Question: My client intends to seek an offer of compromise in terms of section 201 of the TAA. What steps should I take to request that SARS suspend collection activity in terms of the relevant notice so that we can lodge the offer? Can we request a delay of one month to allow me to finalise the financial statements?
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
The relevant law is found in the Tax Administration Act.
We accept, for purposes of the guidance that follows, that no previous request to suspend the debt due was made and that there is no instalment agreement in place.
The law enables SARS to collect the tax debt even if it is under dispute, and the vendor would only be able to prevent this if a suspension of debt request was made. In terms of the Tax Administration Act, an objection does not suspend the obligation to make payment the vendor must request a suspension. See section 164.
Section 179(1) allows a senior SARS official to authorise the issue of a notice to a person who holds or owes, or will hold or owe, any money including a pension, salary, wage or other remuneration for or to a taxpayer, requiring that person to pay the money to SARS in satisfaction of the taxpayer’s outstanding tax debt. This would include the taxpayer’s bank.
SARS may only issue this notice after delivery to the tax debtor of a final demand for payment, which must be delivered at the latest 10 business days before the issue of the notice. The demand must set out the recovery steps SARS may take if the tax debt is not paid and the available debt relief mechanisms under the Act, including, in respect of recovery steps under this section:
(a) If the tax debtor is a natural person, that the tax debtor may, within five business days of receiving the demand, apply to SARS for a reduction of the amount to be paid to SARS, based on the basic living expenses of the tax debtor and their dependants; and
(b) If the tax debtor is not a natural person, that the tax debtor may, within five business days of receiving the demand, apply to SARS for a reduction of the amount to be paid to SARS, based on serious financial hardship.
The Act does not allow, as you suggest, for an extension to suspend collection activity to lodge the compromise request (see below). This may be why SARS refers to the period of five business days in their letter. However, we submit that the letter of summons is not what is referred to above.
It is unclear whether the tax debt arose from other VAT periods. It is unlikely that it was based on estimated assessments. Regarding the outstanding returns, the Act does not specifically address the issue of outstanding returns. In other words, the vendor may request SARS to allow time to submit the returns.
Section 172 deals with the application for civil judgment for recovery of tax. It reads as follows:
- If a person has an outstanding tax debt, SARS may, after giving the person at least 10 business days’ notice, file with the clerk or registrar of a competent court a certified statement setting out the amount of tax payable, certified by SARS as correct.
- SARS may file the statement irrespective of whether the tax debt is subject to an objection or appeal under Chapter 9, unless the period referred to in section 164(6) has not expired or the obligation to pay the tax debt has been suspended under section 164.
- SARS is not required to give the taxpayer prior notice under subsection (1) if SARS is satisfied that giving notice would prejudice the collection of the tax.
Section 164(2) provides that a taxpayer may request a senior SARS official to suspend the payment of tax (or a portion thereof) due under an assessment if the taxpayer intends to dispute or disputes the liability to pay that tax under Chapter 9. Subsection (3) sets out the relevant factors the senior SARS official may consider in deciding whether to grant the suspension. These include:
(a) Whether the recovery of the disputed tax will be in jeopardy or whether there is a risk of dissipation of assets.
(b) The compliance history of the taxpayer with SARS.
(c) Whether fraud is prima facie involved in the origin of the dispute.
(d) Whether payment will result in irreparable hardship to the taxpayer that is not justified by the prejudice to SARS or the fiscus if the disputed tax is not paid or recovered; and
(e) Whether the taxpayer has tendered adequate security for the payment of the disputed tax and whether accepting such security is in the interest of SARS or the fiscus.
It is not certain whether an intention to enter a compromise with SARS would be seen as a relevant factor by SARS.
The law relevant to the compromise of tax debt is found in sections 200–205 of the Act. Section 201 deals with the request by the debtor for a compromise of tax debt. The request must be supported by a detailed statement setting out:
(a) The assets and liabilities of the debtor, reflecting their current fair market value.
(b) The amounts received by or accrued to, and expenditure incurred by, the debtor during the 12 months immediately preceding the request.
(c) The assets which have been disposed of in the preceding three years, or such longer period as a senior SARS official deems appropriate, together with their value, the consideration received or accrued, the identity of the person who acquired the assets, and the relationship between the debtor and that person, if any.
(d) The debtor’s future interests in any assets, whether certain or contingent, or subject to the exercise of a discretionary power by another person.
(e) The assets over which the debtor, either alone or with other persons, has a direct or indirect power of appointment or disposal, whether as trustee or otherwise.
(f) Details of any connected person in relation to the debtor.
(g) The debtor’s present sources and level of income and the anticipated sources and level of income for the next three years, with an outline of the debtor’s financial plans; and
(h) The debtor’s reasons for seeking a compromise.
It is important to note that the request must also be accompanied by evidence supporting the debtor’s claim that they are unable to pay the full amount of the tax debt.