 Author: Jean Du Toit, Senior Tax Attorney at Tax Consulting South Africa
Last week we were asked what Mr Edward Kieswetter’s first actions should be when he takes over the reins at SARS on 1 May. The answer for us was a no-brainer, crack down on those implicated in the State Capture Inquiry, starting with the beans spilled on Bosasa. Maybe SARS was listening or perhaps a fortunate stroke of serendipity, but this past weekend saw a media report on SARS investigating 83 taxpayers implicated in the State Capture Inquiry, an announcement that many South Africans welcomed. However, this could also just be pre-election manoeuvres, as the Sunday Newspaper that published the aforementioned announcement, may have some moral debts owing from the Rogue Unit saga. We should also be reminded that the Guptas have yet to be found guilty of any tax offenses, while former President Jacob Zuma has apparently not paid fringe benefit tax on Nkandla and that SARS acted quickly to confiscate documents during the start of the Bosasa scandal, but, to our knowledge, no tax offenders have been arrested to date. But what if SARS has the resolve this time with unfettered political and National Prosecution Authority backing? In the interest of balancing the scales, here are some tips if you have not been paying your tax dues and your nerves are setting in. Tip #1: Professional Legal Privilege Make sure your tax advisor comes with “legal professional privilege”. It is a known SARS tactic to ask for tax opinions, tax advice or other information known to your advisors or auditors. A skilled SARS auditor makes quick work on getting to the bottom of tax advice not covered by legal privilege. In our firm, it is a golden rule that an admitted attorney should always be present during all client consultations, especially where voluntary disclosure of non-compliance is involved. Legal professional privilege is explicitly recognised by the Tax Administration Act (TAA) under section 64, which must be read with section 42A and is afforded only when there is an admitted attorney or advocate as a taxpayer representative. Tip #2: SARS Audit Mistakes and First Mover Advantage The abovementioned media report was perplexing, as it noted that the affected parties had not necessarily been formally notified that they are being audited by SARS under section 42 of the TAA. This means that either SARS deliberately wants to give those implicated a chance to avoid penalties or criminal prosecution; or we have an inexperienced SARS audit team; or SARS’ quoted media spokesperson gave a tactical response. This gives first mover advantage to any implicated taxpayer who has not been formally informed, as they can lodge an application for relief under the Voluntary Disclosure Programme (VDP) with SARS, which, if done correctly, will halt any SARS audits until the VDP process is concluded. Tip #3: Do not become the SARS orange uniform example The undeclared taxes of Bosasa, even if collected to the last penny, will be a drop in the ocean taken our overall budget deficit. If SARS wants to make up the shortfall, there are areas where they can collect so much more revenue with less effort and resources. Besides the fact that it is SARS’s job to ensure tax compliance, why are they going after these persons now? It will only be a fruitful strategy where a message of tax compliance causes reverberation through the tax base, especially to those seemingly not on the SARS system, i.e. persons who are living amongst us but never bothered to register for tax. This message will only start to carry conviction where tax offenders are prosecuted and spend time in jail, the higher the profile, the better, of course. Tip #4: VDP Gives Full Legal Protection and Taxpayer Confidentiality The VDP process comes with indemnity from criminal prosecution, waiver of penalties and gives taxpayer confidentiality even within the ranks of SARS. This is the best possible defence if you are getting anxious about the possibility of 200% penalties or, even worse, criminal prosecution. Tip #5: Lifestyle / Integrated Audits SARS is not allowed to raise a willy-nilly tax assessment, as there must be a valid prima facie case of non-compliance. This goes beyond testimony of witnesses at the State Capture Inquiry and SARS will have a definitive audit strategy, typically involving a lifestyle audit that would track bank accounts and assets, Facebook posts etc. You will be asked to justify your lifestyle and assets, including those in trust. Banks, financial institutions, Department of Home Affairs, estate agents, car dealerships, and even envious neighbours or those jealous in your friendship circle will all be crucial parts of a properly conducted tax audit. Tip #6: Come clean if you are wrongfully implicated Fiscal laws protect criminals from being exposed to the