The Tax Court has dealt with different types of preliminary points raised, such as which party has the duty to begin, whether portions of a party’s pleadings should be struck out, or whether a party has raised new grounds of assessment or new grounds of appeal that are inconsistent with the Rules (see for example our Tax and Exchange Control Alert of 26 January 2023). 

However, a preliminary point the Tax Court had not yet been asked to consider, is whether a matter can be referred back to the South African Revenue Service (SARS) for consideration and assessment, prior to the hearing on the merits proceeding. This was the question to be considered in AB v The Commissioner for the South African Revenue Service (35746) [2022] ZATC 9, which was heard by the Tax Court on 23 August 2022 and which we discuss here.

Facts

The taxpayer is a shareholder in several companies that loan money to one another and a central issue in the tax dispute was the loan account in one of the taxpayer’s companies. In an unaudited financial statement for 2014 (one of the tax periods to which the dispute relates), the taxpayer’s loan account was recorded as amounting to R30,179,163. The taxpayer contended that this amount was incorrect, that the financial statements were rewritten to correct this and that the correct value was R10,390,949.

SARS questioned the taxpayer’s submission and how the error went undetected for more than five years. It alleged that the taxpayer gave three different versions during the objection and appeal process and that a fourth version was put forward after the appeal was lodged, during the alternative dispute resolution process. As such, SARS said that it was unable to investigate and consider the second version of the revised financial statements and requested that the matter be referred back to it for further examination and assessment. This practically meant that SARS would conduct a further audit of the companies in the group and other related companies to determine the taxpayer’s liability.

SARS argued that the Tax Court had the power to refer the matter back to SARS for examination and assessment in terms of section 129(2)(c) of the TAA, which the taxpayer disputed.

Judgment

The Tax Court considered the relevant sections. Section 129(2)(c) of the TAA states that in the case of an assessment or “decision” under appeal or an application in a procedural matter referred to in section 117(3), the Tax Court may refer the assessment back to SARS for further examination and assessment. Section 117(3) of the TAA states that the court may hear and decide an interlocutory application or an application in a procedural matter relating to a dispute under Chapter 9 of the TAA as provided for in the Rules.

The Tax Court accepted the taxpayer’s argument that the referral contemplated in section 129(2)(c) could only be granted after the hearing of the taxpayer’s appeal. It rejected SARS’ argument that the referral could be granted as SARS was not seeking final relief and it was merely an interim order that could be appealed against. The court further accepted the taxpayer’s argument that the order would be final as when SARS makes a new assessment, that decision is final in nature. The court based its decision in this regard on the judgment in Metlika Trading Ltd and Others v Commissioner for SARS [2004] 4 All SA 410 (SCA) which held that where an interim order is intended to have an immediate effect and will not be reconsidered on the same facts in the main proceedings, it will generally be final in effect.

The court thus found that it could not grant the order requested by SARS and dismissed the preliminary point. However, it indicated that SARS would not be without remedy as the court ultimately hearing the tax dispute on the merits could refer the matter back, in terms of section 129(2)(c), after the hearing contemplated in that section.

Comment

While not mentioned expressly in the judgment, it reaffirms the principle that the Tax Court is a creature of statute and that its jurisdiction and powers are limited to what is provided for in the TAA and the Rules. The finding in this case is potentially very significant, as a finding in favour of SARS, could have created a situation whereby SARS’ power to audit is broadened, such that it could essentially restart or revisit a completed audit if it wished to do so, in an attempt to ensure an ultimate outcome in its favour. Furthermore, such a finding could have potentially resulted in a situation where tax disputes take even longer to resolve, which would not be in the interests of SARS, taxpayers or the administration of justice, given the amount of tax disputes already ongoing and being heard by the Tax Court.