Gauteng Business News

Send  Share  RSS  Twitter  15 Jun 2012

TAX: Tax Clearance Certificates – Ruling Has Implications


Recent Gauteng Business News

On 30 May 2012 an important ruling was passed by Wright J in the North Gauteng High Court in motion proceedings brought by a taxpayer (a close corporation) whose tax clearance certificate was withdrawn by SARS as a result of allegations of tax fraud involving the taxpayer and a member of the taxpayer.

Heinrich Louw, an Associate in the Tax Practice at Cliffe Dekker Hofmeyr explains that one of the most frequently applied for tax clearance certificates in the commercial field is the one relating to good standing and tenders. It is customarily a requirement when contracts are put out to tender that bidders must submit such tax clearance certificates with their proposals. These certificates usually only count for the fact that a taxpayerÂ’s returns are up to date and that there are no amounts outstanding on the taxpayerÂ’s account and are usually only valid for a limited period.

Unlawful Withdrawal of Tax Clearance

“Even though tax clearance certificates are quite common in the commercial world, they are a rather unusual event from a tax law perspective. This is due to the fact that tax clearance certificates are not issued in terms of any particular section of the Income Tax Act No 58 of 1962, or any other Act administered by SARS, but is simply presented as part of the conditions of the internal policy at SARS,” he says.

“In this ruling, the Court said that the withdrawal of the tax clearance certificate was unlawful because the taxpayer was not afforded an opportunity to make representation to SARS before the decision was taken to annul the certificate. They disregarded a fundamental rule of administrative justice, being that parties whose rights could be negatively affected by an administrative decision have the right to be heard. Of course, this also entails that reasonable notice must be given to the affected party.

SARS Policy – Tax Clearance Certificates

“When bidding for contracts, the sudden retraction by SARS of a tax clearance certificate can have overwhelming effects on a business,” Louw notes.

“This ruling sends a clear message to SARS that taxpayers need to be dealt with in a fair manner that concurs with the view of administrative law. It is probable that this ruling will prompt a modification of SARS’s policy in respect of tax clearance certificates,” he adds.

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