For certain taxpayers, a tax clearance certificate is of utmost importance in ensuring that it is able to receive payment and to tender for new services. In the recent Gauteng High Court decision (Red Ant Security Relocation and Eviction Services (Pty) Ltd v CSARS (2999/18)), the taxpayer applied for urgent interdictory relief for reinstatement of its tax compliance status in order to be able to generate a tax clearance certificate pending determination of review proceedings which it had instituted against CSARS.
The respondent (CSARS) had revoked the taxpayer's tax compliance status without prior notice as required in section 256(6) of the Tax Administration Act 28 of 2011 (TAA) when the payment deferral agreement between the parties lapsed on 31 March 2018 and there was still an outstanding tax liability for which no payment arrangement had been made.
The taxpayer applied for urgent application on the basis that the procedural requirements in section 256(6), the Promotion of Administrative Justice Act 3 of 2000 and the Constitution had not been met. The taxpayer generated income from providing public services to public and municipal entities, including essential services such as emergency accommodation and temporary water supply. Without a valid tax clearance certificate, the taxpayer would not be able to receive payment for its services or tender to provide new services, thus creating severe financial constraints. The taxpayer's business was on the brink of closure with the possibility that its 11,000 employees' jobs would be at risk and potentially nine municipalities would be left without services if the applicant's business ceased to operate.
The respondent argued that the taxpayer's entitlement to a tax clearance certificate lapsed when the deferment agreement came to an end. Therefore, section 256(6) did not apply. Section 256(6) enables SARS to alter a taxpayer's tax compliance status if issued in error or on the basis of fraud, misrepresentation or non-disclosure of material facts, provided SARS gives the taxpayer 14 days prior notice and an opportunity to respond to the allegations.
The court held that the taxpayer had illustrated a threat by an impending or imminent irreparable harm. In considering the balance of convenience between the parties, the court held that the prejudice to the taxpayer and its employees was self-evident. Further, in light of the nature of services performed by the taxpayer to its clients being the municipalities, the prejudice to the wider general public would also need to be taken into account. On the other hand, the respondent had argued the prejudice it would suffer was that it would be constrained to grant the taxpayer tax compliance status pending the review application, regardless of whether the taxpayer was tax compliant.
The court acknowledged this constraint and held that an appropriately qualified interlocutory relief would ensure that the tax compliance status could be revoked, provided there were grounds to do so and due process followed. The court held that the balance of convenience favoured the granting of interim relief.
The court further held that there was no alternative remedy available to the taxpayer as there was no certainty that parties could agree to a further payment deferral agreement on mutually acceptable terms. In any event, such a remedy does not redress the respondent's failure to act in a procedurally fair manner. The respondent had also declined to restore the applicant's tax compliance status when requested to do so.
The court granted costs to the taxpayer and ordered the respondent to restore the applicant's tax compliance status within 24 hours to enable the taxpayer to generate a tax clearance certificate. The taxpayer's future tax compliance status could still be altered provided there were grounds to do so and due process followed.
This case illustrates the importance for taxpayers to monitor their tax compliance status information on efiling closely. Despite best efforts, a taxpayer's tax compliance status may not reflect the state of interactions with SARS accurately. The tax compliance status platform on efiling is designed to be a taxpayer driven, self-help, electronic process where taxpayers are able to remedy their non-compliant status online or request that SARS rectify their status through "Challenge Status". However, the time taken to rectify a status may itself be severely prejudicial to the taxpayer. Further, as can be seen in this case, some taxpayers are not able to correct their status easily due to ongoing disputes.
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