public, as the theory goes that they should feel safe in paying their taxes. As ridiculous as this may sound in the current South Africa, the taxpayer confidentiality provisions in the TAA contains a watertight prohibition against disclosure of taxpayer information. Where a SARS official shares this information, even in some cases internally, this comes with its own criminal sanction. But what do you do where you are wrongfully implicated? Section 69(6) of the Tax TAA allows a taxpayer to “waive confidentiality”. If you have genuinely nothing to hide and you have shown the world on social media your lifestyle, the benefits of making your tax records public may outweigh the downside. Photo caption: Jean Du Toit, Senior Tax Attorney at Tax Consulting South Africa ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za ABOUT Tax Consulting SA: Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance. For more information on Tax Consulting please visit: Website: http://www.taxconsulting.co.za/ LinkedIn: Tax Consulting South Africa Facebook: Tax Consulting South Afric
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Authored by: Jean du Toit, Attorney at Tax Consulting SA
Despite the promising initiatives implemented under the South African Revenue Service’s (SARS) acting Commissioner Mark Kingon, its tribulations in meeting its collection targets have not yet waned, with payroll audits falling under its enhanced collection efforts to make up the shortfall. The simple reason behind SARS’s targeting of payroll when it needs extra taxes, is purely because of its tendency to contain errors. Not only are there many instances where mistakes can occur, but such mistakes are magnified by the size of a company’s payroll. In the case of a large payroll with many employees, even the smallest errors can leave a company with a large tax exposure, as these errors are proliferated across the employee base. In other instances, inexperienced payroll administrators simply do not know the law, which results in glaring errors such as failing to tax fringe benefits or paying lump sums without getting tax directives. The truth is that SARS will find something, and most employers only become fully compliant once they have gone through the ordeal of a payroll audit conducted by SARS. Rising Trend As if the challenges of a payroll audit are not daunting enough, a new trend has become apparent that makes it increasingly difficult to get a clean bill of health from the SARS audit team. Rather than identifying specific items that were inaccurately treated on payroll, SARS has now turned its gaze to the financial statement aspect of payroll. These statements are assessed by SARS for an understatement or short payment of employees’ tax purely on the basis that there is a discrepancy between the company’s payroll reconciliation and the cost of employment as reflected in the company’s annual financial statements. This is despite SARS’ awareness that not all amounts reflected in the annual financial statements under cost of employment should be processed to the payroll. Nevertheless, the onus is placed on companies to dispute this and to explain why the amounts making up the difference is either exempt or not taxable. SARS is using this to get around the prescription periods to raise audits going back more than five years, maintaining that there is an element of fraud or misrepresentation when the taxpayer declared its employees’ tax to SARS. Unblemished payroll Given the ease with which SARS can collect revenue by targeting payroll taxes, a head-in-the sand approach is ill-advised and will end in calamity. SARS will come knocking and the best defense is to ensure that your company’s payroll is unblemished and, if there are any issues, to submit a voluntary disclosure programme application before SARS institutes an audit. There is no escaping an audit, the best course of action therefore, would be to ensure that your company’s payroll is independently audited before SARS undertakes to do so. ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za ABOUT Tax Consulting SA: Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance. For more information on Tax Consulting please visit: Website: http://www.taxconsulting.co.za/ LinkedIn: Tax Consulting South Africa Facebook: Tax Consulting South Africa Author: Jean du Toit, Attorney at Tax Consulting SA
