25 November 2021 by Tax & Exchange Control Alert

Forum shopping in limine: Tax Court redirects legality review to High Court

Chapter 9 of the Tax Administration Act 28 of 2011 (TAA) lays a path for taxpayers and the South African Revenue Service (SARS) to walk away from a dispute resolution where they encounter a dispute around the taxpayer’s affairs. The TAA’s dispute resolution process regulates the administrative engagement between SARS and the taxpayer at the point where a dispute about a decision by SARS arises. Chapter 9 also prescribes the mechanisms available for resolving a tax dispute, as it is the statutory origin of the Tax Board, the Tax Court and the Tax Court Rules – including the opt-in alternative dispute resolution procedures.

On 19 October 2021, the Tax Court in Cape Town delivered its decision in CSARS v FP (Pty) Ltd Case Nos. 25330, 25331 and 25256. The matter involved SARS raising a challenge that a review of an additional assessment in the Tax Court was an irregular step. In deciding this challenge the judgment deals with the appropriateness of bringing a principle legality review in the Tax Court in the context of the dispute resolution provisions of the TAA.

SARS’ argument

SARS raised a challenge under Rule 30 of the Uniform Rules of Court to the taxpayer’s attempt to challenge and set aside the additional assessments on application to the Tax Court in terms of a legality review. The basis for this was that the Tax Court is a creature of statute, with its jurisdiction and competence defined by the TAA.

SARS argued that where a taxpayer is aggrieved by an assessment, under section 104(1) of the TAA, they may lodge an objection and pursue the dispute. It argued further that a taxpayer may only deviate from the TAA dispute resolution procedure of following an appeal to the Tax Court if permitted to do so by a High Court in terms of section 105 of the TAA.

The taxpayer’s argument

The taxpayer argued that under section 117(1) of the TAA the Tax Court has jurisdiction over tax appeals lodged under section 107 of the TAA. Section 117(1) of the TAA reads:

“117. Jurisdiction of the Tax Court (1) The tax court for purposes of this Chapter has jurisdiction over tax appeals lodged under section 107.”

Therefore, as the review arose in the context of an appeal under section 107 of the TAA, the Tax Court has jurisdiction to adjudicate the review. It relied on South Atlantic Jazz Festival (Pty) Ltd v CSARS [2015] (6) SA 78 (WCC), where it was held that:

“The jurisdiction of the Tax Court to determine tax appeals is conferred without any limitation in section 117(1) of the TAA. The court must be taken to have been invested with all the powers that are inherently necessary for it to fulfil its expressly provided functions.”

The taxpayer further contended that it would be unfair, irrational and “create and undesirable dichotomy between the High Court … and the Tax Court”, if it had to pause the tax appeal proceedings and approach the High Court under section 105 of the TAA in a parallel litigation process. 

The decision

The court emphasised that SARS had brought a procedural challenge to the taxpayer’s review, which as a point of law required a determination of the jurisdiction of the Tax Court. It distinguished the present facts from South Atlantic Jazz Festival on the basis that section 105 had been amended and that the taxpayer in that case was exercising its right of appeal to the Tax Court and not seeking to review SARS’ administrative action. The court also noted that the taxpayer had conceded that the review application was not an interlocutory or procedural one launched under section 117(3) of the TAA which reads:

“117. Jurisdiction of the Tax Court

(3)         The court may hear and decide an interlocutory application or an application in a procedural matter relating to a dispute under this Chapter as provided for in the ‘rules’.”

The crux of the decision of the Tax Court was based on section 105 of the TAA. It held that section 105 makes it clear that a taxpayer may only dispute an assessment or “decision” as described in section 104 in accordance with Chapter 9 of the TAA and the Tax Court Rules, unless a High Court directed otherwise.

Therefore, as the taxpayer was bound by section 105 of the TAA to seek leave to bring the legality review, SARS was correct to raise a uniform Rule 30 challenge, as the launching of the review proceedings in the Tax Court in these circumstances constituted an irregular step.

The court ordered that the review application be set aside and stayed the appeal proceedings in the Tax Court pending the determination of the review application to be launched in the High Court by the taxpayer.

Comment

This case provides a good illustration of the scope of the Tax Court to determine tax disputes. The design of the dispute resolution process under the TAA requires taxpayers to participate within its structures unless the High Court determines that there are grounds for departing from that procedure.

Preventing the parallel jurisdiction of the High Court at the primary appeal stage of the TAA dispute resolution system enables the TAA’s specialised dispute resolution system to function in a contained environment. 

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