The receipt of a request for information from the South African Revenue Service ("SARS") is a common occurrence, and it also common for taxpayers to dive in and respond to such requests (including obtaining information from other persons) without considering the context of the response and whether SARS is adhering to the relevant provisions of the Tax Administration Act of 2011 ("TAA") in making the request.
Whilst it is true that SARS has very wide powers in fulfilling its mandate to collect tax, and that taxpayers should provide information to SARS and should not be obstructive in any way the TAA sets out the parameters for requests for relevant material by SARS. Cognisance should be taken of these parameters before collating documents and information and preparing a response.
As a starting point, SARS may, for the purposes of the administration of a tax Act in relation to a taxpayer, whether identified by name or otherwise objectively identifiable, require the taxpayer (or another person) to, within a reasonable period, submit relevant material (whether orally or in writing) that SARS requires. They may also require that the relevant material be provided under oath or solemn declaration.
The definition of "relevant material" is contained in the TAA as "any information, document or thing that in the opinion of SARS is foreseeably relevant for the administration of a tax Act...". SARS' subjective view therefore determines the relevance of material and it may be difficult for a taxpayer to argue otherwise. In this context, the Short Guide to the TAA states that the purpose of this construction is to avoid protracted debates as to SARS' entitlement to information.
The term "administration of a tax Act" has a lengthy and broad definition in section 3(2) of the TAA which includes, among other things, to obtain full information in relation to anything that may affect the liability of a person for tax in respect of a previous, current or future tax period, a taxable event or the obligation of a person (whether personally or on behalf of another person) to comply with a tax Act, to ascertain whether a person has filed or submitted correct returns, information or documents in compliance with the provisions of a tax Act and determining the liability of a person for tax. 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.
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. In practice, SARS typically regards such a communication to be a request for an extension of the time period in terms of section 46(5) of the TAA, which provides that SARS may extend the time period for the submission of the relevant material if reasonable grounds for an extension exists.
There is a difference between questioning the reasonability of the period stipulated by SARS in the request as opposed to requesting an extension in terms of section 46(5) but in our experience, this nuance does not have a significant impact. In particular, in practice, SARS is usually amenable to granting an extension if a reasonable motivation is provided and where the volume of the information requested justifies this, even granting a further extension if properly motivated. The Short Guide to the TAA 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".
It is thus evident that SARS has wide powers to request information and importantly it must be noted that they may direct the request for information to the taxpayer or a person other than the taxpayer. However, the TAA provides that a request for information from a person other than the taxpayer is limited to material maintained or kept or that should reasonably be maintained or kept by the person in relation to the taxpayer. 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.
A further qualification of the wide powers that SARS has in this regard is contained in section 46(6) of the TAA which 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".
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. However, section 42A of the TAA comes into play where legal professional privilege is asserted. It sets out the information that the person asserting privilege must provide to SARS, which is described by SARS as "...a basic set of information to enable it to determine whether a document is subject to legal professional privilege." It also provides for a procedure where SARS disputes the assertion of legal professional privilege. The Short Guide to the TAA states that the first objective of section 42A is to resolve the matter between SARS and the taxpayer, as opposed to starting with an adjudicative and generally more protracted process.
Taxpayers are also reminded of their right to administrative justice under the Constitution which is given effect to in the Promotion of Administrative Justice Act, 2000 ("PAJA"). PAJA applies to administrative actions and decisions made by organs of state, including SARS, and broadly speaking requires that administrative actions that materially and adversely affect the rights of a taxpayer must, in the absence of exceptions provided for in PAJA, adhere to various fairness requirements. In enforcing the provisions of the TAA, SARS officials must act in a manner that is fair and reasonable, as PAJA applies to such actions, unless an exception applies or if the provisions of the TAA in question are inconsistent with PAJA. An unreasonable exercise of a power or performance of a function is a ground for review. Depending on the circumstances, a review application under PAJA is a course of action that may be considered.
Finally, it is a criminal offence if a person wilfully or negligently fails to furnish, produce or make available any information, document or thing as and when required under the TAA or if a person wilfully fails to reply to or answer truly and fully any questions put to the person by a SARS official as and when required in terms of the TAA. Therefore, 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.
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.
