CERTIFICATE IN FORENSIC INVESTIGATION [Income tax LAW]

CERTIFICATE IN FORENSIC INVESTIGATION[Income tax LAW] SP PHUNGULA SCHOOL OF LAW ROOM 105 phungulas1@ukzn.ac.za

1. INTRODUCTION • Tax law is a creature of statute – therefore liability to tax will arise in terms of a tax Act. • There are various statutes in which tax may be levied. These include: • The Income Tax Act 58 of 1962; • The Value-Added Tax Act 89 of 1991; • Estate Duty Act 45 of 1955; • Transfer Duty Act 40 of 1949; • Securities Transfer Tax 25 of 2007; and • Tax Administration Act 28 of 2011. • To find that the taxpayer is liable and for how much, this may be done through tax administration. • Tax administration its meaning refers to the process of which a person registers for specific tax, submits relevant returns or information, retains prescribed documentation, and thereafter assessed for tax and makes payment thereof. Provisions pertaining to Tax Administration contained the Tax Administration Act 28 of 2011. (‘the TAA’). The date of commencement of this Act was 1 October 2012. • This Act was brought into effect for the following purposes to provide for the efficient collection of tax; to consolidate tax administration provisions under one Act; prescribes taxpayer rights and obligations; prescribes powers and duties of those who are engaged in the administration of tax (e.g the commissioner, a senior SARS official

2. APPLICATION OF TAA • General • Section 4 of the TAA provides that the TAA applies to everyone who is liable to comply with the provisions of the TAA – whether personally or on behalf of another. • The TAA also binds SARS. This means that SARS may only exercise the powers and duties assigned under TAA for the purpose of the administration of a tax Act (s 6) • Where the TAA is silent on some administration of tax – and it is specifically provided for in the provisions of another Tax Act – the other tax Act will apply. (For example – late payment penalty for provisional tax) (b) Registration as taxpayer • The legislature enacts the substantive provisions that make up the tax. Depending on their circumstances, taxpayers incur liability for the tax in terms of the substantive provisions; • Registration for tax – taxpayers are obliged to register as taxpayers in terms of a tax Act. While a tax Act will impose the obligation to register, section 22 of the Act deals with the process, unless the relevant tax Act contains provisions to deal with this. In other words a person must apply for registration as a taxpayer within the time period stipulated in a Tax Act – or alternatively within 21 business days of becoming liable to register. • For the purposes of registration – you may be required to provide SARS with document, and biometric information. Where a person applying for tax registration has not provided all particulars and documents as required by SARS, the person may be regarded as not having applied for the registration until all particulars and documents have been provided to SARS (s 22 (4)). • Once registered the taxpayer will be provided with a taxpayer reference number. If a person has registered with SARS but changes any of the particulars given to SARS, such person must inform SARS of such change within 21 business days.

(c) Submission of tax returns • The next step following registration is the submission of a tax return. • A person required to submit a return, or who voluntarily submits a return, must submit the return in the prescribed manner and form by the tax deadline specified in any tax Act or in any public notice issued by the Commissioner. The return must contain the prescribed information. It must constitute a full and honest disclosure of the taxpayer’s position. For example this may be IRP5 when submitting a personal tax return • Section 25 (3) provides that a tax return has to be signed by the taxpayer or by the taxpayer’s authorised representative. • Again, the obligation to submit the return lies in the applicable tax Act. If a tax Act requires the submission of a tax return, sections 25 – 28 of the Act apply. An ancillary step to the submission of a tax return is that a taxpayer must have sufficient information at their disposal to enable them to accurately complete a tax return. • The taxpayer should thus assemble and keep records that contain this information. These records need to be retained for a period after the submission of the tax return, because they may be required for subsequent verification, or an objection or appeal (s 29) and (s 30). (d) Tax Assessment • The tax return and the information contained therein will form the basis upon which SARS will assess the taxpayer’s liability for the tax in question. This leads to the issuing of an assessment. • Once a taxpayer has submitted a tax return, SARS processes the information and this information details the amount of tax due by the taxpayer in terms of any tax Act. • Once SARS has assessed the taxpayer, it must issue a notice of assessment to that taxpayer in terms of section 96 of the Act. Assessments that have been issued may be withdrawn in terms of section 98. Section 99 limits the periods in which SARS may assess a taxpayer. This is the ‘prescription’ section of the Act in respect of assessments.

