During 2007 to 2011, Char-Trade 117 CC (“the Respondent”), made various loans to related close corporations and companies within its group of companies. The Respondent reported these loans in its annual financial statements as ‘unsecured, bear interest at current rates and have no fixed terms of repayment’.
The Commissioner for the South African Revenue Service (“CSARS”) discovered, during an audit, that the Respondent had provided interest free loans to these related close corporations and companies. As a result, CSARS subjected the loans to STC on the basis that they constituted deemed dividends. Assessments were subsequently issued, on 9 November 2012, for STC against the Respondent for the 2007-2011 STC cycles. This resulted in the Respondent’s total tax liability for payment of STC in the amount of R4 653 870.20 (R1 812 609.00 of which being in respect of the 2007 STC cycle).
The court a quo found that the 2007 assessment had prescribed because more than five years had passed since the return and payment were deemed due in terms of s 64B (7) of the Income Tax Act 58 of 1962 (“ITA”).
Supreme Court of Appeal (“SCA”)
In order to prove that it wasn’t liable for STC in 2007, the Respondent bore the onus of proving that five years have expired after the date of the original assessment. Further, the Respondent was obliged in terms of the ITA, to submit a return for STC for 2007.
According to S99(1)(b) of the TAA, prescription can’t commence to run against CSARS until such time as a return has been submitted by the taxpayer. The return informs CSARS about a dividend, including a deemed dividend, and that STC is payable thereon. Thus, prescription in respect of the 2007 cycle could only have commenced once the Respondent filed a return for STC.
The Respondent acknowledged that it was liable for STC and was obligated to file returns for all the years of assessment from 2007 to 2012. The return for STC for 2007 would have constituted the original assessment. As a result of the Respondent failing to fulfil its obligation and submitting a return, there was no original assessment from which the five-year period could run.
The appeal was upheld and the assessment for the dividend cycle ending in the 2007 year of assessment was confirmed.
If a taxpayer is required to submit a return to SARS, then prescription will only begin to run from the date that the return is submitted to SARS.
Written by Jordan Dias and supervised by Pierre van der Merwe