05 Sep 2012

Corporate & Commercial Law Department

Practice Area(s): Corporate & Commercial |

An assessment by SARS results in a tax liability and, as a general rule the principle that you pay now and argue later applies.  Where the taxpayer does not intend to dispute the tax liability, it must be settled.  The tax legislation contains various mechanisms on how the liability can be settled.  These mechanisms will form the subject of future articles. More pertinent to this article is what happens if you intend, on reasonable grounds, to dispute the assessment in circumstances where the pay now argue later rule will result in unforeseen and severe liquidity constraints for your business?  It must be remembered that the dispute process could take several months or even years to finalise.

Since 2011, the tax legislation has built-in provisions which entitle the taxpayer to request SARS to suspend payment of the tax pending finalisation of the dispute process.  It is important to note however that a suspension of payment can only be considered if the taxpayer disputes the tax liability and requests SARS to suspend the payment of tax.                                                                                              

Factors which SARS must take into account when deciding on a request for suspension of payment include, the taxpayer's compliance history, the amount of tax involved, whether there is a risk that the taxpayer may dispose of his assets during the suspension period, whether the taxpayer can provide any security for the tax debt, whether payment of the tax liability will result in financial hardship to the taxpayer, whether liquidation or sequestration proceedings are imminent, whether fraud is involved or, whether the taxpayer has failed to furnish any requested information.

These factors are neither all embracing nor individually decisive and each case must be considered on its own merits. 

The decision by SARS to either allow or disallow the suspension of payment constitutes an administrative decision.  It is a well established principle of administrative law that such decisions can be reviewed by a Court and overturned if SARS has been unreasonable.