Once an assessment has been issued, the taxpayer must either pay the amount due within the period indicated in the notice of assessment (section 96), or he or she may pay the tax due (see later on the ‘pay now, argue later’ principle) and object to the assessment. This brings one to the next stage of the administration process, that of objection and appeal; • The objection and appeal process is now more correctly known as the dispute resolution process, since the objection and appeal process is now not the only remedy available to a disgruntled taxpayer. • The onus provision is contained in section 102 and remains substantially the same as before, except that section 102(2) now places the onus on SARS in certain circumstances • CIR v Butcher Brothers (Pty) Ltd 1945 AD 301; 13 SATC 21: The principle of onus of proof was established in this case as the court held that if assessment is in dispute, the Commissioner, in order to support his assessment, has to show that the amount has accrued to or been received by the taxpayer. The court held that as no amount was established by the Commissioner, the court held that there could be no inclusion in the gross income of the lessor. • Note the provisions of section 164deals with the payment of tax pending the finalisation of an objection or appeal. The payment of tax is not automatically suspended (section 164(1), but a taxpayer may request a senior SARS official to suspend the payment of such tax (section 164(2)) pending the outcome of any objection appeal, and the senior SARS official may grant such suspension, after considering certain factors (section 164(3)). • In an objection or appeal, the process will operate as follows: • SARS issues an assessment or makes a decision subject to objection and appeal; • The taxpayer requests reasons for the assessment or decision within 30 days after the date of assessment decision. A taxpayer does not have to request reasons and can proceed directly to the objection stage (Rule 3); • If reasons are requested, SARS must provide same within 60 days of the request (Rule 3); • The taxpayer may then accept the reasons provided and not take the matter any further, or the taxpayer may note an objection within 30 days after the receipt of reasons, OR if no reasons were requested, within 30 days after the date of assessment or decision (section 104, Rules 4 & 5);

If the objection is successful (if it is allowed) the assessment or decision will be revised accordingly. If the objection is unsuccessful, or only partially successful (wholly or partially disallowed), the taxpayer may note an appeal, within 30 days after the receipt of notice of SARS decision on the objection (section 106); • At this point, the taxpayer has the option of utilising the alternative dispute resolution (ADR) process. After the ADR process has been exhausted, the taxpayer may then proceed to the Tax Board or the Tax Court. The taxpayer is not obliged to proceed to litigation and may proceed directly to the Tax Board or the Tax Court (section 107, Rule 7). The appeal procedure is suspended while the ADR process is underway. In terms of the ADR process, the taxpayer and SARS must agree to a resolution of the matter. If no agreement is reached, then the taxpayer may continue with the appeal procedure; • An appeal to the Tax Board is governed by section 109, which deals with the jurisdiction of the Tax Board. Section 108 deals with the establishment of the Tax Board (but see section 264(1) which states that the existing Tax Board will continue in existence). Sections 110 – 112 deal with the composition of the Tax Board. Section 113 establishes the procedure for the Tax Board, and section 114 deals with the decisions of the Tax Board; • If either the taxpayer or the Commissioner is dissatisfied with the decision of the Tax Board, either may appeal to the Tax Court (section 115); • If either the Commissioner or the taxpayer is dissatisfied with the decision of the Tax Court, either may appeal to a Provincial Division of the High Court, (section 133(2)(a)) or directly to the Supreme Court of Appeal (section 133(2)(b)). • Other means of trying to resolve the dispute would be to refer the matter to the Tax Ombud. The Ombud is to be appointed by the Minister.

