The Status of SARS’ Interpretation Notes

A recent case before the Supreme Court of Appeal (CSARS v Marshall NO and Others (816/2015) [2016] ZASCA 158 (3 October 2016)) involved the question of whether or not actual supplies by a designated entity to the Western Cape Department of Health qualified for the zero rating under section 11(2)(n) read with section 8(5) of the VAT Act. The court, in arriving at its decision that the actual supply does not qualify for the zero rating and that only unrequited or gratuitous payments could qualify, refers to SARS’ Interpretation Note 39 which explains the reasoning behind section 8(5) and section 11(2)(n) of the VAT Act.

After quoting extensively from the Interpretation Note, the following statement is made Dambuza JA in delivering the unanimous decision of the SCA (at 33):

“These Interpretation Notes, though not binding on the courts or a taxpayer, constitute persuasive explanations in relation to the interpretation and application of the statutory provision in question. Interpretation Note 39 has been in circulation for years and has not been brought into contention until now.”

It is unclear what exactly is meant with the words “persuasive explanations” but at the very least, it suggest that SARS’ Interpretation Notes does carry some form of weight in legal proceedings. The exact legal basis for this is, however, not clear from the judgment, despite the footnote reference to “P de Koker and RC Williams Silke on South African Income Tax [Service Issue 57, 2016] at § 18.270”. It may be argued that this statement by the Supreme Court of appeal does to some extent elevate a SARS opinion on the correct application of the law in the form of an Interpretation Note above that of, for example a taxpayer.

There definitely appears to be a trend in our courts to place reliance on SARS’ Interpretation Notes.  This year alone, the Tax Court in ABC (Pty) Ltd v C:SARS (13539/ 13673) (dealing with the income tax treatment of grants) and RTCC v C:SARS VAT1345 (dealing with input tax claims on a motor vehicle) placed reliance on SARS’ Interpretation 59 and Interpretation Note 82 respectively in delivering judgment.

While it is accepted that SARS’ Interpretation Notes indeed go out for comment by the public and before they are published, it begs the question as to whether what is in essence a peer review process is sufficient to elevate an opinion to have weight in law.

It is, further, trite that SARS is not bond to their own Interpretation Notes. Taxpayers are accordingly in a very uncertain position as to whether or not , when and to what extent reliance should be placed on SARS’ interpretation notes.

Taxpayers would be well advised to exercise caution when relying on SARS’ Interpretation Notes.