SARS has taken on six trusts that sold Amalgamated Metals Recycling (AMR) to JSE-listed Insimbi eight years ago for nearly R300m, suspecting them of underpaying capital gains tax on the transaction.

A Business Day report says the trusts approached the Gauteng High Court (Pretoria) to set aside SARS tax assessments in a bid to avoid paying more taxes on the transaction.

They believe SARS did not comply with its own statutes.

SARS notified the trusts at the beginning of 2020 that it would conduct an audit in respect of the tax consequences of the AMR transactions in the 2017 tax year. In July 2020 it issued each trust with a notice, inviting them to give reasons why it should not apply the ‘general anti-avoidance rule’ as part of the country’s tax laws.

Through their attorney, Werksmans, the trusts responded to the SARS letter in October that year disputing SARS assertions and pointed to what they believed were errors in the notice.

SARS dismissed this, describing the Werksmans letter as ‘comprehensive but flawed’ and made an additional request for information, to which the trusts acquiesced.

Subsequent to this, SARS calculated an amount for the understatement penalty, which is calculated as 75% of the tax liability, says the Business Day report.

It then sent a letter of assessment to each trust setting out the relevant adjustment and penalties. The trusts argued that they were not correctly assessed by SARS and asked the Receiver of Revenue to withdraw the assessments.

When this was rejected by SARS, the trusts approached the High Court seeking the assessments be set aside as they believe SARS did not comply with its own statutes.

SARS denied this and argued that the trusts should not have approached the High Court as they have failed to exhaust internal remedies.

Judge Norman Manoim agreed with SARS, opening the door for the matter to be heard at the Tax Court.

‘SARS succeeds in its preliminary objections. The taxpayers have not made out a case for this matter to be heard in the High Court in terms of section 105 of the Tax Administration Act (TAA). For the same reasons but by a different mechanism they have not made out a case for why they have not exhausted their internal remedies in terms of the TAA,’ the judgment reads.

‘The concern of the taxpayers in this matter seems less about whether they have an adequate remedy by following their internal remedies in terms of the TAA than the fact, often cited in their heads of argument, that by going that route they are prejudiced by having to follow the “pay now argue later principle”. That may be a burden to them, but it is not one relevant to whether this court should exercise its jurisdiction in terms of section 105. That is the fate of all taxpayers who dispute a SARS assessment it is not a basis for exceptional circumstances.’

Full Business Day report