Taxpayers are often frustrated by being selected for tax audits time and again. Tax practitioners are often asked whether there is any recourse to stop SARS from continuously selecting the same taxpayer for audit. In short, how can you get SARS off your back? This issue was recently the subject of a High Court case.
The Tax Administration Act (TAA) provides the Commissioner for SARS with the right to select a taxpayer for verification, audit or investigation.
In a recent High Court case the taxpayer challenged a decision by SARS to audit the taxpayer on the basis that the taxpayer was selected for an audit with ulterior motives not linked to any tax risk associated with the taxpayer. On this basis the taxpayer contended that SARS acted unlawfully when selecting them for an audit.
The taxpayer further contended that the decision by SARS to audit the taxpayer was an administrative decision and therefore subject to review in terms of the PAJA.
Let’s see what the court said …
Nature of the decision
With regards to whether a decision to audit a taxpayer constitutes an administrative decision subject to legal review, the court applied the “ripeness” principle.
In short, the “ripeness” doctrine determines that a decision is “ripe” for review if the decision directly adversely affects a taxpayer’s rights and has a direct external legal effect.
The court held that merely selecting a person for an audit only results in an investigative process being set in motion, nothing more. A decision to audit a taxpayer cannot in itself therefore adversely affect a taxpayer’s rights and has no direct external legal effect. It accordingly held that the initiation of an investigation does not constitute a decision which is capable of review, not being ripe for review.
In short, a decision by SARS to verify, audit or investigate a taxpayer is not subject to review by a court in terms of PAJA.
What about legality?
With regards to the legality of SARS’ actions, the court confirmed that the Commissioner must be provided with extensive powers to obtain the evidence that should enable him to properly administer and enforce the relevant legislation.
It held that on the condition that the intended audit is to be undertaken for the proper administration of a tax Act, there is no limitation to the considerations on which a decision to select a taxpayer is to be founded.
And just to ensure that there is no misunderstandings, the court confirmed the principle that “… the threshold for SARS to pass before it can utilise section 40 [the section in the TAA dealing with the selection of taxpayers for audit] must be extremely low …”
In short, the above means that the mere fact that SARS have sent you a letter of intended audit, verification or investigation should be sufficient to prove that they have applied their minds; they have thought of you!
It seems that the learning to be taken from the above is better picking your fights with SARS. Trying to avoid being audited by SARS is not a fight you are going to win any time soon!
Share this article