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SARS: Declaratory orders

SARS has noticed a trend recently that vendors and their consultants will approach the courts seeking relief under a declaratory order when they disagree with the outcome of their binding private ruling applications made under section 41B.  In the recent case of Mobile Telephone Networks (Pty) Ltd vs the Commissioner for the South African Revenue Service (805/2021) [2022] ZASCA 142 (the MTN case) the Supreme Court of Appeal (SCA) considered whether declaratory relief was appropriate in the circumstances of the case and provided details about the stringent requirements of the declaratory relief.

Although the main issue in the MTN case was about obtaining clarity on the correct VAT treatment of certain vouchers, the SCA had to first consider whether the declaratory order sought by MTN was appropriate.

MTN applied to SARS for a binding private ruling seeking confirmation that the sale of its pre-paid vouchers were of the type contemplated in section 10(18), however, SARS ruled that the vouchers were of the type contemplated in section 10(19). The difference between the two legal provisions is that under section 10(18) the supplier of the voucher is only liable to account for VAT at the time that the voucher is redeemed in return for a supply of goods or services, whereas, under section 10(19), the vendor supplying the voucher must account for VAT at the time the voucher is sold.

In an attempt to overturn the ruling, MTN lodged an application for a declaratory order. In considering whether declaratory relief was appropriate in this instance, the SCA considered several other previously reported matters where the courts exercised their jurisdiction to entertain similar applications. As part of the reasoning, the SCA concluded that –

  • declaratory relief in tax matters is entertained only in limited circumstances;
  • a court can only entertain an application for declaratory relief where there is, at the very least, clear and uncontested facts;
  • the submission that uncertainty was created by the inability of MTN to clearly explain the nature and functioning of a prepaid voucher had considerable merit;
  • the distinction between section 10(18) and 10(19) is clear and to determine which category the pre-paid the vouchers fall into is a factual inquiry;
  • without a set of clear, sufficient uncontested facts the SCA held that the application for declaratory relief was not appropriate in this matter.

This judgment confirms that, taxpayers who are unhappy with a ruling or decision must first consider the following before seeking a declaratory order:

  • The granting of the declaratory order is a discretionary decision exercised by the court in relation to the particular circumstances of the case; and
  • A declaratory order will only apply where the issue at hand is purely a question of law and a court will not enquire into and make findings of fact in order to answer a question of law.

Source: gov.za

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