When it comes to the payment of tax which is disputed by a taxpayer, South African tax law is premised on the principle of pay now, argue later. What this means is that if a taxpayer finds him or herself in a dispute with the South African Revenue Service ("SARS"), South African tax legislation provides that the payment of tax is not suspended until the dispute is resolved. Rather, the taxpayer will be obliged to pay the disputed tax, unless a senior SARS official decides otherwise.
Section 164 of the Tax Administration Act ("the TAA") makes provision for a taxpayer to submit what is commonly referred to as a suspension of payment application, i.e. an application requesting the relevant SARS official to suspend the payment of disputed tax pending the outcome of the dispute. Section 164(3) provides a list of factors for the relevant SARS official to consider in deciding whether or not to grant the suspension. This list of factors has recently been amended in section 50 of the Tax Administration Laws Amendment Act No. of 2014, which amendment took effect on 20 January 2015. We consider the impact of some of the changes below.
Prior to its amendment, section 164(3) (with our emphasis) provided as follows:
"(3) A senior SARS official may suspend payment of the disputed tax or a portion thereof having regard to —
(a) the compliance history of the taxpayer;
(b) the amount of tax involved;
(c) the risk of dissipation of assets by the taxpayer concerned during the period of suspension;
(d) whether the taxpayer is able to provide adequate security for the payment of the amount involved;
(e) whether payment of the amount involved would result in irreparable financial hardship to the taxpayer;
(f) whether sequestration or liquidation proceedings are imminent;
(g) whether fraud is involved in the origin of the dispute; or
(h) whether the taxpayer has failed to furnish information requested under this Act for purposes of a decision under this section."
Section 164(3), following its recent amendment, provides (with our emphasis) as follows:
''(3) A senior SARS official may suspend payment of the disputed tax or a portion thereof having regard to relevant factors, including —
(a) whether the recovery of the disputed tax will be in jeopardy or there will be a risk of dissipation of assets;
(b) the compliance history of the taxpayer with SARS;
(c) whether fraud is prima facie involved in the origin of the dispute;
(d) whether payment will result in irreparable hardship to the taxpayer not justified by the prejudice to SARS or the fiscus if the disputed tax is not paid or recovered; or
(e) whether the taxpayer has tendered adequate security for the payment of the disputed tax and accepting it is in the interest of SARS or the fiscus.''
The first obvious change to section 164(3) is that the list of factors has been shortened. It is clear, however, from the use of the word "including" in the introductory portion of section 164(3) that the criteria listed in subsection (3) are not the only criteria that a senior SARS official is required to consider when deciding whether or not to grant a suspension of payment of disputed tax. Rather, all relevant criteria (including those included in section 164 prior to its amendment) and circumstances of the taxpayer must be considered. This change therefore appears to be a beneficial one for the taxpayer making the application.
The next amendment we consider is the change to what may be termed the security requirement. Prior to the amendment, one of the factors which the senior SARS official should have had regard to was whether the taxpayer was able to provide adequate security. This requirement has been amended to an enquiry as to whether the taxpayer has tendered adequate security in its application. This is now a more onerous requirement for a taxpayer to meet, as the actual offer of security (as opposed to the mere ability to provide security) will be considered as a factor by the SARS official in the assessment of the application. What makes this requirement more difficult to comply with is the fact that it is not clear what type of security will be accepted as "adequate" security.
In respect of the irreparable hardship requirement, the term "irreparable hardship" is not defined in any of the relevant tax legislation, however having regard to the ordinary meaning of hardship, it will be irreparable if any subsequent action (i.e. should a taxpayer be successful upon appeal) would not place a taxpayer in the same position as the position it was in prior to enduring such hardship. It is noted that the word "financial" has been removed from the requirement which indicates that the Legislature acknowledges that a taxpayer can suffer irreparable hardship by being forced to make payment before a dispute is resolved that is not necessarily financial. The widening of this requirement may therefore be seen as a positive change for taxpayers.
The final amendment we consider is the inclusion of a requirement relating to the recovery of tax being in jeopardy, in which case a SARS official may be entitled to refuse to grant a suspension of payment application. Section 164 does not define or otherwise explain when recovery of disputed tax will be jeopardy. Even though section 94 of the TAA gives SARS the power to make jeopardy assessments if the Commissioner for SARS is satisfied that it is required to secure the collection of tax that would otherwise be in jeopardy, the TAA does not stipulate when the collection of tax would be considered to be "in jeopardy" for the purposes of section 94 or at all. It appears from its relevant guide that SARS regards the collection of tax as being in jeopardy if there is evidence to support a conclusion that there is a real risk that the tax will not be collected. If it can be demonstrated that no risk as regards collection exists, this is a requirement which can easily be dealt with.
Making an application in terms of section 164 is an important step in managing the financial consequences of being involved in what is frequently quite protracted tax litigation. We have just touched on some of the issues which need to be dealt with in any suspension of payment application, but all relevant factors contained in the legislation and circumstances of the taxpayer must be thoroughly canvassed in any such application. As there is no right of objection should SARS decline the suspension of payment application, it is vital that the application is full and complete in all respects as it would form the foundation of any review application which may be launched by a taxpayer who is unsatisfied with the decision of the relevant SARS official.
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