The importance of a prescription period

What is a prescription period?

The Oxford dictionary defines a ‘prescription period’ as the period of “…a recommendation that is authoritatively put forward…”, and in this instance, the period of time after which an assessment has been issued, in which SARS can issued a revised assessment in respect of an original, reduced or additional assessment.

Section 99(1) of the TAA prescribes the relevant prescription periods that apply:

• Three years after the date of assessment of an original assessment;
• Five years after the date of assessment of an original assessment if made by way of self-assessment by the taxpayer or if no return is received by SARS;
• Five years from the date of last payment of tax for the tax period, or effective date if no payment was made in respect of the tax for the tax period, in the case of a self-assessment for which no return is required;
• In the case of:

o An additional assessment, if the tax which should have been assessed was not assessed;

o A reduced assessment if the preceding assessment was made in accordance with the practice generally prevailing at the date of that assessment;

o A tax for which no return is required, if the payment was made in accordance with the practice generally prevailing at the date of payment; or

• In respect of a dispute that has been resolved under Chapter 9 of the TAA.

The general prescription periods above will not apply to the extent to which section 99(2) of the TAA applies. In this regard, specific reference is made to section 99(2)(c) of the TAA, which states that section 99(1) of the TAA will not apply where SARS and a taxpayer so agree prior to the expiry of the limitations period.

Interpretative guidance

In the South African Custodial Services (Louis Trichardt) (Pty) Ltd vs CSARS (A291/2022) case, two issues were raised in this appeal. The first was whether SARS is bound by the contractual Anti-Prescription Agreement (“the agreement”) it had concluded with the appellant. The agreement entitled SARS to issue reduced assessments in respect of the 2013 to 2016 years of assessment on the same basis that Cloete J had ordered in respect of the 2005 to 2012 years of assessment. SARS contended this was the “Final Decision” as contemplated in section 100 of the TAA.

The agreement required the parties to comply with section 99(2)(c) of the TAA. In this instance, the agreement required both parties to give prior written consent to any further extensions. With regards to the agreement with SARS, the conclusion reached was that an agreement need not be signed and in writing, there merely needs to be an agreement prior to the expiry of the limitations period.

The second is whether the period of limitation for the issuance of assessments contained in section 99(1)(a) of the TAA expired in relation to the 2013 to 2016 years of assessment

It was held that the final order issued by Cloete J in the High Court Case constituted a “Final Decision” as contemplated in the agreement. In terms of the agreement, the parties need to comply with section 99(2)(c) of the TAA, which required the parties to agree and not that the agreement be signed and in writing.

South African Custodial Services (Louis Trichardt) (Pty) Ltd’s argument that it is entitled to “immunity” from additional assessments as the agreement was signed by SARS after the limitation period is, therefore, invalid. This means that the provisions of section 99(2)(c) of the TAA were complied with as SARS did not reject the pre-signed agreement. As a result, the appeal was upheld and SARS had to pay the appellant’s costs, including the costs of two counsels.

The takeaway

It is important to take note of the date on which an assessment is issued. This date triggers the commencement of the prescription period.

Taxpayers should remember that SARS only has a certain period in which a revised assessment can be issued. Where a taxpayer reaches an agreement with SARS that the prescription period will not apply, the agreement will be valid even if it is not in writing or signed by the parties to the agreement. There merely needs to be an agreement prior to the expiry of the limitations period. 

Authors:

Jean-Jacques Blignaut, Tax Consultant

Elmien Theron, Associate Tax Director