What should be contained in a record for review proceedings and whether SARS may consider a request for the remission of interest in terms of section 39(7)(a) of the Value Added Tax Act, No. 89 of 1991 (the VAT Act) once a taxpayer has agreed to pay such interest in terms of a VDP agreement under section 230 of the Tax Administration Act, No. 28 of 2011 (the TAA).
The applicant (the taxpayer) brought a review application against an assessment by SARS, in which interest was raised against the taxpayer.
The taxpayer was a victim of fraud, perpetrated by one of its employees, to the tune of approximately R460 million. An unfortunate effect of the fraud was that it placed the taxpayer in a non-compliant position with SARS.
The taxpayer applied for and was granted relief in terms of the Voluntary Disclosure Programme (VDP) as provided for in the TAA. The parties then entered into a written VDP agreement in respect of the outstanding amount due to SARS.
Subsequently, the taxpayer applied for the remission of the interest imposed by SARS on the amount in terms of section 39(7)(a) of the VAT Act. This application was rejected on the basis that “as the agreements entered into between the Commissioner and the respective Taxpayers remain in force, the Commissioner cannot consider the request for the remission of the interest levied”.
As a result of the refusal, the taxpayer brought a review application against SARS before the Court. SARS informed the taxpayer that it had dispatched the relevant record of proceedings to the Registrar of the Court in terms of the Uniform Rules of Court.
The taxpayer alleged that the record did not comply with the relevant rules in that it “failed to contain the record of the proceedings relevant to the Commissioner’s decision sought to be reviewed and set aside by the taxpayer in the main application, such as internal memoranda, directives, policy documents, records of deliberations and minutes of meetings.”
SARS’s legal advisors responded to the taxpayer and stated that SARS is only “in possession of emails and other internal correspondence with its legal advisors relating to the issue of remission of interest. The purposes served by such emails and other internal correspondence was to provide legal advice to our client on the disputed issue.”
The taxpayer’s case
The taxpayer argued that SARS did not fully comply with the Uniform Rules of Court and supply the taxpayer with the information which led to the decision being taken to reject the application for remission.
The taxpayer further specifically contended that, due to SARS’ incorrect interpretation of the legal question it had not made a decision on the merits of the taxpayer’s request for the remission of the interest. If the decision by SARS was based purely on a question of law, there is no reason why this should result in the exclusion of relevant information from the record.
In relation to the information not included within the record, the respondent (SARS) asserted its right to claim legal professional privilege in relation to the advice it received from its legal advisors and, in any event, the excluded documents were irrelevant for purposes of the review.
SARS further asserted that whether the decision to dismiss the taxpayer’s application without considering the merits thereof was a question of law. This was based on SARS’ interpretation of the provisions of the VAT Act and TAA, in view of the VDP agreement already concluded between the parties.
The Court ruled in favour of the respondent, SARS.
The Court held that it is trite that the usual grounds on which information is excluded from the record in review proceedings are irrelevance and legal privilege. What is considered to be relevant is not to be determined from the pleaded case, but rather from the decision sought to be reviewed. A Court remains guided by that which is relevant, for it is only relevant evidence that is admissible. In the present case, however, the information sought by the taxpayer would not be sufficiently relevant for its purposes.
Furthermore, the Court accepted that SARS’ refusal to consider the merits of the request for remission was based upon its interpretation of the law, which is a matter in which the Court is required to adjudicate. In this regard, no discretion had in fact been made by SARS with regards to the remission of the interest as yet.
The taxpayer was aware that SARS’ refusal to consider the remission of interest application was based on a legal issue, or otherwise stated, on the interpretation of section 39 of the VAT Act. The taxpayer, on its own version, was aware that the respondent did not base the refusal to consider the remission of interest on the merits. This resulted in the taxpayer attempting to review a decision that had not actually been taken.
Taxpayers should exercise an abundance of precaution when entering into a VDP procedure with SARS and prior to entering into a VDP agreement, especially in view of penalties and interest raised in the face of mitigating factors. A VDP agreement is binding on both SARS and the taxpayer, and the taxpayer cannot later seek to change the agreed position in terms of a later request.