Most Read Contributor in South Africa, September 2016
Section 99 of the Tax Administration Act, 28 of 2011 ("Tax
Admin Act"), which regulates prescription in relation to tax
assessments, provides that a three-year prescription period applies
where the South African Revenue Service ("SARS") has had
a previous opportunity to assess a taxpayer (e.g. income tax) and a
five-year prescription period applies in the case of
self-assessment (e.g. value added tax and employees' tax).
In an ENSafrica article dated 19 August 2015, we addressed
the proposed unilateral extension of prescription by SARS as was
provided for in the draft Tax Administration Laws Amendment Bill
("Draft Bill"), a copy of which can be found here.
In terms of the Draft Bill, National Treasury proposed that the
prescription period may be unilaterally extended by SARS, before
the expiry of the existing prescription period if, inter alia,
an audit or investigation relates to a complex matter such as the
application of the general anti-avoidance provisions
("GAAR") under a tax Act, an audit or investigation under
section 31 of the Income Tax Act, 58 of 1962 ("Income Tax
Act") (dealing with transfer pricing), or a matter of
analogous complexity. In such events, it was proposed that the
period may be extended for a period of up to three years.
In response to an invitation by National Treasury and
SARS' for public comments on the Draft Bill prior to its formal
introduction in Parliament, ENSafrica submitted representations
on, inter alia, the proposal to amend section 99 of the Tax
Admin Act. Our submissions included that the reference to a
"matter of analogous complexity" is a subjective matter
of opinion and is excessively broad.
The Standing Committee on Finance ("SCOF") released a
final response document on the Draft Bill on 4 December 2015
addressing the comments received and providing responses on these
comments. The SCOF accepted the abovementioned comment and
indicated that the reference to "complex matters" will be
withdrawn and replaced with a reference to the application of
certain specific circumstances.
On 8 January 2016, the Tax Administration Laws Amendment Act, 23
of 2015 ("TALAA") was published in theGovernment Gazette,
amending, inter alia, section 99 of the Tax Admin Act. The
TALAA inserts section 99(4) to the Tax Admin Act, which provides
that the Commissioner of SARS may, by prior notice of at least 60
days to the taxpayer, extend the period of prescription in section
99(1), before the expiry thereof, by three years in the case of an
assessment by SARS or two years in the case of self-assessment,
where an audit or investigation under chapter 5 of the Tax Admin
Act relates to:
the application of the doctrine of substance over form;
the application of Part IIA of Chapter III of the Income Tax
Act, section 73 of the Value Added Tax Act or any other general
anti-avoidance provision under a tax Act;
the taxation of hybrid entities or hybrid instruments; or
section 31 of the Income Tax Act.
It is, therefore, imperative that taxpayers be aware that while
SARS may unilaterally extend the prescription period to six years
in the case of an assessment by SARS, and seven years in the case
of self-assessment, (1) SARS must give a taxpayer 60 days'
notice (i.e. notice must be received at least 60 days prior to the
date that the assessment would otherwise prescribe), (2) an audit
or investigation must be underway and (3) the said audit or
investigation must relate to the substance over form doctrine,
anti-avoidance arrangements, hybrid entities or hybrid instruments,
or transfer pricing matters.
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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