The process for a tax dispute against a decision or an assessment by the South African Revenue Service (Sars) starts with an objection, but when it is rejected, the case can go all the way to the Tax Court, the High Court and even the Supreme Court of Appeal (SCA).
Recent cases before the Tax Court and the SCA emphasise that it is important for taxpayers to formulate comprehensive grounds of objection and appeal from the beginning of the dispute resolution process. The devil is indeed in the detail, says Cliffe Dekker Hofmeyr (CDH) associate Nicolas Carroll.
“Although a taxpayer can obtain new insights on the road to the SCA through the benefit of hindsight, the taxpayer must by and large rely on the same grounds for disputing the assessment or decision.”
Carroll writes in CDH’s January tax and exchange control alert that although a taxpayer is “as a rule” not permitted to raise new grounds of objection on appeal, the exception is where a new ground is so close to the original ground of objection that these grounds are the same in substance.
Confusion about the rules
The appeal process has come a long way from having no rules, to previous rules to new rules. This includes rules about the introduction of new grounds on appeal.
However, there still appears to be confusion about the rules when relying on new grounds, says Nico Theron, founder of Unicus Tax Specialists.
During the “no rules” period the approach was that a taxpayer could not raise a matter on appeal if it was not raised during the objection process. However, this has changed.
Besides the new rules, there is legal precedent on the introduction of new grounds of appeal. It is therefore possible to raise new grounds of objection during the appeal process, but some grounds are permissible and others not.
Theron calls the appeal process a “post-objection objection” remedy. The taxpayer will raise the same issues as in the objection process, but in another forum, through mediation, the Tax Board or the Tax Court.
Carroll recently looked at two cases where the decisions by Sars were taken on appeal and where new grounds were relied upon on appeal.
The cases
Case ITC1912 involved an interlocutory application in the Tax Court by Sars to strike out a portion of the taxpayer’s statement of grounds of appeal, on the basis that the statement infringed the rule that an appellant cannot include a ground of appeal that had not already been objected to.
The court held that a taxpayer was entitled to raise a new ground on appeal, provided that it related to an amount (or part thereof) in the assessment that had been placed in dispute by the objection.
The court found it was “clear from the scheme of the rules that taxpayers were no longer restricted, on appeal, to their original grounds of objection”.
In this case, the court said it was clear there was an intention (with the new rules) to broaden, rather than to restrict, the ambit of the issues that could be dealt with in the tax appeal process.
The court stated that “these changes demonstrated a new flexibility in the tax appeal process and a move away from the rigidity of the previous regime”.
In the case between Sars and Matla Coal the view was that a court should not be unduly technical or rigid in its approach to a taxpayer’s objection and notice of appeal. It should focus on “the substance of the objection” within the context of the particular facts of the case.
However, in case IT45710 delivered in November last year the court did not entertain the new grounds relied upon on appeal. In that case the taxpayer objected to the disallowance of an expense deduction of R11 million, which formed part of the total deductions of R73m. Sars disallowed the objection and the taxpayer turned to the Tax Court.
The taxpayer said in the notice of appeal that it was only appealing the disallowance of the R11m deduction. However, it added a new ground of appeal, in the alternative, stating the amount should never have formed part of the gross income, as it was never received by the taxpayer.
The court found that the new ground of appeal related to the gross income amount and not the expense amount that was initially objected to.
Carroll says the court found that the new ground was not a “re-packaging” of the original ground of objection and therefore did not fall within the ambit of the rules.
Food for thought
The Tax Court in IT45710 came to its decision based on a nuanced interpretation of the substance of the issues in dispute.
There are instances where an application for the amendment of a statement of grounds of appeal was dismissed by the Tax Court but upheld by the High Court on appeal. It is difficult to speculate whether an appeal court would come to a different conclusion.
At the very least, an appeal court would have the benefit of considering the well-reasoned argument put forward by the Tax Court and could consider whether the application of the Matla Coal principle should result in a finding in favour of the taxpayer.
Amanda Visser is a freelance journalist who specialises in tax and has written about trade law, competition law and regulatory issues.
Disclaimer: The information in this article does not constitute legal or financial advice.
Good afternoon, I am a financial planner who get paid by commission and have lodged a tax dispute because all my expenses were disallowed and was not refunded. I don’t have basic salary and the reason for disallowance was that the log book was not sent. I sent the log book on the 8th of November 2022 and to date my refund has not yet being paid. When I call SARS i was told that dispute takes 60 days to be finalised and according to them from the 15th to the 31st December is not regarded as working days which means it overlaps to March 2023. Kindly help me claim my refund from SARS.