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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
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Authored by: Darren Britz, Attorney at Tax Consulting
With the wave of anti-SARS sentiment currently washing over South Africa, paying historical value-added tax (VAT) may be a hard pill to swallow. This has resulted in many companies understating or underpaying their VAT and subsequently incurring colossal penalties in addition to the tax payable. However, paying historical VAT remains the most sensible course of action for any business with longevity and reputation in mind. It is at this point where SARS’ Voluntary Disclosure Programme (VDP) comes in, affording the opportunity to any taxpayers with unpaid taxes, including income tax, pay as you earn (PAYE) and most importantly VAT. The blinding spot light In the tax realm, two topics continue to dominate the media spot light; namely SARS’ systemic delay of VAT refunds and the Nugent Commission’s airing of SARS’ dirty laundry. It is perhaps not difficult to understand why tax morality in South Africa is at an all-time low, and why businesses continue to underpay on their VAT liabilities to SARS. To add insult to injury, the Tax Ombud earlier this month announced a fresh investigation into claims that SARS are not playing fair in how they handle taxpayer’s disputes. Undoubtedly, this will add to the already slippery and sharply steep slope that is taxpayer morality. While the sentiment is well shared, there is a broader consideration which is continually left out of the conversation. I am referring to the end game: eventually, SARS comes out on top. Remember, it is a criminal offence for a company to fail to pay its VAT and directors also face risk of being held accountable. At the same time, no SARS officials have been held to account for their handling of taxpayer dispute and refunds. Not yet anyway. Collecting with determination Tax collections and SARS enforcement measures are by no means comparable with other facets of South African life, such as perhaps the collection of e-tolls payments and speeding fines, which everyday seem to be losing more traction. The collection mechanisms at SARS continue to operate, with varying tactics, including tough audits, quick court judgments and taking money directly from taxpayers’ bank accounts. In that regard, SARS has hit the accelerator in its VAT collections and has gone far beyond their denying taxpayers VAT refunds, albeit that the latter was confirmed by the Tax Ombud. VAT audits are occurring more frequently and with harsher outcomes for repeat offenders or in respect of significant tax liabilities which extends over several years. Penalties aren’t optional It should come as no surprise that outstanding VAT debts will accrue both interests, roughly 10 – 11% per annum as well as percentage-based penalties. While a standard 10% VAT penalty is more often imposed, a worst-case scenario, where SARS finds evidence of deliberate tax avoidance, will permit the imposition of a penalty up to 200% of the VAT payable. Of course, nothing prevents SARS from making the allegation of tax avoidance, so the cards in SARS’ deck are well stacked. It also goes without saying that audit findings and penalty impositions remain on your tax record and therefore there is a risk of remaining on SARS’ radar for future audits. Once a SARS auditor has smelled blood, expect a difficult, agenda driven audit. VDP Relief If we push through the anti-SARS, anti-taxpaying mania and consider the possible solutions open to taxpayers, SARS VDP is at the forefront. The relief afforded includes:
A successful VDP, in most cases, allows for full remission of penalties. This leaves then just the tax and interest payable which, while leaving a sting, permits a total regularisation of tax affairs and avoidance of criminal prosecution. 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: Christopher Renwick, Attorney at Tax Consulting SA
A trend of increased delays and frustration with the South African Revenue Service’s (SARS’) dispute resolution process, are becoming apparent among taxpayers and tax practitioners alike. The reasons for this appear to be numerous. The common, albeit perhaps slightly misplaced, view is that SARS is operating unfairly, however in my experience, often the frustrations come down to taxpayers being unfamiliar with the dispute resolution process and creating their own difficulties. However, as experts in the field, we have experienced several SARS officials dragging their feet. Don’t get me wrong. This is not the case across the board, that would not be fair to say. However, smoke and fire do go hand in hand. What should you do? What would be fair to say, or rather ask, is, what options you have if your matter stagnates, for whatever reason? The problem perhaps lies in the fact that SARS presides over its own process, and there are no cost implications for SARS if your matter crawls along. Do you continue to bash your head against the proverbial wall, approach the Ombudsman or cut your losses and run? For some, it would come as a surprise that an alternate option exists. Consider the Motion Court. The Motion Court The Motion court (for those not in the legal sphere) is a court held at the High Court of South Africa (ignoring the magistrates court for now) that follows court procedure and is presided over by a High Court Judge. Not only does the Motion court come with a highly skilled Judge, but also the added benefit of expediency. Where a trial date may be 18 months after application (in the Johannesburg High Court 2 years) a “motion date” may be less than 3 months from date of application. For those legal minded professionals reading closely, you are probably jumping on your chair and emphatically