My client intends seeking offer compromise iti Section 201 TAA. what steps should I take to request SARS to suspend collection activity ito this notice so that we can lodge offer? Can we delay for a month to allow me to finalize 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 there is no instalment agreement.
The law enables SARS to collect the tax debt even if it is under dispute and the vendor would only be able to prevent that if a suspension of debt request was made. In terms of the Tax Administration Act an objection doesn’t suspend the obligation to make payment – the vendor must request 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 the 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, which demand must set out the recovery steps that SARS may take if the tax debt is not paid and the available debt relief mechanisms under this Act, including, in respect of recovery steps that may be taken 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 his or her 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.
It doesn’t allow for, as you indicate, for an extension to suspend collection activity in order to lodge the compromise request (see below). This may be why SARS refers to the period of five business days in their letter. But, we submit that the letter to summons is not what is referred to above.
It is not clear of the tax debt arose from other VAT periods – it is not likely that it was based on estimated assessments. With regard to outstanding the returns, the position is that the Act doesn’t deal with the outstanding return issue. In other words, the vendor would be able to request SARS for time to submit the returns.
Section 172 deals with the application for civil judgment for recovery of tax. It reads as follows:
(1) 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 and certified by SARS as correct.
(2) SARS may file the statement irrespective of whether or not 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.
(3) 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) allows 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). It sets out, in subsection (3), what relevant factors the senior SARS official, in considering the request to suspend payment of the disputed tax, may have to relevant factors. They include:
(a) whether the recovery of the disputed tax will be in jeopardy or there will be 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 not justified by the prejudice to SARS or the fiscus if the disputed tax is not paid or recovered; or
(e) whether the taxpayer has tendered adequate security for the payment of the disputed tax and accepting it is in the interest of SARS or the fiscus.
We are not sure that intention to enter into 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 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 the person who acquired the assets, 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 that '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 for the future; and
(h) the 'debtor's' reasons for seeking a 'compromise'.
It is important to note that the request must also be accompanied by the evidence supporting the 'debtor's' claims for not being able to make payment of the full amount of the tax debt.