South Africa: Tax In Brief | Issue 74

Below, please find issue 74 of ENSafrica's tax in brief, a snapshot of the latest tax developments in South Africa.

CASE LAW

Tax Court | Commissioner for the South African Revenue Service v FP (Pty) Ltd (19 October 2021)

• The South African Revenue Service ("SARS") raised an additional assessment against the taxpayer for the 2014, 2015 and 2016 years of assessment, accompanied by a Notification of Adjustment to Assessment. The taxpayer did not elect to submit a request for reasons in terms of Tax Court Rule 6(1) because this avenue never occurred to the tax advisors.
• The taxpayer objected against the additional assessment, inter alia, on the basis that SARS raised the additional assessment in a procedurally unfair manner as it was raised without warning, issuing of a letter of audit findings nor providing the taxpayer with 21 business days to respond thereto, as required by section 42(2) of the Tax Administration Act, 2011 (the "TAA").
• Objections were disallowed by SARS and the taxpayer filed its appeals. The parties attempted alternative dispute resolution but to no avail.
• It is only when SARS delivered its statement in terms of Tax Court Rule 31 that the taxpayer obtained legal advice that it may bring a review application setting aside the additional assessments raised by SARS on the basis of administrative non-compliance.
• As a result the taxpayer launched the review application in term of section 118(3) of the TAA read with Tax Court Rule 51(2).
• The Tax court considered, inter alia:
• • the application launched by SARS in terms of Rule 30 of the Uniform Rules of Court ("Uniform Rule 30") for an order setting aside, as an irregular step, the legality review application brought by the taxpayer in the appeal proceedings pending in the Tax Court.
• The Tax Court held that:
• • the taxpayer conceded that its review application in this court is neither an interlocutory application nor one in a procedural matter as envisaged in section 117(3) of the TAA;
  • the Tax Court held that the taxpayer's reliance on the judgment in South Atlantic Jazz Festival (Pty) Ltd v C:SARS (the "South Atlantic Jazz Festival case") as authority for its proposition, was a stretch and provided the following as the differences from the present case:
  • • the taxpayer in this case brought a 'stand-alone' review application in order to avoid having to exercise its right of appeal whereas in the South Atlantic Jazz Festival case, the taxpayer was exercising a right of appeal before the Tax Court and not the review and setting aside of an administrative decision; and
    • it was never contended by SARS in the South Atlantic Jazz Festival case that the administrative decision taken, was subject to objection and appeal whereas in the present case, this has been raised by SARS.
  • In relation to the taxpayer's reference to the decision in ITC1921 which found inter alia that SARS' non-compliance with section 42 of the TAA was a breach of the taxpayer's section 33 rights which resulted in the invalidity of the subsequent assessment, the Tax Court held that the issue in that case was raised as a point in limine in the context of that tax appeal. The Tax Court elaborated by providing that SARS in that case had not contended that no objection and appeal lies against an administrative decision made in terms of section 42 of the TAA, and the review point was inherently raised to the appeal;
  • SARS was correct to invoke Uniform Rule 30 and the launching of a review application in appeal proceedings already before the Tax Court is an irregular step as envisaged in Uniform Rule 30;
  • the Tax Court appeal proceedings be stayed pending the determination of review application to be launched in the High Court by the taxpayer.
• Find a copy of the judgment here.

The High Court of South Africa, Gauteng Division, Pretoria ? CSARS v Samsung Electronics South African (Pty) Ltd ? Case No. 35255/2018

• This is an interim application to the main application which concerns a tariff appeal in terms of section 47(9)(e) of the Customs and Excise Act,1964 (the "Customs and Excise Act"). SARS sought relief in terms of rules 35(1), 35(2) and 3(13) of the Uniform Rules of Court ("Provisions of Uniform Rule 35"), alternatively section 4(4)(aC)(iii) of the Customs and Excise Act.
• In this application SARS, prior to filing an answering affidavit, sought discovery of documents relating to products to the main tariff dispute between the parties.
• The Court considered, inter alia:
• • The provisions of Uniform Rule 35
• The Court held that discovery under Uniform Rule 35 will be ordered in exceptional circumstances only, especially when sought by a respondent before delivery of answering papers.
• The factors to which a court will have regard when considering whether discovery should be ordered include the following:
• • principles of fairness and equity;
  • the stage in the proceedings at which discovery is sought;
  • the nature of the proceedings and the evidence that has been  adduced;
  • the extent of the discovery sought; and
  • prejudice.
• The Court further confirmed that the relevance requirement in Rule 35(1) should be ascribed a broad meaning;
• The Court, quoting Tickly and Other v Johannes NO and Others, held that the fact that the main application is a tariff appeal is important, considering the nature of a tariff appeal being "a complete re-hearing of, and a fresh determination of the merits of the matter with or without additional evidence or information".
• The Court also held that the documentation is essential to allow the expert witness appointed by the Commissioner to properly consider the nature and characteristics of the products.
• The application was granted in terms of Rule 35 of the Uniform Rules of Court as the Court held that it is in the interest of justice and to ensure openness and transparency, thereby giving effect to the values enshrined in the Constitution.
• Find a copy of the judgement here.

The High Court of South Africa, Western Cape Division, Cape Town ? CSARS v G W van der Merwe and Others ? Case No. 7255/2019

• SARS, as the applicant, and the respondents sought orders striking out, in terms of Rule 6(15) of the Uniform Court Rules ("Uniform Rule 6"), certain material contained in the founding and answering affidavits filed in this matter.
• The Court dismissed the respondents' application to strike out, which was based on the confidentiality of information provisions contained in Chapter 6 of the TAA, in particular section 69(1), read with sections 67, 68 and 236 of the TAA.
• SARS' application was brought under Rule 6(15) of the Uniform Rules of Court. The Court held that an application to strike out any matter from an affidavit will succeed where an applicant has shown that the matter to be struck out is scandalous, vexatious or irrelevant and that he or she will be prejudiced if the matter is not struck out. The Court upheld SARS' application to strike out on the basis that there was no evidence to support the serious allegations repeated throughout the paragraphs and it was "patently clear that were such scandalous, vexatious and irrelevant material not to be struck out, SARS would suffer prejudice in its case".
• The Court further held that for an order to be made against the respondents in terms of section 2(1)(b) of the Vexatious Proceedings Act, Act 3 of 1956 (the "VPA"), it should be determined whether the respondents had been shown to have "persistently and without any reasonable ground instituted legal proceedings in any court or in any inferior court, whether against the same person or against different persons". Based history of the litigation in this matter, the Court held that the facts warranted an order to be made against the respondents under section 2(1)(b) of the VPA.
• Find a copy of the judgement here.

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