listing the differences between opposed and unopposed motions, the timing thereof and cost implications etc. While there are differences between the two, the principles of expediency, cost and judicial approach remain the same. It is important to add that, whilst you may be left powerless under the dispute resolution process, the High Court is bestowed with inherent discretionary power to grant you any appropriate relief that will solve your problem. An added sweetener is the fact that SARS may have to pay your legal costs as well. This all sounds picturesque and perhaps a little too good to be true? A Big Win Well, it would be if we had not just been successful in this very process. Without divulging any confidential information, we had the pleasure of assisting a taxpayer whose matter had been dragging for over a year. An information gap existed in the determination of the taxpayer’s tax liability and the information that was sought. However, SARS were not forthcoming with the information. On behalf of the taxpayer, we approached the Motion Court with two alternate prayers. The first prayer was a request that SARS issue the taxpayer with all the necessary information to allow the taxpayer to fully understand the exact origin of the liability raised against the taxpayer. I should probably mention the liability was sufficient for the client to consider the amount material enough to take action. The second (or alternate, for my legal colleagues) prayer was for the expulsion of the liability given that no grounds could be given to the taxpayer for the origin of the liability. Remember that information gap? In Closing Leaving the finer details of the motion and its ensuing arguments aside, the taxpayer came out on top and the alternate prayer was made an order of court. This means that the taxpayer’s liability was expunged. The cherry on top was that SARS was ordered to pay the taxpayer’s costs. What a victory for this taxpayer and with lessons perhaps, for all taxpayers burdened with stagnant matters that are suffering frustration. An alternative avenue for dispute resolution has presented itself to the tax paying community. Just make sure you take an attorney down the path with you. 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 taxpayers 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
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: Jonty Leon, Financial Emigration Legal Specialist at Financial Emigration, a division of Tax Consulting SA
Emigrating from South Africa is not as simple as packing up your bags, jumping on a plane and setting up shop somewhere else. Unfortunately, there is still the issue of tax and no matter where you go, the taxman remains interested. The South African Reserve Bank, SARS and even the globally agreed Common Reporting Standards (CRS) want to know your movements. Home Affairs have also climbed on this bandwagon in respect of the White Paper released last year which recommends that all South Africans abroad must report themselves correctly, for good recordkeeping and for the authorities to know their whereabouts. The only way to formally place yourself on record for all these items is to undertake the financial emigration process. This means that you will be noted with SARS (which covers your personal tax status and CRS) and the SARB (which covers your bank account status) that you are no longer “ordinarily resident” in South Africa for fiscal purposes. By doing this, your status means that the South African authorities no longer have a reporting claim on your world-wide income and capital gains. No escaping SARS A worrying factor is that the many South Africans abroad seem to think they escape SARS, for the mere reason that they are living somewhere else. Whilst the circumstances and reasons for justification vary, from an attorney’s perspective, the following factors are very worrying:
Guilty until proven innocent When it comes to tax compliance, you are guilty until you prove your innocence. To get around world-wide taxes as an expatriate, the classic defence is that you are not “ordinarily resident” in South Africa. This onus is discharged by undertaking the financial emigration process, which is a SARS and SARB process, whereby you are noted on record as having emigrated. From a tax legal defence strategy, two items are important:
Final Solution Financial emigration provides a final risk management solution for expatriates to not have to declare their world-wide income and capital gains. This also provides a solution to CRS and Exchange Control restrictions. For those who need convincing to do the correct thing, we suggest they equate this to insurance. 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: Natasha Wilkinson, Admitted Attorney at Tax Consulting SA With financial institutions now directly reporting interest income to the South African Revenue Service (SARS), an increase in the number of cases where individuals are receiving tax assessments on income that does not belong to them, has become evident. Often, the reason is a miss-match of information where SARS compares the income on your tax return with third-party financial information and notes undisclosed income. This gives the SARS official the legal basis to raise an additional tax assessment. However, the real culprit seems to be the technology where taxpayer information gets mixed-up, which makes pinning down who is at fault rather challenging. Third parties are required by law to report financial information to revenue authorities. A good example is your IRP5 certificate where SARS compels your employer to report your income directly to them. From as recently as January 2018, the same is happening with interest, dividends and other financial transactions, which are being reported to SARS from across the globe. This has