This content is from: South Africa

South Africa: Settlements with SARS

Peter Dachs
It has been widely reported that the South African Revenue Service (SARS) is making application for the sequestration of Julius Malema, the head of the Economic Freedom Front political party, after the 'collapse' of a settlement agreement between the parties. These reports state that Malema did not correctly disclose the source of the funds used to settle the tax debt which formed part of the agreement.

In determining whether settlement is appropriate the Commissioner of SARS must consider a variety of factors including the potential costs of litigation to SARS and its likelihood of success, factual or evidentiary difficulties which would make litigation or alternative dispute resolution problematic, whether settlement is in the best interest of good management of the tax system, overall fairness and use of SARS' resources.

It is specifically stated that a person participating in a settlement procedure must disclose all relevant facts during the discussion phase of the process of settling a dispute. In addition a settlement is conditional upon full disclosure of material facts known to the person concerned at the time of the settlement.

A written agreement must then be concluded between the parties which includes details on, for example, how each issue is settled, relevant undertakings by the parties and arrangement for payment.

Section 148 of the Tax Administration Act provides that SARS is not bound by the terms of the written agreement if the taxpayer has failed to make full disclosure in settlement discussions or if there was fraud or misrepresentation of the facts. It is this point that SARS has allegedly raised in respect of its settlement agreement with Julius Malema.

In conclusion, while settlement should always be considered in a tax dispute, there are various risks associated with such process including the risk that the settlement agreement is subsequently not adhered to by SARS on the basis that material facts were not disclosed by the taxpayer or that there was fraud or misrepresentation of the facts.

Peter Dachs (pdachs@ensafrica.com)
ENSafrica – Taxand Africa
Tel: +27 21 410 2500
Website: www.ensafrica.com

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