A fundamental reason for the existence of the rules of prescription in South African tax law is to provide a taxpayer with certainty regarding tax position. Taxand South Africa looks at the amendments recently proposed and the likely impact.
For some time, amendments to the prescription provisions have been on the cards. SARS has motivated for such amendments due to the fact that it has been involved in protracted information entitlement disputes which it alleges are being used as a delaying tactic to force audits closer to the end of a prescription period.
Clause 51(c) of the Bill proposes the insertion of two new sub-sections to section 99 of the TAA, namely sections 99(3) and (4) and provides as follows:
The Commissioner may, by prior notice of at least 30 days to the taxpayer, extend a period under subsection (1) or an extended period under this section, before the expiry thereof, by period approximate to a delay arising from:
(a) failure by a taxpayer to provide all the relevant material requested within the period under section 46(1) or the extended period under section 46(5); or
(b) resolving an information entitlement dispute, including legal proceedings.
The Commissioner may, by prior notice of at least 60 days to the taxpayer, extend a period under subsection (1), before the expiry thereof, by three years in the case of an assessment by SARS or two years in the case of self-assessment, where an audit or investigation under Chapter 5 relates to —
(i) the application of the doctrine of substance over form;
(ii) the application of Part IIA of Chapter III of the Income Tax Act, section 73 of the Value-Added Tax Act or any other general anti-avoidance provision under a tax Act.
(iii) the taxation of hybrid entities or hybrid instruments; or
(iv) section 31 of the Income Tax Act.
The proposed amendments to section 99 are far-reaching and will have a significant impact on prescription, which is currently a very strong defence for compliant taxpayers. Although it is acknowledged that the complexity of matters gives rise to very lengthy audits in many cases, it is important that a balance be found to deal with this.