3. SARS POWERS • Gathering of Information • Section 40 - SARS may select a ‘person’, not necessarily a taxpayer, for inspection, verification or audit on any basis. However, the Act makes a distinction between a criminal investigation (s 43) and a civil investigation (s 40). This is because in a criminal investigation, SARS must conduct the investigation bearing in mind the taxpayer’s constitutional rights as a suspect in a criminal investigation (s 44). • A SARS official must be granted a written authorisation to conduct a field of audit or criminal investigation. • SARS is obliged to keep the taxpayer informed of the outcome of the inspection, verification and audit (Eg, through a letter of audit findings or a letter of finalisation). • Where there are audit findings where adjustments are proposed – the taxpayer will be given a 21 calendar day period to respond. • However, where a senior SARS official has a reasonable ground of believing that notifying the taxpayer would impede the purpose and progress or outcome of the audit, SARS is not required to notify the taxpayer (s 42(5)). • Where it appears before or during the course of an audit that a person may have committed a serious tax offence, the investigation of the offence must be referred to a senior SARS official responsible for criminal investigations. This person must decide whether a criminal investigation should be pursued (s 43(1)). • Where a decision was made to pursue the criminal investigation of serious tax offence, SARS may use information obtained prior to the case being referred for criminal investigation (s44 (2)).

Other method of gathering information • A SARS official may: • Request that a person (can be a third party) provide relevant material – which is fairly widely defined as any information, documentation or thing that SARS believes is relevant to their investigation. • Conduct a field audit or investigation • Institute an inquiry: • upon the granting of an ex parte order by a judge of the high court such order will be granted if the judge is satisfied that: • The person failed to comply with his /her tax obligations; • The person has committed a tax offence; and • There is a possibility that the inquiry will reveal relevant material. • During such inquiry – taxpayer and witnesses may be interviewed by SARS; • A person may have legal representation present • A person may not refuse to give information on the basis that it is self incriminating • Incriminating evidence may not be utilised by SARS in subsequent criminal proceedings – unless the evidence relates to perjury.

(b) Search and Seizure • SARS may search premises in order to seize relevant material that may be used as evidence where a person has failed to comply with tax Act. • As a general rule, SARS has to apply to a judge for a warrant under which search and seizure is carried out. • However, a search and seizure may sometimes be carried without a warrant. • Search and Seizure with a warrant (ss 59 to 61) • SARS may apply to the judge to get a warrant. In doing so SARS set out facts that indicate that are reasonable grounds to believe that: • A person has failed to comply with tax Act • Relevant material likely to be found on the premises may provide evidence of the failure to comply with tax Act (s 60(2)). • The warrant must contain: • The alleged offence • The person alleged to have committed that offence • The premises to be searched • Relevant material is likely to be found on the premises • SARS must conduct the search with strict regard for decency and order. (ii) Search and Seizure without warrant • SARS may under narrow circumstances conduct a search without warrant. • This power may be invoked if SARS has reasonable ground and is satisfied that: • They may be an imminent removal or destruction of relevant material likely to be found in the premises • The delay in obtaining warrant would defeat the object of the search and seizure (s 63(1)).

4. REMEDIES • Seized property • A person may request SARS to return some or all material seized and pay the costs of physical damage caused during search and seizure. If SARs refuses the request, a person may apply to the High Court for an interdict. (b) Unfavourable assessment • Request for reduced assessment in terms of s 93(1)(d) of the TAA • In terms of section 93(1)(d) of the TAA, SARS may reduce an assessment if SARS is satisfied that there is an error in the assessment as a result of an undisputed error by: • SARS, or • the taxpayer in a return.’ • In terms of section 93(2) of the TAA, SARS may reduce an assessment despite the fact that no objection has been lodged or appeal noted. • In terms of section 98 of the Tax Administration Act, SARS may withdrawal an assessment if – • The Commissioner is satisfied that it was based on: • An undisputed factual error by the taxpayer in the return; or • A processing error by SARS; or • A return fraudulently submitted by a person not authorised by the taxpayer;

(C) Penalties • There are three main types of penalties which may be imposed: • Fixed administrative penalties – arising from a failure to comply with an obligation in terms of a tax Act. Eg penalties for a reportable arrangement. • Percentage based administrative penalties; • Understatement penalties. • A person can apply for percentage based administrative penalties or understatement penalties to be remitted. (d) Voluntary Disclosure (ss 225 – 233) • Where a taxpayer has committed a default, he may apply for voluntary disclosure relief. • If such application is successful, SARS will not pursue criminal prosecution and will grant a relief. • The requirements for a voluntary disclosure include that the disclosure must: • Be made voluntarily • Involve a default which has not occurred within five years of the disclosure of a similar default • Be full and complete in all material respects • Not result in a refund due by SARS • Be made in a prescribed form and manner

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CERTIFICATE IN FORENSIC INVESTIGATION [Income tax LAW]