Taxpayers Rights When Audited By Tax Authorities In South Africa (Chapter 5.5.6 –

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


5.5.6 The grounds of review Introduction conclusions drawn above that sufficient opportunity exists for 178

The grounds of review upon which the taxpayer may rely to have the SARS decision set aside or corrected, go beyond the historical common law grounds of review,67 which tend to be limited to a SARS official acting mala fides68 or dishonestly, or for ulterior reasons, or with such gross unreasonableness as to be inexplicable.69

In the spirit and purpose of the Bill of Rights, and of the Constitution generally, s 39(2) of the Constitution (when interpreting any legislation, and when developing the common law or customary law, every court, tribunal or forum must promote the spirit, purport and objects of the Bill of Rights) read with s 173 of the Constitution (the Constitutional Court, Supreme Court of Appeal and High Courts have the inherent power to protect and regulate their own process, and to develop the common law, taking into account the interests of justice), places both SARS officers and the courts in a position where they should interpret the powers of SARS in the light of these broader constitutional directions – ‘must promote the spirit, purport and objects of the Bill of Rights’. SARS is a trustee of public interest and should use all means to ascertain all the relevant facts in order to arrive at the right decision in exercising any discretion.70 To the extent that SARS’ decision transgresses the lawfulness, reasonableness and procedural fairness requirement of administrative law, or breaks the rule of law and the principle of legality, SARS’ unconstitutional conduct is subject to review. In this regard, every questionable exercise of power by SARS may be brought before the court to test its validity.71

In this regard, the grounds of review set out in s 6(2) of PAJA will apply if the review application is brought in compliance with ss 6(1) and 7(1) of PAJA, or provide guidance in developing the grounds of review applicable to a breach of the principle of legality, as suggested by Hoexter.72 This is also in accordance with the judgment of Cameron JA in Rustenburg Platinum Mines Ltd (Rustenburg Section) v Commission for Conciliation, Mediation and Arbitration73 where is was concluded that ‘the codificatory purpose’ of s 6 of PAJA has subsumed and extended the limited grounds for review (in the context of the Labour Relations Act 66 of 1995 (LRA)) where it was reasoned that on the basis of s 39(2) of the Constitution ‘the overriding factor in determining the impact of PAJA on the LRA is the constitutional setting in which PAJA was enacted’ where both s 33 of the Constitution and PAJA supersedes the specialised provisions of the LRA in the field of administrative justice. This will apply equally to the powers of SARS in terms of ss 74A and 74B, namely: authority and conduct of the administrator; non-compliance with a mandatory and material procedure or condition; procedurally unfair action; action materially influenced by an error of law; manner of exercise of administrative action; rational connection grounds; failure to take a decision; unreasonableness; and otherwise unconstitutional or unlawful action.

These principal areas of review exclude two common-law grounds of review that would probably fall under s 6(2)(i) of PAJA (otherwise unconstitutional or unlawful action), namely: vagueness74 and the ‘fettering by rigidity of a discretion’.75 In light of the Rustenburg Platinum Mines Ltd (Rustenburg Section) v Commission for Conciliation, Mediation and Arbitration76 it is unlikely that the courts will ignore the codified grounds of review in a review of a decision taken by SARS in terms of ss 74A and 74B, where the review provisions of s 6 may not be directly applicable due to the decision of SARS being held by a court to fall outside the scope of PAJA. In developing constitutional law, and in particular the constitutional principle of legality, taking into account the interests of justice, the courts will most likely be informed by these codified grounds of review. It is also submitted that this reasoning is in line with the decision of Carmichele v Minister of Safety and Security77(and other authorities)78 where the Constitutional Court held that it was the duty of courts to develop the common law, in line with the Constitution, and with the more recent decisions set out at the end of section 2.4: The Relevance of PAJA and the Principle of Legality above.79

Grounds for judicial review in terms of s 6(2)80 would exist under PAJA in the following instances where SARS has made a decision envisaged in ss 74A and 74B that falls within the definition of ‘administrative action’:

(a) Where SARS has failed to act with the appropriate authority;
(b) Where SARS has failed to comply with the relevant ‘jurisdictional facts’ of ss 74A and 74B;
(c) Where SARS has abused its discretion;81
(d) Where SARS has failed to exercise reasonableness in exercising its discretion. This includes an improper or ulterior purpose or motive;82
(e) Where SARS has committed a breach of the rules of natural justice or procedural fairness;83
(f) Where SARS has breached a taxpayer’s legitimate expectation of being treated in a certain way by SARS.84

Next: Constitutionality of the inquiry and audit



67 Error of law, wrong or non-performance giving rise to common-law review; See Hira v Booysen 1992 (4) SA 69 (A); See Shidiack v Union Government (Minister of the Interior) 1912 AD 642; Britten v Pope 1916 AD 150.
68 Dishonesty, fraud or harassment; See US v Roundtree 420 F.2d 845 where (quoted from the headnote) a ‘(t)axpayer against whom government was attempting to enforce summons and who claimed harassment was entitled to take deposition of internal revenue agent in charge of case in order to investigate Internal Revenue Service’s purpose.’
69 Erasmus et al The Civil Practice of the Supreme Court of South Africa Juta at page 939. African Realty Trust Ltd v Johannesburg Municipality 1906 TH 179 at 182.
70 Singh M P German Administrative Law in Common Law Amazon Kindle Edition 1156 (accessed 7 March 2013).
71 Ibid.
72 Hoexter (2012) at pages 121-5.
73 2007 (1) SA 576 (SCA) at para [25].
74 See also US v Williams 337 F Supp 1114 where the District Court in New York held the ‘enforcement …to compel production of message slips held by taxpayer’s telephone answering service would have provided government with names of persons who were not patients of taxpayer at all, or who were not patients during relevant years, and … was overbroad and out of proportion to ends sought, and as such not entitled to enforcement’; See also Local 174 International Brotherhood of Teamsters v US, 240 F.2d 387 where ‘agents had burden to show that demand was reasonable under all circumstances and to prove that books and records were relevant or material to tax liability of taxpayer …and the taxpayer… possessed books or records containing items relating to taxpayer’s business’. (Emphasis supplied); US v Newman 441 F.2d 170; US v Coopers and Lybrand F Supp 942; Hubner v Tucker 245 F.2d 35; First National Bank of Mobile v US 160 F.2d 532.
75 Hoexter C The Future of Judicial Review in South African Administrative Law South African Law Journal (2000) Vol 17 at page 497.
76 Supra footnote 74.
77 2001 (10) BCLR 995 (CC); 2001 (4) SA 938 (CC).
78 Per Chaskalson P in Pharmaceutical Manufacturers Association of SA: In re Ex parte President of the Republic of South Africa 2000 (2) SA 674 (CC) at page 696D: ‘The interim Constitution which came into force in April 1994 was a legal watershed. It shifted constitutionalism, and with it all aspects of public law, from the realm of common law to the prescripts of a written constitution which is the supreme law. That is not to say that the principles of common law have ceased to be material to the development of public law. These well-established principles will continue to inform the content of administrative law and other aspects of public law, and will contribute to their future development.’.
79 At page 47 of this thesis.
80 Section 6(2)(a)-(i) of PAJA.
81 See section 3.3.3: Abuse of discretion supra.
82 See section Improper or ulterior purpose or motive supra. 83See section 3.5: Procedural Fairness supra. 84See section 3.6: Legitimate Expectations supra.


International Tax Attorney, EA, US Tax Court Practitioner in the USA, Counsel of the High Court in South Africa, adjunct Professor of International Tax at Thomas Jefferson School of Law.

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