Sars cannot renege on tax settlements, High Court rules in taxpayer's favour

The High Court has recently handed down a decisive judgment in Inhlakanipho Consultants (Pty) Ltd v Commissioner for SARS, offering crucial assurance to taxpayers who have relied on, and continue to rely on, negotiated outcomes with Sars. The Court confirmed that once a settlement agreement is lawfully concluded under the Tax Administration Act, No. 28 of 2011 (“the TAA”), SARS is bound to its terms. Further, Sars cannot, at a later stage, alter its position on the basis of administrative difficulty or internal processes.

 Dispute background

 Following a series of VAT assessments and partial objection outcomes, the parties resolved the remaining issues through alternative dispute resolution. A written settlement agreement was signed in 2018, which recorded a final liability of just over R5.9 million. The taxpayer complied fully and tendered payment within the timeframe agreed with Sars.

 Despite this, Sars later asserted that the payment did not discharge the agreed liability and instead applied it toward older debts in line with section 166 of the TAA, effectively reviving the very amounts the agreement sought to resolve.

 Court rejects Sars reliance on internal systems

The High Court found that section 148 of the TAA requires Sars to adhere to the final agreed position unless fraud or material non-disclosure is established. Sars argued that its accounting system could not allocate payments in line with the agreement and that deviation would require significant system changes. The Court rejected this explanation, noting that no evidence supported the claim and that inconvenience was not a legal basis to disregard a binding agreement.

 The judgment stressed that Sars entered the agreement knowingly and with full awareness of its statutory obligations and internal capabilities.

 Finality of settlement agreements reinforced

 The Court also set aside the earlier ruling and declared that the taxpayer is not indebted for the agreed periods. Sars was ordered to issue an interest account within ten days and to engage in a formal account debate. The Court also highlighted the broader public interest, stating that the reliability of settlement agreements is essential for the proper functioning of tax dispute resolution in South Africa.

Without certainty, taxpayers would be discouraged from resolving disputes through alternative dispute resolution, and litigation with Sars would inevitably increase.

 Why professional representation is essential

 This judgment underscores that the stakes in tax disputes extend far beyond technical calculations. Even when a taxpayer acts in full compliance, the interpretation and enforcement of settlement terms can become highly complex and adversarial with Sars. Engaging a qualified and seasoned tax attorney is, therefore, critical to ensure that taxpayer rights are protected throughout the process, including during objections, appeals, and the drafting or enforcement of settlement agreements.

 A skilled tax attorney is not only equipped to negotiate and structure binding outcomes but also to enforce those agreements with Sars when necessary. The Inhlakanipho case illustrates that, without specialist support, a taxpayer may struggle to challenge shifting positions or procedural irregularities, even years after an agreement with Sars has been concluded.

Conclusion

This court decision provides welcome certainty for taxpayers, and reaffirms that Sars is bound by the same principles of fairness and contractual accountability as any other party. For those navigating tax disputes or considering settlement, legal representation is no longer advantageous; it is indispensable.

* Daniels is the head of tax controversy and dispute resolution, and Schwellnus is the senior tax attorney at Tax Consulting SA.

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