The South African Revenue Service (SARS) has proposed amendments to the Tax Administration Act (TAA) that could significantly impact taxpayers involved in legal disputes. These changes would allow SARS to recover fees and costs when its in-house legal counsel represents it successfully in higher courts, such as the High Court, Supreme Court of Appeal, and Constitutional Court. However, this benefit is not extended to taxpayers, leading to concerns about fairness and equity.
Understanding the proposed changes
Under the proposed amendments, SARS would have the authority to recover costs associated with the use of its internal legal counsel in higher court cases where it prevails against taxpayers. This includes legal fees incurred during disputes in the High Court, Supreme Court of Appeal, and Constitutional Court.
However, taxpayers do not enjoy the same privilege. While SARS’s senior legal practitioners are granted an automatic right of appearance under Section 12 of the TAA, in-house legal counsel for taxpayers generally do not have this right. Consequently, taxpayers are often required to seek external legal representation, incurring additional costs.
These amendments would also affect cost awards in the tax court, where SARS’s use of in-house legal counsel would influence the determination of fees in line with revised dispute resolution rules.
Concerns over fairness and equity
The proposed changes have drawn criticism from tax experts who argue that they create an imbalance between SARS and taxpayers. This approach is argued to be unfair since taxpayers are precluded from using their in-house legal counsel in the same manner as SARS.
Key issues raised include:
- Limited representation for taxpayers: Taxpayers are generally unable to have their in-house legal practitioners appear in higher courts, even if these practitioners are qualified advocates or attorneys. This restriction puts taxpayers at a disadvantage.
- Increased financial burden: Taxpayers must rely on external legal representation, leading to higher costs that cannot be recovered, unlike SARS.
- Precedent concerns: While there is precedent for the state attorney recovering costs, the same rationale does not necessarily apply to SARS’s internal counsel.
Suggestions for a balanced approach
To ensure fairness, several suggestions have been proposed:
- Extend the right of appearance: Grant both SARS and taxpayers the ability to use their in-house legal counsel in higher courts. This would level the playing field and ensure equal treatment.
- Adjust cost recovery rules: Align cost recovery mechanisms to account for the disparity in legal representation, ensuring taxpayers are not unduly disadvantaged.
- Expand representation in tax court: Allow taxpayers to use lay representatives, provided the court deems them “fit and proper,” to make legal processes more accessible and affordable.
Implications for taxpayers
If implemented, these amendments could increase the financial and procedural challenges faced by taxpayers involved in legal disputes with SARS. Taxpayers should:
- Seek professional advice: Engage the experienced tax practitioners at MMS Group to navigate the complexities of tax disputes and ensure compliance with the evolving legal framework.
- Plan for additional costs: Anticipate the potential for higher legal expenses in disputes with SARS.
- Stay informed: Monitor developments in the TAA amendments and their implementation timeline to prepare for any changes.
At MMS Group, we understand the complexities of tax disputes and the challenges taxpayers face when dealing with SARS. Our team of tax specialists is well-versed in navigating dispute resolution processes and providing tailored advice to ensure compliance and minimize financial risks. Should you require our professional advice, reach out to our team.