for our clients in their disputes with SARS thereby saving our clients hundreds of millions of rands in taxes, penalties and interest.

You don’t have to risk making a mistake in the tax dispute resolution process. Partner with Unicus Tax Specialists SA to make sure your client’s cases are dealt with in the most effective and efficient manner.

[1] (785/2021) [2022] ZASCA 132 (7 October 2022)

Every effort was made to ensure accurate reflection of the law and the tax principles discussed in our articles or as set out on our website at the time of publishing on the website. Tax law develops all the time and it is therefore recommended that views expressed in the past be vented by users for current applicability and accuracy.  Comments made and views expressed in our articles and on our website does not constitute advice to any person or company. Unicus Tax Specialists SA will not be liable for any loss or damage of whatever nature or form caused due to reliance on this article.

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