The Supreme Court of Appeal (SCA) judgment against Absa in its legal battle against the South African Revenue Service (Sars) is one in a series of losses for taxpayers in recent months.
Absa’s initial win in the Pretoria High Court in 2021 started a wave of taxpayers taking Sars’s decisions on review before the high courts as opposed to going through the tax courts. However, that win has been overshadowed by several losses both in the high courts and at the SCA.
Peter Dachs, head of ENSafrica’s tax practice, says it is frustrating for taxpayers that there have been so many judgments in which the high courts were very reluctant to hear matters that should go to the tax court.
The sticky section
He says the sticky point appears to be Section 105 of the Tax Administration Act, which allows taxpayers to approach the high court for a review – but there have to be exceptional circumstances.
“That is causing the problem. In normal review matters, you don’t have this section where you must show exceptional circumstances.”
The Absa dispute arose when Sars issued an anti-avoidance notice in 2018, stating that Absa and its subsidiary, United Towers, were “party to an impermissible tax avoidance scheme” and derived a tax benefit from it.
Absa requested Sars withdraw the notice, informing the revenue authority that it was not party to any impermissible transactions and was unaware of any tax avoidance scheme. Sars did not withdraw the notices and issued tax assessments on the tax benefit it believed Absa and its subsidiary received. Absa then approached the Pretoria High Court asking it to review Sars’s refusal to withdraw the anti-avoidance notice. It also asked the court to review the tax assessment.
In the Pretoria High Court review, Judge Roland Sutherland found that an “error in law” constituted exceptional circumstances. This is sufficient to allow the high court to review a Sars decision or assessment without the taxpayer going on a “long and protracted slog” to the tax court. It can take, on average, three years from assessment to objection and appeal before the taxpayer gets to the tax court, says Dachs.
The Sutherland judgment has now been overruled by the SCA decision, and it is again uncertain what exceptional circumstances will be sufficient for a high court to entertain a review application in tax matters.
Julia Choate, senior associate in the Bowmans tax practice, says it leaves her feeling “deeply uncomfortable” that taxpayers’ administrative rights are eroded to a point where they have to go through a potentially lengthy and costly first-test to impugn a decision that is administratively fundamentally flawed.
“Absa has now been sent all the way back down to the bottom of the snakes and ladder board to start fighting their case afresh,” says Choate.
Burden of proof
From a fiscal policy perspective, it is necessary to put the burden of proof on the taxpayer to show that their tax position was correct. However, that is a harsh burden to put on taxpayers when it can take, on average, three years to have your case heard.
“We must be extra sensitive that, as time passes, it becomes increasingly difficult for a taxpayer to find and produce the facts, documents, and witness testimony to enable it to discharge that burden of proof that their tax position was correct,” says Choate.
The question is to what extent Absa has been prejudiced because it has to start fighting its case afresh. The dispute dates back to 2018.
“My huge concern as a tax and administrative lawyer is how can taxpayers end up with less constitutional rights than other individuals who are affected by administrative decisions,” says Choate.
“This whole concept of increasingly limiting taxpayers’ access to reviews in circumstances where Sars did not take a proper and lawful decision makes me deeply uncomfortable,” she adds.
The rationale of the SCA is to ensure that disputes about tax assessments in the ordinary course are ventilated through the tax court. But that should not prevent a person, even with this new line of reasoning, from approaching the high court directly for a review.
Louis Botha, senior associate in the Cliffe Dekker Hofmeyr tax practice, says that while the debate regarding jurisdiction in tax disputes might seem academic to some, it has great practical importance as it implicates the constitutional right to fair administrative action.
Choate notes that they are seeing an unprecedented number of judgments heading from the SCA to the Constitutional Court, mostly by taxpayers but also by Sars. The SCA is not a very tax-friendly environment at the moment, she adds.
Dachs confirms that there has been an increase in tax matters on their way to the Constitutional Court. “I think that is where the matter will ultimately be decided. There is still a little bit of road to run on this matter.”