When is a SARS Tax Court case win a loss for the fiscus? After the recent SARS court case, dealing with the taxable income of foreigners working in South Africa, it is hard to argue that no-one is working harder than SARS to create tax loopholes for expatriate employees. If SARS disagrees, it may consider appealing their own win to reset the well-established principles and balance of international and South African tax law applicable to foreigners working in South Africa. On 9 March 2018, the Tax Court, Western Cape Division, delivered judgment in the matter of Mr X v the Commissioner for the South African Revenue Service. This dispute turned on the source of Mr X’s employment income, which he contended was where he physically rendered his employment services. SARS argued that it was located where Mr X had concluded his employment agreement and sought to tax him on his entire employment income on this basis. In a bewildering judgment, the court went against the well-established legal principle embodied by Mr X’s argument and ruled that the source of employment income is where the employment agreement is implemented. Therefore, Mr X’s entire employment income was regarded as being fully taxable. This decision, however, has a delightful upshot for inbound expatriates with foreign employers, which is that they will be fully exempt from tax on income earned from services rendered in South Africa. Of great concern, however, is the fact that SARS presented an argument in court that defies a principle that SARS has accepted and confirmed by to be correct in its Guide on the Taxation of Foreigners Working in South Africa. This raises some pressing questions –
Considering that Tax Court judgments are of persuasive value only, and do not constitute precedent, expatriates are advised to proceed with caution until SARS clarifies its position. For full analysis of the case, read the extended article here (http://www.taxconsulting.co.za/sars-creates-tax-loopholes). ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za ABOUT Tax Consulting SA: Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance. For more information on Tax Consulting please visit: Website: http://www.taxconsulting.co.za/ LinkedIn: Tax Consulting South Africa Facebook: Tax Consulting South Africa Author: Jean du Toit, Attorney at Tax Consulting SA
The South African Revenue Service (SARS) has created some nervousness in the South African tax base by embarking on an initiative to criminally prosecute taxpayers who fail to submit their tax returns. Whilst the threat of a criminal record and a fine ought to serve as sufficient incentive to submit one’s return, it is perhaps worth pointing out that submission of returns also gives taxpayers access to the Voluntary Disclosure Programme (VDP), which affords acquittal from far more serious criminal sanctions. Criminal sanctions under the TAA South African taxpayers are not unfamiliar with SARS’ aggressive implementation of the authority afforded to it under the Tax Administration Act No. 28 of 2011 (TAA) insofar as the collection taxes and the imposition of penalties. With SARS’ new initiative, taxpayers have now seen that SARS’ powers go beyond imposing monetary penalties. Generally, failure to comply with the prescripts of the TAA amounts to a criminal offence, which is subject to a fine or to imprisonment for a period not exceeding two years. These offences, as we have now seen, may result in a fine and a criminal record, but rarely ends with the taxpayer behind bars. A criminal record is certainly not something to brush aside, but the TAA also makes provision for more serious sanctions where there is intent to evade tax, which can result in actual jail time for the taxpayer. Reprieve under the TAA - VDP The TAA is, arguably, partisan to SARS’ cause, but it does offer non-compliant taxpayers some solace if they wish to come clean. SARS allows taxpayers to avoid criminal prosecution and regularise their tax affairs by making a disclosure under the VDP, of which the benefits include:
Taking into consideration the potential ramifications non-compliant taxpayers might face, the VDP represents an appealing olive branch. The VDP, however, comes with an important caveat, which is that taxpayers only have access if they do not have any outstanding returns. VDP applications will be discarded without further notice if the taxpayer in question has outstanding returns. Take Away It is worth noting that the new initiative, to close more criminal cases, does not represent a widening of SARS’ powers, as it has always had the discretion to do so. What the initiative illustrates is SARS’ no tolerance policy on outstanding returns. Taxpayers who are not deterred by the sanctions for not submitting returns must keep in mind that they cannot regularize other instances of non-compliance under the VDP, instances which carry far more severe sanctions. ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za ABOUT Tax Consulting SA: Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance. For more information on Tax Consulting please visit: Website: http://www.taxconsulting.co.za/ LinkedIn: Tax Consulting South Africa Facebook: Tax Consulting South Africa Author: Jean du Toit, Attorney at Tax Consulting SA
