SARS suffers major legal blow
The Supreme Court of Appeal (SCA) has dealt a major legal blow to the South African Revenue Service (SARS), taking on the tax collector’s increasingly technical approach to litigating against taxpayers.
The ruling was in the case of Commissioner for the South African Revenue Service v. Poulter, where the question was whether a taxpayer can be represented by a non-lawyer in the Tax Court.
While SARS and the Tax Court held that taxpayers need legal representation, the High Court and now the Supreme Court disagreed.
The challenges and rulings have led to the outcome where taxpayers can be represented by authorised non-lawyers in the Tax Court.
According to tax experts at Tax Consulting SA, the ruling has significant implications for taxpayers, accountants, tax practitioners, and dispute resolution processes before the Tax Court.
This is especially true in the context of SARS launching increasingly technical litigation against taxpayers who may not have the resources to fight back with full professional legal representation.
The issue arose when a taxpayer appealed a SARS assessment for the 2018 tax year. In the matter, the taxpayer authorised her father to represent her in the Tax Court through a power of attorney.
SARS objected to this representation on the grounds that he was not a legal practitioner.
The Tax Court upheld SARS’s objection and ruled that the taxpayer’s father could not represent the taxpayer. The case was then decided in the taxpayer’s absence.
The Tax Court confirmed the assessment against the taxpayer and awarded costs in favour of SARS on an attorney-and-client scale, including the costs for two counsel.
The taxpayer took the matter to the High Court, successfully appealing the Tax Court’s decision and overturning it.
SARS then appealed the matter to the SCA.
SARS litigation strategy
The main issue before the SCA was whether the Tax Administration Act prohibited non-legal practitioners from representing taxpayers in the Tax Court.
SARS argued that the Tax Court is a “court of law” as defined in section 166 of the Constitution, and therefore, only admitted legal practitioners should be allowed to represent taxpayers in such proceedings.
However, the SCA rejected this argument. The SCA ruled that neither the TAA nor the Tax Court Rules require a taxpayer’s representative to be a legal practitioner.
Notably, the court examined the historical wording of section 125(2) of the TAA, which previously stated:
“The appellant or the appellant’s representative may appear at the hearing of an appeal in support of the appeal.”
Although this subsection was later removed, the SCA determined that the deletion did not eliminate the taxpayer’s right to representation by a non-legal practitioner.
The Court further referenced the Explanatory Memorandum accompanying the amendment legislation, which characterised the deletion as a “technical correction,” and noted that the taxpayer’s right to representation was considered implicit.
This finding is particularly significant because, for several years, SARS has adopted an increasingly restrictive interpretation of representation rights in tax litigation.
The SCA also examined various provisions of the TAA and the Tax Court Rules that refer to a taxpayer’s “duly authorised representative.”
The Court observed that the legislation consistently acknowledges the role of authorised representatives without restricting them to attorneys or advocates alone.
The SCA specifically noted that taxpayers frequently rely on accountants, auditors, bookkeepers, and tax practitioners due to the specialised nature of tax disputes.
“The statutory provisions governing the performance of certain acts, and the appearance by or on behalf of the taxpayer in the Tax Court do not impose a requirement that the person who performs certain acts or appears on behalf of the taxpayer should be a legal practitioner,” said the SCA.
This is a significant loss for SARS’ argument that taxpayer representation in the Tax Court should be reserved solely for admitted legal practitioners.
A particularly controversial aspect of the SCA’s finding is that it believes the Tax Court is not a “court of law” as defined in section 166 of the Constitution.
The SCA explained that the Tax Court is established on an ad hoc basis by Presidential proclamation under section 116 of the Tax Administration Act (TAA), rather than being created directly by Parliament.
According to the SCA, this means that the Tax Court does not fit into the ordinary judicial hierarchy outlined in section 166 of the Constitution.
This part of the judgment could provoke significant future constitutional debates regarding the exact nature and status of the Tax Court within South Africa’s legal framework.
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