SARS requested the following verification documents for the 2014 year from one of my clients in the motor retail industry: "Entertainment - Name of person/company entertained, contact details of those people and business transacted". Can they insist on pe
Important:
This answer is based on tax law year ending 28 February 2017.
Answer:
We accept that this request is within the three-year period – after the original assessment were issued. We also accept that this request is part of an audit (unlikely to be part of a verification, unless the return was submitted late).
We start by setting out the relevant law - it is found in sections 1, 29 and 46 of the Tax Administration Act. As defined in section 1, relevant material means any information, document or thing that in the opinion of SARS is foreseeably relevant for the administration of a tax Act as referred to in section 3. SARS is then entitled to call for the information under section 46 of the Act.
With regard to ‘entertainment expenses’, and we are aware that other taxpayer received the same requests in the past, the name of person / company entertained, contact details of those people and business transacted may well be relevant. That is irrelevant though as SARS considers it relevant (in their opinion, as stated above), and that is why they asked for it.
It is section 29 of the Tax Administration Act that requires of the person (taxpayer) to keep records that will enable the person to observe the requirements of a tax Act and enable SARS to be satisfied that the person has observed these requirements. The Act doesn’t deal with what is necessary to prove this – in other words, how these documents should look and what it should contain. Section 30 explains the form in which the records are to be kept if there are documents.
Note that the taxpayer must still keep the documents – it is within the five-year period. If the taxpayer didn’t keep that information, the name of the person entertained, contact details of them and business transacted in a written format, the taxpayer must respond to SARS to say that it was not kept or in a written format.
If the taxpayer refuses to provide the information the comment by Judge Smith, in SARS v Brown is relevant. The Judge said that “(a)ll that SARS is required to show is that the information sought is “relevant material” necessary for the administration of a tax Act.”
So, because SARS asked for it we can accept they consider it relevant. The taxpayer can then say that it is not available because the detail were not kept in a written format.