South Africa: Penalty assessment on catch-up adjustments upheld

South Africa: Penalty assessment on catch-up adjustment

The South African Revenue Service (SARS) recently posted on its website a judgment of the Tax Court (case number 24674 (25 November 2020)) that upheld an understatement penalty assessment against a corporate taxpayer.


The assessment of the understatement penalty was based on findings that there were no reasonable grounds for the tax position taken. The taxpayer’s contention related solely to the percentage of the penalty levied by SARS. Specifically, the taxpayer conceded that SARS was incorrect in its approach to applying a “catch-up” adjustment. 


The taxpayer, a South African tax resident company, filed its 2016 tax return (ITR14), and SARS selected the return for audit.

Based on the tax audit findings, an income adjustment of R17.5 million resulted in an overall tax adjustment of R4.9 million. The taxpayer had claimed an allowance for wear-and-tear of R54 million that included a catch-up adjustment of R17.5 million in respect of prior years of assessment and that was incorrectly not claimed in the taxpayer’s 2015 and previous ITR14s.

The court found that the taxpayer deliberately decided to claim an allowance for wear-and-tear that was not “claimable” in that year. The court also concluded that there was no bona fide inadvertent error because the taxpayer had other avenues that it did not pursue.

With regard to the penalty, it was noted that the taxpayer had not acted on professional advice received therefore the penalty percentage could not be reduced.

Read a March 2021 report [PDF 154 KB] prepared by the KPMG member firm in South Africa

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