Recent cases relating to taxpayer confidentiality, notably the tax affairs of public figures like former president Jacob Zuma, raise questions around the jurisdiction of the Tax Court and whether it could be broadened.
This may not only address the question of confidentiality but also lighten the burden of the high courts considering the amount of tax litigation that is conducted in these courts due to the limited jurisdiction of the Tax Court, says Louis Botha, senior associate at Cliffe Dekker Hofmyer.
Proceedings are automatically confidential in the Tax Court – and automatically public in a high court, unless the court is convinced that there is a “special case” for the matter to be confidential.
Scope of the Tax Court
The Tax Administration Act defines the scope of the Tax Court and, in a nutshell, the court can hear tax appeals and interlocutory applications relating to objections and appeals brought by taxpayers, explains Botha.
However, applications to review a decision by the South African Revenue Service (Sars) cannot be heard by the Tax Court and must be heard by a high court. Raising the matter during a webinar hosted by the South African Institute of Taxation (Sait), Botha said once a matter is before a high court the proceedings are not automatically confidential, only in “special cases”.
Sars has always held that taxpayer information is confidential and that this is critical to its operations and the trust taxpayers have in the revenue service to keep their affairs confidential.
However, there has been much public debate about the right to privacy in contrast to the right to information that is in the public interest, such as the financial affairs and tax compliance of those in public office.
And it’s not just people who want privacy – companies may also have special reasons for not wanting to have some information out in the open.
A ‘special case’ application
Structured Mezzanine Investments, a money lender, wanted to keep information about several loan agreements confidential in a high court application brought by Sars. The application followed an audit of the company and the refusal of Mezzanine Investments to supply Sars with relevant material pertaining to the loan agreements.
Sars wanted the court to compel Mezzanine Investments to comply with the request, but the company brought an interlocutory application asking the court to hear the matter in camera and to seal the file from the public.
Since the matter was before the high court the taxpayer had to show that it was a “special case” but failed to do so. The court found that even if the taxpayer did raise the “special case exception” the matter did not constitute a special case.
The “special case” could have been the fact that the taxpayer wanted to keep commercially sensitive information, or information about the affairs of third parties (such as the borrowers in the loan agreements) out of the public domain.
But it did not. The Eastern Cape High Court found that the taxpayer never mentioned or even suggested that the matter should be dealt with “specially and differently” as prescribed by the Superior Courts Act.
The act states that “save as is otherwise provided for in this Act or any other law, all proceedings in any Superior Court must, except insofar as any such Court may in special cases otherwise direct, be carried on in open court”.
The company made no reference to this provision in the act, nor did it present any arguments why it believed it had a special case.
It is suggested that if the Tax Court’s jurisdiction was wider, a case like this could have been brought before it and the taxpayer would have enjoyed automatic confidentiality.
The failure to indicate any reasoning around the facts is most unfortunate, says Sait CEO Keith Engel, arguing that the proceedings should be in camera because of potential reputational risk “won’t fly”.
However, the publication of commercially sensitive data or otherwise secret information should be grounds for a special case, he says.
Suspension of payment
Botha also explains that the Tax Administration Act allows taxpayers to request a suspension of payment of the tax debt pending the resolution of a dispute.
There are various factors that Sars must consider when assessing a suspension application – including whether the taxpayer will suffer irreparable harm, what their current tax compliance status is, and their financial situation.
If Sars rejects the application, the taxpayer cannot follow the normal objection and appeal process. This requires a review, including a potential application to a high court, which means their financial position is open for all to see, including their competitors.
“Generally, that application will be public even though sensitive information may be reflected in the application papers,” says Botha. “Consideration should be given to whether an in-camera application can be made in these circumstances.”
Again, if the jurisdiction of the Tax Court is broadened the matter could have enjoyed automatic confidentiality and the sensitive information would remain private.