The Tax Clearance Certificate (TCC) is an essential part of certain businesses and a requirement when bidding for a tender. A taxpayer can apply for different Tax Clearance Certificates for the purposes of emigration, foreign investment allowances, and good standing and tenders.
The emigration and foreign investment allowance Tax Clearance Certificate is linked with exchange control and is an integral part of the Reserve Bank approval to shift funds offshore. The Tax Clearance Certificate in respect of good standing and tenders has a wide application in commerce. The Tax Clearance Certificate in no way should be regarded as proof of tax compliance, but merely identifies that the taxpayer has no outstanding returns or amounts as at that date.
The taxpayer’s compliance level can only be expressed once an in-depth audit of the taxpayer’s various tax types has been conducted. One of the problems that the South African Revenue Services (SARS) faces is that the Tax Clearance Certificate is valid for a period of one year (12 months), and many taxpayers fail to maintain their good standing status after the Tax Clearance Certificate has been issued. Also, it has been identified that many have overcome the hurdles of obtaining the Tax Clearance Certificate by frequently setting up new companies for tendering, not to mention the fraud that SARS must manage with regards to their own staff that have been accused of overriding the system and issuing the Tax Clearance Certificate for a cash amount slipped to the SARS official under the table. SARS, at a recent meeting, indicated that more than a million Tax Clearance Certificates are issued annually, despite the lack of any legal provision in the Income Tax Act and other related laws. Until recently, SARS has issued the Tax Clearance Certificate in terms of an internal policy.
The new Tax Administration Act will in future take this role. Since Tax Clearance Certificates are not issued in terms of any specific section of provision contained in the Income Tax Act or other legislation administered by SARS, it’s uncertain whether the refusal or cancellation of a Tax Clearance Certificate constitutes ”administrative actionâ” as envisaged in the Promotion of Administrative Justice Act, and consequently would be subject to judicial review. In Zikhulise Cleaning Maintenance and Transport CC v CSARS , a significant decision was handed down by the North Gauteng High Court during May 2012, in motion proceedings brought by the taxpayer whose Tax Clearance Certificate was revoked by SARS following allegations of tax fraud involving the taxpayer and a member of the close corporation. The judgment has not provided clarity on whether the refusal or cancellation of a Tax Clearance Certificate is “administrative action”. Nonetheless, the judgment did express that, “The applicant was entitled to reasonable notice of SARS’ intention to call the certificate into question and an opportunity to put its case to SARS”. No authority is cited for this in the judgment. SARS had apparently furnished the taxpayer with reasons for the cancellation of the Tax Clearance Certificate after the fact. That, in the view of the court, was insufficient as SARS should have given the taxpayer prior notice and the opportunity of responding and providing grounds on which the Tax Clearance Certificate ought not to be withdrawn.
The Tax Clearance Certificate was “deemed to be valid and current” pending the taxpayer’s application to court for relief in terms of the Promotion of Administrative Justice Act and “permitting the applicant to rely on the Tax Certificate pending the outcome of that application for relief”. The withholding or revoking of a Tax Clearance Certificate has significant impact on a taxpayer’s business. This judgement highlights the need for SARS to give advance notice and the opportunity to make representation, which could be applied more widely than just on a Tax Clearance Certificate.