Most Read Contributor in South Africa, September 2016
The new rules promulgated under section 103 of the Tax
Administration Act No. 28 of 2011, which prescribe the
procedures to be followed in tax disputes, took
effect on 11 July 2014. These rules replaced the rules previously
promulgated under section 107A of the Income Tax Act in their
entirety, and now apply to all tax disputes.
In this article, we consider the new rule pertaining to
discovery. Discovery of documentation is an
important step which must be taken in all legal disputes. The
discovery process can be described as the compulsory
disclosure, by one party to a dispute to another, of
all documents relevant to the issues in dispute.
In tax dispute matters this is no different, and the retention and
subsequent discovery of documents by the taxpayer becomes
especially important where the taxpayer bears the onus of proof and
indeed has in its possession documents which support its case. It
should be noted, however, that all relevant
documentshave to be discovered by both the
taxpayer and the South African Revenue Service
("SARS") (whether such documents are supportive of the
party's case or not), including internal
communications, but excluding legally privileged
Whereas under the previous rules there was provision for the
parties to make discovery only after the exchange of pleadings (as
is the case in conventional litigation), under the new rules there
are a now four occasions when discovery is either
obligatory or can be requested at an
earlier stage than was the case before. We highlight these
The firstsuch occasion is at the objection
stage of a dispute. Rule 7(2)(b)(iii) provides that a
taxpayer who lodges an objection to an assessment must specify the
grounds of objection in detail, including "thedocuments required to substantiate the grounds of
objectionthat the taxpayer has not previously
delivered to SARS for purposes of the disputed
assessment". This new rule effectively gives SARS
an early insight into the taxpayer's supporting
documentation upon which it relies quite early on in the dispute
process and ensures that a taxpayer must draft a carefully
considered and supported grounds of objection.
Rule 36 contains the main rules relating to discovery and
provides for the next three occasions as follows:
After SARS has delivered its statement of grounds of
assessment and opposing appeal ("Grounds of
Assessment"), the taxpayer may, within 10 days after delivery
of the SARS Grounds of Assessment require SARS to discover any
document "material to a ground of the
assessment" as set out in those Grounds of Assessment
"to the extent that suchdocument is
required by the appellant to formulate its grounds of
Similarly, after a taxpayer has delivered its statement
of grounds of appeal ("Grounds of Appeal"), SARS
may, within 10 days after delivery of the taxpayer's Grounds of
Appeal, require the taxpayer to discover any document
"material to a ground of
appeal"as set out in those Grounds of Appeal
"to the extent suchdocument is required
by SARS to formulate its grounds of
reply"("the SARS reply").
The fourth occasion is the standard requirement for the parties
to discover following the exchange of pleadings by the
parties (the Grounds of Assessment, Grounds of Appeal and
the SARS Reply)
What is clear from the second and third
occasions is that each party is entitled to
discovery of documentsearlierthan was the caseunder the previous
rules governing discovery which only consisted of a rule
similar to that which is now covered in the fourth occasion where
the parties were only entitled to discovery of documents
after the exchange of their relevant pleadings in
the matter, meaning that neither party had access to the
other parties' relevant documentation prior to
drafting their respective statements. This was often
disadvantageous to a taxpayer as it would often be
unclear to the taxpayer what documentation SARS might be relying on
in pleading its case. SARS on the other hand would not necessarily
have been at the same disadvantage as an audit, in which
information and documentation would have been gathered from the
taxpayer, would have preceded the issue of the disputed
As described above, the position now is that
following SARS's delivery of its
Grounds of Assessment, the taxpayer is
entitled to request SARS to discover
documentation material to a ground of assessment to the
extent that the document is required by the taxpayer to
formulate its Grounds of Appeal.
SARS has the same entitlement
prior to drafting their reply statement.
Not only in terms of these new discovery rules will a taxpayer
have to make disclosure upfront of the documentation which it
relies on for its grounds of objection, but will also have the
opportunity to better understand SARS's case before it
pleads thereto. This is a welcome development.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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