We recently resolved a case involving a company claiming PAYE credits. The facts of the case are briefly that when the company filed its annual tax return, it claimed PAYE credits. The PAYE credits so claimed however was in fact PAYE paid over by the company in respect of its employees and were not PAYE credits of the company. The reason why it was claimed on the return was that the PAYE credits were prepopulated on the annual tax return – the taxpayer thought at the time that since it was pre-populated on the return, SARS wanted the taxpayer to submit the return as such.
SARS disallowed the credits and imposed an understatement penalty of roughly R2.2 million despite the fact that the PAYE credits were prepopulated on the return. SARS’ argument was based on (a) the taxpayer could not produce evidence that the PAYE credits were pre-populated on the return and (b), even if it was so pre-populated, the taxpayer must have realised it was a mistake but nevertheless proceeded to submit the return, accepting an illegal benefit.
We ultimately won the case with SARS agreeing to remit the penalty in total. The defense was heavily based on evidence that the PAYE credits were pre-populated, why the taxpayer cannot be said to have accepted any illegal benefit and that this was a bona fide inadvertent error.