Commissioner for the South African Revenue Service v Char-Trade 117 CC t/a Ace Packaging

During the 2007 to 2011 years of assessment, Char-Trade 117 CC made various loans to related close corporations and companies within its group. These loans were described in annual financial statements as 'unsecured, bear interest at current rates and have no fixed terms of repayment'. During an audit by CSARS, it was discovered that Char-Trade had provided interest-free loans or loans at below the official rate to related entities. CSARS subjected these loans to secondary tax on companies (STC) on the basis that the loans constituted deemed dividends under s 64C(2)(g) of the Income Tax Act 58 of 1962. On 9 November 2012, CSARS issued assessments for STC against Char-Trade for the 2007 to 2011 STC cycles, resulting in a total tax liability of R4,653,870.20, of which R1,812,609 related to the 2007 STC cycle. Char-Trade never submitted any return for STC in respect of the dividend cycle ending in 2007. Char-Trade objected to the assessments, and later conceded the merits of the appeal for all years except 2007, for which it argued that the assessment had become prescribed in terms of s 99 of the Tax Administration Act 28 of 2011.

• When does the five-year prescription period under s 99(1)(b) of the Tax Administration Act commence in respect of a self-assessment for secondary tax on companies where a return is required?
• Whether an assessment for STC can prescribe when the taxpayer has failed to submit the required STC return?
• What constitutes the 'date of assessment' of an 'original assessment' in circumstances where no return has been submitted by the taxpayer?

The appeal was upheld. The order of the Tax Court was set aside and replaced with an order confirming the assessment of the dividend cycle ending in the 2007 year of assessment. The respondent (Char-Trade) was ordered to pay the costs of the appeal.

In respect of a self-assessment for secondary tax on companies where a return is required, prescription under s 99(1)(b) of the Tax Administration Act 28 of 2011 commences to run from the date when the taxpayer submits the required return, which constitutes the original assessment. Where a taxpayer fails to submit a return as required by s 64B(7) of the Income Tax Act 58 of 1962, no original assessment comes into existence and the five-year prescription period does not commence to run against CSARS. The 'date of assessment' for purposes of calculating prescription is defined in s 1 of the TAA as, in the case of self-assessment by the taxpayer where a return is required, the date that the return is submitted. Prescription cannot commence to run against CSARS until the taxpayer has complied with the statutory obligation to submit a return.

The court observed that Char-Trade's alternative argument based on s 64C(4)(d) of the ITA (that the loans bore interest at a flat rate of 10% which was not less than the prescribed rate) was merely an attempt to re-introduce the merits of the appeal in respect of the 2007 assessment through the back door, after having conceded the merits on 5 May 2015. The court noted that Char-Trade bore the onus in terms of s 102(1)(a) of the TAA to prove that it was not liable for STC for 2007 and to prove prescription, including proving the jurisdictional facts required under s 99(1)(b) of the TAA. The court also noted that there was no dispute that the return required in terms of s 64B(7) of the ITA constituted a 'self-assessment' as defined in the TAA. The court remarked that the intended effect of s 99(1)(b) of the TAA, read with the definition of 'date of assessment', is that prescription cannot commence to run against CSARS until such time as a return has been submitted by the taxpayer, as it is by submitting a return that the taxpayer informs CSARS about a dividend (including a deemed dividend) and that STC is payable.

This case is significant in South African tax law as it clarifies the commencement of prescription for self-assessments where a return is required under the Tax Administration Act. It establishes that the prescription period under s 99(1)(b) of the TAA does not commence until a taxpayer submits a return, which constitutes the original assessment. This interpretation prevents taxpayers from benefiting from prescription where they have failed to comply with their statutory obligation to submit returns. The judgment reinforces CSARS's ability to assess taxpayers who fail to submit returns without being subject to prescription limitations. The case also demonstrates the importance of understanding the definition of 'date of assessment' in the context of self-assessments and the practical effect of the TAA's prescription provisions on tax administration. It provides important guidance on the interplay between s 64B(7) of the Income Tax Act (regarding STC returns) and the prescription provisions of the TAA.