For some time, multinational enterprises have been bracing for the impending enforcement by the South African Revenue Service (SARS) of transfer pricing rules. This has resulted in these enterprises going to great lengths to ensure that they have thorough transfer pricing policies in place to survive any level of scrutiny from SARS, often at great cost. Yet, in the case of Crookes Brothers Ltd vs Commissioner for the South African Revenue Service, the first South African case dealing with transfer pricing provisions, it was an unpolished contract that handed victory to the Commissioner. The Facts Agricultural group Crookes Brothers Ltd advanced loans to its Mozambican subsidiary (MML) and pursuant to the terms of the loan, as well as in its return for the 2015 year of assessment, the group made transfer pricing adjustments to its taxable income. Thereafter Crookes Brothers Ltd requested SARS to issue reduced assessments, claiming that the adjustments were made in error. The basis for their claim being that the terms of the loan were aligned with the requirements of section 31(7) of the Income Tax Act No. 58 of 1962 (the Act), which would exempt the loan from the application of transfer pricing rules. To support its claim, they also furnished SARS with the loan agreements. Upon SARS’ interpretation of the loan agreements, it concluded that the terms are in contravention of section 31(7) of the Act and decided to reject the request for reduced assessments. This resulted in Crookes Brothers making an application to the High Court to review and set aside SARS’ decision. Outcome The nub of the dispute revolved around one clause. The terms of the loan agreements were completely aligned with the exemption, but for the inclusion of what was effectively a boilerplate acceleration clause. The author of the contract, perhaps inadvertently, inserted a clause in the loan agreement that accelerated the debt in the event of bankruptcy, liquidation, business rescue or judgment against MML. The inclusion of this clause foiled the application of the exemption, the Crookes Brothers Ltd’s application was dismissed with costs and the transfer pricing adjustments had to endure. The court gave effect to the wording of the agreements, irrespective of what the parties may have intended and, ultimately, Crookes Brothers Ltd paid a heavy price for what was a poorly drafted agreement. The takeaway This case shows that these efforts will be in vain if a company has a weak underbelly. It illustrates that robust, conscientiously drafted agreements outrank opulent transfer pricing policies. If the underlying agreements that orchestrate the dealings between connected entities are not up to spec, such entities stand to be snared by the transfer pricing provisions. ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za ABOUT Tax Consulting SA: Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance. For more information on Tax Consulting please visit: Website: http://www.taxconsulting.co.za/ LinkedIn: Tax Consulting South Africa Facebook: Tax Consulting South Africa Author: Jean du Toit, Attorney at Tax Consulting SA
Taxpayers should be aware that if you have outstanding tax debt, SARS has the power to reach into your bank account and take the outstanding funds by instructing your bank, as its agent, sometimes even without notifying you. Chances of this happening increase especially where the end of the tax year is approaching and where SARS is below budget. In fact, the Tax Administration Act (“TAA”) provides that SARS may notify any third party to pay any money it holds on your behalf to SARS. Failure to comply makes the bank (or even your employer) personally liable for your debt. SARS is kind compared to the French The French Revenue Authority is particularly known for having piloted this tactic. In France, even if the Revenue Authority had no basis to collect, you will be held liable for the legal fees if there is some fault on your part, such as not responding to notices or not having kept your taxpayer particulars up to date. Taxpayers are especially annoyed if SARS acted on a false tax debt or if proper procedure was not observed. SARS is required to adhere to the procedure prescribed by the TAA, which imposes procedural requirements onto them; for example, to send final demand ten business days before it proceeds with collection. Alarmingly, however, there are cases where SARS have withdrawn funds from taxpayers’ accounts without them being notified. Whether this is a result of deficient communication from SARS or a flagrant disregard for the prescribed tax procedure, is not relevant, as the withdrawal can be reversed either way. No head in the sand Taxpayers must be alert when it comes to any attempts from SARS to communicate with them, as ignorance of the legal process will be to your detriment. Almost always the biggest mistake taxpayers make is ignoring their tax status, perhaps hoping the problem will go away. Here are some useful tips:
