SETTLEMENTS

9.1. General principles for settlement

By law SARS is not entitled to forgo any tax which a taxpayer is legally liable to pay. Part F of Chapter 9 of the TA Act, however, prescribes the circumstances under which SARS may settle a dispute between SARS and a taxpayer, where the settlement would be to the best advantage of the state. The settlement circumstances are in line with the approach that more emphasis should be placed on resolving disputes otherwise than by way of litigation. It must be emphasised that the basic rule still remains that SARS must enforce all legislation administered by SARS and is obliged to assess and collect all amounts due to the State. There are, however, certain circumstances which justify that the basic rule be tempered for purposes of good management of the tax system and where it would be to the best advantage of the State. This is an internationally recognised principle.

9.2. When and under what circumstances may a tax dispute be settled?

The purpose of Part F of Chapter 9 is not to prescribe the process for settlement. It is an enabling provision which enables SARS to settle a dispute which is to the benefit of the State, provided the matter is appropriate for settlement having regard to the prescribed circumstances. A dispute may be settled at any time, and is not limited for use only in the ADR process. During ADR in terms of rule 24, the parties may settle a tax dispute in terms of the settlement circumstances where they were unable to reach agreement on the interpretation and application of the relevant tax law. For purposes of the settlement of a tax dispute, the Commissioner personally or any person specifically designated by the Commissioner for this purpose118

must be of the opinion that the matter is appropriate for settlement having regard to the settlement circumstances listed in Part F of Chapter 9. These settlement provisions may only be applied if the circumstances of the matter comply with these regulations.

The settlement provisions under Part F of Chapter 9 provide guidelines as to the circumstances when it would be appropriate and when it would be inappropriate to settle.

9.3. Under what circumstances will it be inappropriate to settle?

The settlement provisions provide guidelines as to the circumstances under which it will be inappropriate to settle a matter, for example:119

 If in the opinion of SARS the action on the part of the taxpayer which relates to the dispute constitutes intentional tax evasion or fraud (with a let out that such matters may be settled where one of the circumstances under which it would be appropriate to settle exists)

 The settlement would be contrary to the law or a practice generally prevailing and no exceptional circumstances exist to justify a departure from the law or practice

 The person concerned has not complied with the provisions of a tax Act and the non-compliance is of a serious nature

 It is in the public interest to have judicial clarification of the issue and the case is appropriate for this purpose

 The pursuit of the matter through the courts will significantly promote compliance and the case is suitable for this purpose.

9.4. Under what circumstances will it be appropriate to settle?

The settlement provisions provide that where it will be to the best advantage of the state, a matter may be

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Under section 6.

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settled in whole or in part, on a basis that is fair and equitable to both the taxpayer and SARS.120 In settling a matter, SARS must have regard to a number of factors, including:

 Whether that settlement would be in the interest of good management of the tax system, overall fairness and the best use of SARS’s resources

 The cost of litigation in comparison to the possible benefits with reference to: o the prospects of success in a court;

o the prospects of the collection of the amounts due; and o the costs associated with collection

 Whether there are any—

o complex factual issues in contention o evidentiary difficulties,

which are sufficient to make the case problematic in outcome or unsuitable for resolution through the alternative dispute resolution procedures or the courts;

 A situation where a participant or a group of participants in a tax avoidance arrangement has accepted SARS’s position in the dispute, in which case the settlement may be negotiated in an appropriate manner required to unwind existing structures and arrangements

 Whether the settlement of the dispute is a cost-effective way to promote compliance with a tax Act by the person concerned or a group of taxpayers.

9.5. What are the reporting requirements for settlements?

SARS must report on an annual basis to the Minister of Finance and the Auditor-General on settlements reached.121 This report must be in a format which does not disclose the identity of the taxpayer and must contain details of the number of disputes settled or part settled, the amount of revenue forgone and the estimated amount of savings in costs of litigation,122 which must be reflected in respect of main classes of taxpayers.

Section 207 of the TA Act. In the draft Tax Administration Laws Amendment Bill, 2014, an amendment to section 207 is proposed to remove the requirement that SARS must report on the estimated amount of savings in costs of litigation, as this is an onerous and impractical requirement. The saving in costs will not in all cases be the reason for the write off of tax under a settlement agreement or quantifiable. A tax debt may on another basis be written off or compromised where in the best interest of the state and these records as a result of strict corporate governance procedures are available for inspection by the Auditor-General.