Customs & Excise settlements in the ADR process with SARS

Introduction

There are various possible outcomes when engaged in an Alternative Dispute Resolution (“ADR”) process with the South African Revenue Service (“SARS”) in the context of customs and excise, one of these is a settlement. In this article we discuss the settlement procedure in the Customs & Excise Act 91 of 1964 (“the Act”). 

What is a “settlement”? 

During the ADR process SARS and the aggrieved person try to resolve the dispute by way of agreement, however, if SARS is satisfied that after having attempted to resolve the dispute by way of an agreement that it is appropriate in terms of section 77M of the Act read with Rule 77I. 19, the matter may be resolved by way of a settlement.

Rule 77I.18 says that an agreement is when “either the Commissioner or the aggrieved person accepts, either in whole or in part, the other party’s interpretation of the facts or the law applicable to those facts or both.” Whereas section 77J of the Act says to “settle” means “to resolve a dispute by compromising any disputed liability, otherwise than by way of either the Commissioner or the person concerned accepting the other party’s interpretation of the facts or the law applicable to those facts, or of both the facts and the law”. 

The difference between the two is that an agreement involves a party accepting, to some degree, the other party’s stance, whereas a settlement involves no such acceptance. 

The rules that govern settlements

Settlements are regulated by Part C of Chapter XA of the Act and the provisions that apply are sections 77J to 77P and the Rules of the Act.  These provisions are based on the reasoning that, although the Commissioner of the SARS may not forgo any taxes owing to the state, this basic principle may be tempered with when it is to the advantage of the state. This is prescribed for in section 77K of the Act, however, section 77L caveats this indulgence by listing the circumstances where the relaxation of the principle would be inappropriate. These include, amongst others, where there is intentional tax evasion or where the person concerned is grossly non-tax compliant in relation to his tax affairs in general. 

Conversely, section 77M lists certain circumstances that SARS would consider appropriate for settlement, and these include where the costs of litigation are too high when considered against the prospects of success and collection of the amounts, or where the facts of the matter are too complex or there are evidentiary difficulties, and these circumstances make the matter problematic in outcome or unsuitable for ADR. 

Section 77O of the Act sets out the procedure for settlements and says that the person applying for settlement must make full and frank disclosure of all the material facts, furthermore, the dispute, whether it is settled in whole or in part must be reduced to a written agreement between the parties. Section 77O read with Rule 77I. 21 prescribes that the written agreement will be the full and final settlement between the parties in relation to the dispute and that should the settlement not be final the Commissioner must within 10 days of the termination of proceedings explain further rights regarding the institution of judicial proceedings to the person concerned. This is usually the start of the litigious stage of the dispute.

There are many advantages to settling a dispute with SARS, including expediency as this route may be taken at any time during a dispute excluding the administrative appeal process. Another advantage is that, at all times the settlement procedure and its outcome remain confidential.  If a settlement is pursued within the ambit of the ADR procedure, the terms governing the ADR proceedings set out in Schedules A and B of the Rules of the Act demand that the facilitator who mediates the dispute between SARS and the aggrieved person may not share any information pertaining to the proceedings unless authorised by the parties to do so. Furthermore, section 77O prohibits the disclosure of the terms of the settlement agreement by providing that the Commissioner or his delegated official must adhere to the general secrecy standards that apply to SARS. 

When a settlement is reached between SARS and the aggrieved person; Rule 77I. 20 says that the Commissioner must give effect to that settlement and give notice to the aggrieved person within a period of 60 days. 

Comment 

Although the settlement procedure is a useful tool in the arsenal of a taxpayer, it is a sensitive and intricate process that usually results in costly litigation if it is not successful. Therefore, it is advisable to approach a registered Tax Practitioner as soon as possible to help you navigate a dispute with SARS.   

Mabhelandile Ntuli Attorneys are registered tax practitioners who provide assistance on a range of tax matters. We approach tax and legal issues with certainty.