United Manganese of Kalahari (Pty) Ltd v Commissioner for the South African Revenue Service

On 24 March 2017, SARS notified UMK of an audit for the 2011, 2012 and 2013 income tax years. After requests for information, witness interviews, and a letter of audit findings issued under s 42(2)(b) of the Tax Administration Act 28 of 2011 (TAA), UMK was given an extended period to respond, to which it replied on 30 August 2019. On 31 January 2020, SARS issued additional assessments adjusting UMK's taxable income and levying R351,034,504.47 in total (comprising additional income tax, dividend withholding tax, understatement penalties, and interest) for the 2011-2013 years. UMK sought to challenge these assessments by way of application in the High Court seeking review, declaratory relief, and exemption from internal remedies. UMK did not approach the High Court for a direction under s 105 of the TAA before launching its application, nor did it make out a case for such deviation from the default objection and appeal procedure.

• Whether the High Court had jurisdiction to hear a review application challenging tax assessments without first directing under s 105 of the TAA that the dispute be heard by the High Court
• Whether UMK had properly pleaded or made out a case for the High Court to deviate from the default objection and appeal procedure set out in the TAA
• The proper interpretation and application of s 105 of the TAA in determining forum for tax disputes

The appeal was dismissed with costs, including those of two counsel.

The binding legal principle established is that under s 105 of the Tax Administration Act 28 of 2011, a taxpayer may only dispute an assessment through the objection and appeal procedure under the TAA unless a High Court directs otherwise. The High Court does not have jurisdiction to hear tax disputes unless it has made such a direction. Before the High Court can exercise jurisdiction over a tax dispute, the taxpayer must approach the court for such a direction and must clearly plead and make out a case for deviation from the default objection and appeal procedure. The High Court will only direct such deviation in exceptional circumstances. A taxpayer cannot bypass this requirement by simply launching a review application in the High Court without first obtaining the necessary direction.

The court referred to the explanatory memorandum accompanying the Tax Administration Law Amendment Bill of 2015, which explained that the amendment to s 105 was intended to ensure that internal remedies (objection, appeal, alternative dispute resolution, Tax Board or Tax Court) be exhausted before a higher court is approached, and that the Tax Court deal with disputes as court of first instance on a trial basis. The court noted this is in line with both domestic and international case law. The court also observed that the purpose of s 105 is clearly to ensure that, in the ordinary course, tax disputes are taken to the Tax Court. While not necessary for the decision, the court referenced its recent decision in Commissioner for the South African Revenue Service v Rappa Resources (Pty) Ltd [2023] ZASCA 28, which provided detailed analysis of the same provision.

This case confirms the strict interpretation of s 105 of the Tax Administration Act 28 of 2011 and reinforces the principle that tax disputes must ordinarily be resolved through the objection and appeal procedure provided in the TAA and ultimately in the Tax Court, not the High Court. It clarifies that the High Court lacks jurisdiction to hear tax assessment disputes unless it has specifically directed that the matter be heard by it, and that such direction will only be given in exceptional circumstances. The judgment emphasizes the importance of exhausting internal remedies in tax disputes and respecting the specialized forum of the Tax Court as the court of first instance for such matters. It demonstrates the effect of the 2015 amendment to s 105, which removed the taxpayer's ability to elect between the Tax Court and High Court review, making the objection and appeal procedure the mandatory default route.