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#BizTrends2025: Tax bill proposal - benefits of offering ADR at an earlier stage
14 Jan 2025
Tax disputes under Chapter 9 of the Tax Administration Act 28 of 2011 (TAA) against the South African Revenue Service (Sars) can be a long drawn-out process.
Joon Chong, Partner, Webber Wentzel
A taxpayer objects to an additional assessment issued by Sars on finalisation of a verification or audit. If the objection is disallowed, the taxpayer appeals the disallowance at the Tax Board or Tax Court. When submitting the appeal, the taxpayer has the option of electing for alternative dispute resolution (ADR).
According to the Sars 2023/2024 Annual Report, 97% of appeals were resolved using the ADR process. This is an improvement from 95% in the 2022/23 financial year.
Quicker resolution
The Tax Administration Laws Amendment Bill [B17- 2024] (TLAB) proposes that the ADR will be available earlier at the objection stage. This is a positive proposal and is expected to result in quicker resolution of disputes, reduction in the backlog of cases, and significantly less cases proceeding to the appeals stage and to litigation at the Tax Court.
There are many benefits to using the ADR process. The ADR stage is often the first opportunity for the taxpayer to meet with the Sars auditors in person or virtually to discuss the merits of the dispute.
Evidence and analysis
Where there is a factual dispute, the taxpayer may be able to discuss the evidence to prove the factual averments. Big disputes usually involve large volumes of documents, and the ADR process can be used to highlight essential parts of key documents.
What sometimes happens during the ADR meeting is a discussion on specific documents where Sars requests further analysis of existing information, other information or documents to be provided.
Interpretation under discussion
Where there is a legal dispute, the ADR process allows the taxpayer and their tax practitioners to engage Sars in a discussion on the interpretation of the relevant tax provisions using case law or legislative history.
Besides a discussion on the ordinary meaning, purpose of and mischief targeted by a section, what is also useful is a discussion during the ADR on why a specific judgement (binding or persuasive) can be distinguished from the facts of the taxpayer in the dispute.
Even when ADRs are unsuccessful, the taxpayer and their tax practitioners have a better understanding of how Sars views the dispute, which will then inform their strategy at litigation.
A well-prepared ADR is thus the opportunity to present a very concise and succinct form of the taxpayer's case. Key witnesses could also be at the ADR to provide information or answer questions.
Facilitators
It is important to note however, that the ADR facilitator does not make a decision on the case. ADR facilitators are usually Sars officials, but the section 104 tax dispute resolution rules introduced in 2023 allow for non-Sars officials to be facilitators provided they are persons of good standing with appropriate experience and accepted by both parties.
Welcomed proposal
The opportunity to have an ADR process before Sars makes a decision on the objection as proposed in the TLAB is thus most welcomed. Taxpayers can augment their objections with further written submissions if necessary after the ADR meetings. The new information would be considered by Sars in the disallowance, partial disallowance or acceptance of the objection, which would be sent to the taxpayer before the appeals stage.
Under the current rules, the ADR is only available after the taxpayer has filed the appeal. If the ADR is unsuccessful, the dispute proceeds to the pleadings stage of litigation where Sars would file the rule 31 statement of grounds of assessment and the taxpayer the rule 32 statement of grounds of appeal.
Appeals stage
Treasury has confirmed in the Draft Response Document that updated section 104 draft rules implementing the amendment will be circulated for comments. The updated rules would clarify what would happen if the ADR is unsuccessful and whether the second ADR at the appeals stage will still be allowed.
We submit that the second ADR at the appeals stage should still be allowed.
Further, we submit that the Sars committee considering the recommendations of ADR at the objections stage should be different to the Sars committee considering the recommendations of ADR at the objections stage to ensure that the taxpayer's dispute is considered afresh by the second committee.
