For example, in a case recently before the Tax Court, a corporate taxpayer was audited by SARS and found to have overstated input VAT. It was assessed (after partial allowance of an objection) for –
- Some R16m in tax, plus
- 200% “additional tax” – R32m, plus
- 10% penalties – R1.6m, plus
- Late payment interest – R5m.
In effect the taxpayer’s total tax bill more than tripled from R16m to R55m.
The taxpayer asked SARS to “be lenient and waive the Additional Tax, penalty & interest” on the basis that “it was never our intention to defraud SARS and to evade the payment of any amount of tax payable…..We were under the impression that our auditor was handling all our tax affairs and we trusted his judgment as we do not have tax and accounting experience.”
SARS was unmoved by this plea and the taxpayer approached the Tax Court for relief.
SARS, held the Court, had rightly concluded that the taxpayer’s failure to produce documentation in support of VAT inputs claimed by it “constituted intent by the [taxpayer] to obtain an improper VAT refund with a view of defrauding the fiscus”.
The onus on SARS
Nevertheless the Court set aside the 200% additional tax on the ground that SARS had accepted the onus to prove that the penalty was correctly imposed and had failed to produce any evidence as to how and why it had decided to impose the extra tax, nor had it proved “that the imposition of the additional tax was justified”.
Take professional advice upfront – it could help your challenge later
In another Tax Court decision relating to an understatement penalty of R47m, which the Court reduced substantially whilst also waiving penalty interest in full, the Court commented: “I am of the view that having received advice, there were reasonable grounds for the [taxpayer] to take the tax position which he did. Nor can it be said that he did not take reasonable care – he did so by consulting the experts”.
That seems to be a clear suggestion that seeking professional advice before taking a stance on any major tax question may well help you in challenging any excessive penalties imposed on you.