Posted in sections, this is my Doctoral Thesis on taxpayers rights when audited by the tax authorities in South Africa – equally applicable to many English-based law systems in Africa and abroad (eg. India). This will be of particular use to any tax practitioners doing work in Africa and in other English-based legal systems around the world.

Analysis Of Challenging The Commissioner’s Discretionary Powers In Auditing Taxpayers under The Constitution Of The Republic of South Africa

CHAPTER 3 – LIMITATIONS TO INVOKING SECTIONS 74A AND 74B OF THE INCOME TAX ACT

3.5 PROCEDURAL FAIRNESS
3.5.1 Bias
The test for bias (or nemo iudex in sua causa) emerges from the Appellate Division judgment of BTR Industries South Africa (Pty) Ltd v Metal and Allied Workers’ Union,130 where the Court confirmed the ‘reasonable suspicion’ test for bias. In order to have a SARS decision set aside for reasons of financial bias, the taxpayer has to prove the mere appearance of partiality, rather than its actual existence.131 The courts accept that the ‘smallest pecuniary interest’ will be sufficient to raise the suspicion of bias.132

Section 195(1)(d) of the Constitution also places an obligation on SARS to provide services that are without bias. This includes financial bias. Should any SARS official be suspected of having the smallest pecuniary interest in the outcome of an investigation, that conduct would arguably be contrary to procedural fairness and s 195(1)(d).133

An example of such an instance would be an attempt by a SARS official to conduct an investigation into the affairs of a taxpayer prior to the end of the SARS financial year on 31 March in order to meet his or her annual revised assessment budget in order to meet certain key performance indicators within SARS.134 Such an action is clearly not for the purposes of the ‘administration of the Act’ as envisaged in s 74 of the Income Tax Act. The conduct by SARS in exercising a discretion in terms of ss 74A and 74B under these circumstances would be procedurally unfair(as being subject to personal bias)135 and invalid conduct.

For this reason, the letter of findings process announced by the Commissioner in 2002,136 and which has become standard practice with larger taxpayers, is an essential part of the inquiry and audit process, in that taxpayers are able to answer to the detailed findings of the assessors and address their concerns before SARS issues a revised assessment. The taxpayer has the opportunity to correct any incorrect findings of fact and law, with the opportunity to have a more senior SARS official review the letter of findings and the response, before revised assessments are issued. This process creates the impression of unbiased conduct by SARS in conducting fair administrative process. Procedural fairness is a principle of good administration that requires an impartial decision-maker.137

Failure to adhere to this procedure properly will result in the taxpayer being entitled to review the unfair conduct of SARS on the basis of bias and a failure by SARS to adhere to a legitimate expectation in the form of the letter of findings.138

Next:  3.5.2 Audi alteram partem

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Footnotes

130 1992 (3) SA 673 (A).
131 South African Commercial Catering and Allied Workers Union v Irvin & Johnston Ltd (Seafoods Division Fish Processing) 2000 (3) SA 705 (CC) at para’s [11]-[17].
132 Rose v Johannesburg Local Road Transportation Board 1949 (4) SA 272 (W).
133 Croome B & Olivier L Tax Administration 2010 (Juta) at page 52; The authors discuss the unlawfulness of IRS agents pursuing arbitrary set targets in tax audit results and quotas, as this was expected to affect the objectivity of the agents, resulting in bias.
134 Something which SARS will not make public, despite attempts by the writer and other colleagues to request the details under the Promotion of Access to Information Act 2 of 2000. The matter has not been tested in court yet. For access to the courts on this type of issue see Alliance Cash and Carry (Pty) Ltd v Commissioner, South African Revenue Service 2002 (1) SA 789 (T); Scherer v Kelley (1978) 584 F.2d 170; In Minister for Provincial and Local Government
of the RSA v Unrecognised Traditional Leaders of the Limpopo Province, Sekhukhuneland [2005] 1 All SA 559 (SCA) the appeal court found in favour of the public member seeking a report upholding the right of access to information held by the State, read with sections 36 (the limitation clause) and 39(2) (obliging every court to promote “the spirit, purport and objects of the Bill of Rights” of the Constitution (Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs 2004 (7) BCLR 687 (CC) followed)).
135 Rose v Johannesburg Local Road Transportation Board 1947(4) SA 272 (W).
136 In the unreported application of Drs Du Buisson, Bruinette & Kramer Inc. v C:SARS Case No. 4595/02 in the High Court of the Transvaal Provincial Division brought by the taxpayer to prevent SARS proceeding with an audit in terms of ss 74A and 74B, under the advice and guidance of the writer.
137 Hoexter (2012) at pages 362-4.
138 In the unreported case of Xstrata South Africa (Pty) Ltd v C:SARS North Gauteng Provincial Division Case No 53772/2010 (21 September 2010) the applicant obtained a consent order against SARS to set aside a defective letter of findings issued by SARS, 2 days before the years of assessment for issuing revised assessments in terms of s 79 of the Income Tax Act prescribed. SARS were unable to remedy the defect within the 2 day period and the years of assessment prescribed – the writer was the tax attorney adviser to the applicant; On bias, see also Griffin v Licensing Board, Durban (1898) 19 NLR 37.