Know your enemy

Sun Tzu, author of the Art of War, was a Chinese General who is credited with imparting the wisdom of “knowing your enemy”. According to General Tzu, “if you know the enemy and yourself, you need not fear the result of a hundred battles”. In our experience, this rings true thousands of years after the general’s death in the context of battles with SARS also. Whilst SARS should perhaps not properly be classified as “the enemy” they can, in the case of a tax dispute, be properly classified as “the opponent”.

So then, what should you know about SARS as an opponent in the case of a tax dispute? Whilst it will depend on the facts and circumstances, there are at least 5 things that we have come to learn in our experience as dispute resolution experts:

1. SARS probably receives thousands of objections on a daily basis. Not all of them are properly considered (but to be fair, I am sure some probably don’t really deserve any attention at all). A disallowed objection does not mean you have no case. In fact, most cases we deal with are only won or settled at appeal stage.
2. Some cases are highly unlikely to reach settlement or agreement through Alternative Dispute Resolution simply because either the issues involved are too technical or because the legal issues on which a decision is required is something that could have a wide-ranging impact on SARS. Depending on the nature of the dispute, you will have a better chance of winning if you skip ADR and went straight to litigation. Be prepared though and don’t waste, SARS’, your, your client’s or the court’s time.
3. SARS will try to defend their assessment just as strongly as you will be trying to defend yourself/your client. Taxpayers and tax advisors often seem surprised when this happens as if there is an expectation that SARS must simply concede. Whilst they do concede from time to time, it (unfortunately) normally only happens late into the dispute process and if the case is properly dealt with.
4. When SARS raises an additional assessment, they normally have a reason for doing so. If you don’t understand this reason, chances are you will not be successful in disputing that assessment. The dispute resolution rules grant taxpayers the right to request reasons for the assessment. In some cases, exercising this right is an obsolete necessity.
5. SARS does not have to prove that income is taxable or expenses not deductible. On the contrary, taxpayers bear the onus of proving that income is not taxable and expenses deductible. Whilst most people know this, few seem to understand it. SARS is unlikely to accept something merely because the taxpayer said its true. Bear in mind that you are very familiar with your/your client’s organisation as well as the underlying facts. Something you accept as fact is likely completely unknown to SARS or questionable (in the absence of evidence). You need to convince them with evidence.