Over the past 15 years, it has taken longer and longer to bring any matter which is in dispute with the Revenue, into the Income Tax Special Court (which hears income tax, estate duty, capital gains tax, donations tax, stamp duty, transfer duty and other matters). That delay has been driven by a number of factors and while some are getting better, others are getting worse and we do not see any great prospect that the time lag will reduce. Then there is the additional difficulty that many disputes with Revenue only start up years after the original event, so that it is not uncommon for matters five to ten years in the past to be picked over in detail by the court - and that is just where the problem starts, there frequently is no detail available!

Why is this - well for one thing the paperless office seems to be a myth and in fact more paper than ever is being generated; storage costs of old documentation are becoming prohibitive and there is an understandable tendency to junk (if not shred) unwanted materials as soon as possible. On the other hand, technojunkies who still believe in the paperless office may store materials solely in systems that are not perfectly organised or, worse, on systems that may simply be incapable of being read in ten years' time.

All this unavailability of materials can mean that an income tax appeal gets to court hobbled and with at least one arm tied behind its back. In court, facts have to be proved and placed in context and without original documents or at least well authenticated copies, it is very easy for a case which is strong on the legal merits to be lost on the onus of proof of the facts! Tax cases are rarely about neat sets of legal principles.

Many taxpayers assume that if documents have been kept for the statutorily required periods (usually five years) they can be safely destroyed and that in any subsequent dispute, they will be given the benefit of the doubt. Far from it! - the onus remains on the taxpayer to prove the facts on which his case is based. It is therefore absolutely essential to install a system whereby the detailed records in relation to any matter which is in dispute (and however unlikely it seems that the matter might go as far as court) are retained. The practical difficulty with this is that collecting records from their various hiding places and putting them together in a well organised litigation support file is time consuming and is therefore often relegated to the "to do lists", (until it eventually becomes the "undoable list"). But the effort must be made.

Fortunately, the discipline of extracting all the necessary information may have a further advantage. It is quite extraordinary how often the "facts" are found to be slightly different when the actual documentation is all gathered together than when the original defence was raised to a Revenue challenge, since for every document that suggests the facts are A, B and C, there is probably another which suggests that D (and possibly even E, F and G) were also factors in the history of a matter. These details can have a fundamental effect upon the outcome of a tax appeal and the sooner they come to light in the process of correspondence with Revenue and the forumulation of a formal objection, the better.

There is another aspect to the preparation for disputes with SARS that is related to evidence - but not documentation - that is worth remembering. Too often, we find that until an executive's memory has been severly jogged - sometimes to the extent of being challenged under oath - actual events are not clearly recollected and an entire objection and appeal is found to have been structured on only half the facts.

The whole process of tax litigation is under review and new and demanding procedural rules are about to be gazetted. A new mindset needs to be adopted by taxpayers and their advisors so as to ensure that their day in court has the best possible chance of success.

Source: David Clegg, Partner, Tax, 021 410 5000

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