What to do when SARS comes knocking
Nicolette Smit, a tax expert at legal firm ENSAfrica, says it is best to be prepared when South African Revenue Service (SARS) requests information from you, as is becoming a more common occurrence.
She said taxpayers often dive in and respond to requests for information – including obtaining information from other persons – when SARS asks; however, they are not considering the context of their response and whether SARS is acting legally.
SARS would rely on the Tax Administration Act of 2011 (TAA) to legally request information to fulfil its mandate to collect taxes. Taxpayers should provide information to SARS as outlined in the TAA, said Smit.
Despite this, one should be aware of certain parameters before collating documents and information and preparing a response.
According to Smit, SARS may, for the purposes of the administration of a tax Act in relation to a taxpayer, require the taxpayer to, within a reasonable period, submit relevant material to them.
“Relevant material” as contained in the TAA is any information, document or thing that, in the opinion of SARS, is foreseeably relevant to the administration of a tax Act, said Smit.
In this case, it is often difficult to prove that it is not necessary for SARS to have such information because its relevancy is determined subjectively by SARS. The revenue service could also require that the material be provided under oath or declaration.
Under the TAA, the “administration of a tax Act” is broad but summarily refers to, among other things, the obtaining of full information in relation to anything that could affect the liability of a person for tax either in the past, current or future.
Smit said that it also refers to ascertaining a person’s tax compliance and subsequent liability.
“The ambit is thus wide and is not limited to the conduct of an audit or investigation. This process is usually a precursor to an audit or investigation,” said Smit.
The time period and format
“A person or taxpayer that receives a request for information must provide the relevant material to SARS at the place and in the format (which must be reasonably accessible to the person or taxpayer) within the time period specified in the request.”
However, as set out above, such a time period must constitute a reasonable period, and if the period stipulated by SARS in the information request is not reasonable, the recipient of the request may provide reasons to SARS why the period is not reasonable and indicate to SARS what it considers to be reasonable – thereafter, SARS can extend the time period.
Smit said the TAA briefly states that “…reasonable circumstances will depend on the facts and circumstances of the specific matter, such as the extent and availability of the relevant material required”.
The person it is directed
SARS may direct the request for information to the taxpayer or someone other than the taxpayer.
However, the TAA provides that a request for information from someone other than the taxpayer is limited to material maintained or kept or that should reasonably be maintained or kept by the person about the taxpayer, said Smit.
Accordingly, if the person that received the request does not have the information requested and it is unreasonable to expect such person to have the information (for example, if the material is older than five years and has been destroyed in terms of document retention policies), that person is not obliged to obtain or gather information to comply with the request for relevant material.
The specifics and privilege
The TAA provides that the relevant material requested by SARS must be referred to with reasonable specificity.
It is thus not sufficient for SARS to request information in a vague manner or to essentially embark on a “fishing expedition”, said Smit.
Another aspect that must be carefully considered is whether any of the material requested by SARS is subject to legal professional privilege since, if this is the case, the person or taxpayer can assert that privilege applies and that they are not required to provide the material.
This will typically arise in the context of legal advice, such as tax opinions obtained from tax lawyers.
Under the TAA, where legal professional privilege is asserted, SARS does require a basic set of information to show the privilege.
While the recipient of a request for relevant material must ensure that they comply with their obligations in terms of the TAA in relation to the request, it is important for the recipient to first carefully consider the aspects highlighted above before penning a response to SARS, said Smit.
Read: Eskom’s load shedding outlook for the rest of the year
Loading ...