The strong collection powers of SARS must be placed in perspective that the law must protect society to ensure that everyone pays its taxes, and defaulters must effectively be dealt with. Unfortunately, the innocent taxpayer may also get the treatment under these harsh provisions, but as tax is ultimately a function of law, in these instances there is always a legal recourse. ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za ABOUT Tax Consulting SA: Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance. For more information on Tax Consulting please visit: Website: http://www.taxconsulting.co.za/ LinkedIn: Tax Consulting South Africa Facebook: Tax Consulting South Africa Author: Jean du Toit, Attorney at Tax Consulting SA
With the November tax deadline looming, it is almost needless to warn taxpayers of the torrid tax season awaiting them. It is by no means a State secret that there is an increasing exigence for SARS to collect taxes and the grim picture painted by the mid-term budget is an omen of the coming assault. As things stand, a symptom of the current tax environment is an unprecedented surge in audits, which, on the account of our clients have become more arduous, as SARS seeks to make up the shortfall by using the powers afforded to it under the Tax Administration Act more aggressively. At the risk of leaving taxpayers utterly despondent, the storm clouds gathering in the form a Commission of Inquiry must also be pointed out. Whilst we can only speculate as to what the true motive behind the inquiry is, we can safely assume that this will intensify the already crushing pressure on SARS to collect taxes. This latest development in the SARS chronicles is the canary in the coal mine for taxpayers, to brace for the assertive manner in which SARS will extract every morsel of tax money it possibly can in the coming months. One can appreciate that South African taxpayers might feel that they have been dealt a rotten hand, especially since there are allegations of particular citizens of our country not paying their fair share. Although taxpayers cannot legally escape the proverbial mine in this instance, it cannot be expected of them to simply brave the storm and have SARS take the lead. The approach Taxpayers would do well to understand that the best way to negotiate the dreaded process of an audit, and to prevent the possible devastation of any assessments issued subsequently, is to avail themselves to the rights afforded to them by the law. SARS has wide, but not unshackled powers and the moment SARS issues an assessment against a taxpayer, it is bound by the Rules promulgated under the Tax Administration Act. Du Toit urges that Taxpayers must be alive to the fact that the process following an assessment is strictly regulated by these Rules, which affords them multiple mechanisms to ensure that the dispute process is conducted fairly. The Rules serve as the equalising factor in confrontations with SARS and can be an invaluable tool, if used appropriately. However, if not heeded properly, these Rules are a double-edged sword that can be a taxpayer’s downfall. Know the Law One’s acquaintance with tax law and the dispute resolution process, or lack thereof, has a direct bearing on the course of proceedings and the ultimate outcome of a tax dispute. Ignorance of the law and the Rules can result in calamity for the taxpayer, regardless of the fact that he/she had a valid claim. Du Toit advises taxpayers to not endeavor going down the tax dispute resolution road alone, but rather call in the help of an attorney who is knowledgeable on tax law and who knows how to traverse the obstacles of tax disputes. “Tax dispute resolution is just that, a legal process like any other. In saying that, it must be remembered that the substance of these disputes is tax law, which is well known for its fluidity and intricacies,” he says, while adding that tax dispute resolution is the territory of astute tax attorneys who task themselves with understanding the nuances of tax law and know which strategy to pursue to capatilise on the remedies afforded by the Rules to ensure favourable outcomes. Taxpayers who therefor decide to face the coming onslaught from SARS without the requisite proficiency in tax law and tax dispute resolution do so at their own peril, Du Toit warns. ENDS MEDIA CONTACT: Idéle Prinsloo, 082 573 9219, idele@thatpoint.co.za, www.atthatpoint.co.za ABOUT Tax Consulting SA: Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance. For more information on Tax Consulting please visit: Website: http://www.taxconsulting.co.za/ LinkedIn: Tax Consulting South Africa Facebook: Tax Consulting South Africa |
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