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Recent court case warns SARS not to bully audited taxpayers

by , 18 July 2014
It's no secret that most taxpayers don't like SARS. In fact, many think it's a bully.

While that opinion has often been dismissed, it seems there may be some truth to it.

A recent court ruling has criticised SARS for employing bullying tactics when dealing with taxpayers.

Read on to find out more about this case and what you can do to ensure SARS doesn't bully you when it comes to audits.

Court criticises SARS for employing bullying tactics when dealing with taxpayers

Money Web reports that in a recent case between South African Revenue Service v Pretoria East Motors (Pty) Ltd, the court criticised SARS for employing bullying tactics.

The court set out the standard SARS must uphold when auditing taxpayers. It also urged SARS to understand the systems used by taxpayers before raising additional assessments and imposing penalties for incorrect tax treatment.

Let's take a look at the details of the case…

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Here are the details of the case

SARS audited the car dealership for income tax and Vat.

It found that the dealership was using a customised system supplied by the franchisor to provide both the financial information and statistical information critical to managing the risk inherent in the dealership business. One of the features of this system was that it reflected certain internal transactions as actual 'sales'.

SARS treated the internal transactions as Vatable supplies for income tax and Vat purposes.

According to the report, it ignored the bespoke nature of the system and imposed penalties and raised additional assessments based on what the system appeared to report, not on the actual facts.

It emerged that SARS imposed the 200% penalty despite the taxpayer's attempts to show that its conclusion was wrong.

The court criticised SARS for this and said the following

The court accepted that the taxpayer bears the onus in any dispute with SARS, but held that this doesn't mean SARS is free to adopt a passive attitude, reports Money Web.

The court also found that the raising of penalties with an additional assessment must be based on proper grounds for believing there has been an under-declaration of supplies or income for Vat and income tax.

The court stressed that SARS can't ignore explanations or reasons from taxpayers and raise additional assessments and penalties without seeking to understand the taxpayer's systems.

It added that SARS officials are obliged to familiarise themselves with the systems used by taxpayers as this is the only way to ensure the audit process is fair.

Here's how to ensure SARS doesn't bully you when it comes to audits

You must assert your rights before a dispute even reaches the tax court by requesting SARS to provide the grounds on which it's raising an additional assessment, concludes the Money Web report.

The courts are on your side, so make sure you enforce your rights when it comes to SARS audits.

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