given rise to speculation that in the foreseeable future, a tax return may even not be necessary, as SARS would electronically have access to everything already. However, as personal taxes are becoming more digital, growing pains especially for the uninformed taxpayer, can be expected. Ignorance is a plan, but not a good one Taxpayers are factually treated as guilty until proven innocent and with our courts actively enforcing extremely strict deadlines on tax disputes, there have been many cases in South African tax law where a taxpayer should not have been assessed, but missed a deadline. Thus, the mistake became final and the taxpayer was required to pay the tax. It is t therefore important to act immediately when finding an incorrect tax assessment. In this case, it is wise to take a formal and legal step. Merely calling SARS or your tax practitioner who will tell you that he/she has spoken to SARS is not sufficient. The formal approach is set out in Rule 6 of the rules promulgated under section 103 of the Tax Administration Act, No. 28 of 2011, where a document is prepared to SARS calling upon them to provide reasons for the tax assessment. Where SARS has attributed, for example, interest income reported from financial institutions to you, they will tell you in their response from what accounts and the amounts involved. SARS will, however, only provide this detail where you have correctly adhered to Rule 6; including the time periods set out in this Rule for asking for the reasons. Once you have received these details from SARS and you have established that there is indeed a miss-match of information, you will still need to prove that the income is not yours. You only have one chance to challenge SARS Where the case is not resolved, taxpayers are legally tied to object all the way to the tax court. The evidentiary “pudding” for the taxpayer is therefore the formal objection, which is also another formal legal step required by Rule 7 of the Rules. The formal objection under Rule 7 would need to set all the grounds upon which the taxpayer does not agree with the tax assessment, together with documents setting out proof . Taxpayers should include the right mix of ingredients in their objections to prove that the income is not theirs, this includes affidavits from financial institutions, the taxpayer himself and/or any other person with personal knowledge that the income is not the taxpayer’s. Where this is done properly, taxpayers can be sure to have a new assessment issued. This time being with a more accurate representation of income attributable to them. 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 The increasing number of franchises in South Africa and the contribution of franchises towards economic activity in the country has led to a rise in the awareness of tax implications on franchise owners. The South African Revenue Service (SARS) recently issued a ruling that provides more clarity on a tax deductible, in the context of franchisees.
“Franchisees have long battled with the tax deductibility of the initial fee that is paid under a franchise agreement. When SARS issues a ruling such as this, it is usually because there was ambiguity in the market and in this case, there was confusion among franchisees on the tax deductibles they could claim. With the new ruling, namely Binding Private Ruling 285 (“BPR 285”), SARS is giving franchise owners the guidance they need to be able to determine whether a specific tax deduction is available and how SARS interprets franchisees’ business in relation to this deduction,” says Natasha Wilkinson, Admitted Attorney of the High Court of South Africa and member of Tax Consulting South Africa. Both initial fees and continuing franchise fees are tax deductible The initial fee that franchisees pay, for example, can be tax deductible under section 11(a) of the Income Tax Act, No. 58 of 1962 if it is not capital in nature. If the initial franchise fee is capital in nature, then sections 11(gC) or 11(f) apply. Both the initial fee, as well as the continuing fee that franchisees pay to use everything from the franchisor’s system, system property, marks, to the use of the franchisor’s computer systems, central database and the imparting of knowledge, are dedictible in terms of section 11(f). “Franchisees have to pay a franchisor to be able to use the brand name and receive assistance from their network of support, for example. Franchisees are also responsible for annual fees that are paid to the franchisor. SARS is essentially lessening the burden on franchisees by increasing the tax deductibles that they can claim and giving them more guidance on how to go about claiming relevant franchisee tax deductions,” says Wilkinson. Why franchisees need experienced guidance for tax issues A set of requirements outlined in the legislation would have to be met by franchisees to claim a tax deduction. Franchisees could open themselves up to tax issues with SARS if they inadvertently claim the incorrect deduction, so it is worthwhile to peruse BPR 285 or contract an experienced tax consultant to guide you through the process if you are unsure about which tax deduction applies to your franchise business. “While BPR 285 is welcomed, franchisees should still seek expert assistance to ensure that they do not fall within the parameters of SARS’ qualification in the ruling. This would have dire consequences for franchisees and may result in the deduction under section 11(f) either being reduced substantially or disallowed in its entirety. Besides guidance and advice, a tax consultant can also assist you in claiming the deduction and following the appropriate administrative processes for this,” concludes Wilkinson. 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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