Tuesday 26 October 2010

Tax Compliance in the 21st Century

During October 2010, the South African Institute of Tax Practitioners held their 3rd Annual Tax Conference at the Sandton Convention Centre. 

#Left: Dr Beric Croome, passionate about tax.

Speakers included Prof Michael Katz and Dr Beric Croome (both of Edward Nathan Sonnenbergs Incorporated, and both listed as Best Lawyers 2010) as well as other well-known tax personalities such as Judge Dennis Davis (University of Cape Town), Professor Keith Engel (National Treasury), Professor Daniel Erasmus (Thomas Jefferson School of Law, San Diego, California), Professor Walter Geach (University of KwaZulu-Natal),  Jackie Coolidge (World Bank), Nina Olsen (US Taxpayer Ombudsman and Advocate), Telita Snykers (Inland Revenue Service, Singapore), and Gelishan Naidoo(Deloitte).

Focusing on tax compliance in the 21st century, attendees explored:

* the importance of tax compliance for the economic and social development of South Africa;
* current and future National Treasury policy on improving tax compliance;
* how an independent tax ombudsman can assist taxpayers;
* how SARS envisages tax compliance;
* the role of SARS enforcement in improving tax compliance;
* how eFiling and third party data collection will improve tax compliance;
* the impact of tax avoidance and compliance;
* the purpose and impact of trusts in tax compliance;
* how to effectively manage tax risk to enhance tax compliance;
* how to improve their relationship with SARS;
* whether tax policy really improves tax compliance;
* how tax compliance costs impact taxpayer behaviour in complying with tax laws.

Dr Beric Croome spoke on the Tax Administration Bill and Taxpayers' Rights in South Africa. You can see the slides of the presentation by clicking HERE.

Beric says, "It's never easy to find the time to attend conferences, but I found this conference of great value and enjoyed the interaction with the other presenters and meeting attendees from all over South Africa."  

#Photograph and information obtained from SAIT

Thursday 14 October 2010

Lawyer of the Year 2010 - South Africa (Tax )

A jury of one's peers by Sanchia Temkin


IN THE October 2010 edition of Business Day Tax & Law Review we feature a special report on Best Lawyers SA 2010. Inclusion in Best Lawyers is based entirely on peer review. For over 25 years in the US and three years in SA, the top lawyers in the US and SA respectively have helped make the publication the leading legal referral guide by candidly evaluating the work of other top lawyers in the same areas of expertise. After more than a quarter of a century in publication, Best Lawyers this year has designated "Lawyers of the Year" in high profile legal practice areas, such as tax and competition law. Unfortunately, Tax & Law Review has not the space to profile all the lawyers who received accolades.

A list of all the lawyers honoured by inclusion can be found on page 12. Best Lawyers – Lawyer of the Year 2010 includes Edward Nathan Sonnenberg’s Dr Beric Croome (left) in the Tax category.

This year was an extremely eventful one and we decided to ask some of SA's Best Lawyers to tell us what stood out for them in their areas of practice and the challenges they foresee in the near future. More than 88 000 top general counsel see Best Lawyers lists in incisive publications such as Corporate Counsel and The American Lawyer, while more than 16-million readers see the lists in dozens of city and regional publications in the US including The Washington Post, The Los Angeles Times, and New York Magazine as well as in major business and general publications around the world, from Business Day in SA to Expansion in Spain.

The editors of Best Lawyers and Business Day Tax & Law Review would like to congratulate all the professionals who have been selected as Best Lawyers SA for 2010.

Passionate about the rights of the taxpayer

“TAXPAYERS and some advisors are usually ignorant when it comes to taxpayers' rights," says Beric Croome, an executive in tax at ENS. Croome has received the honour of "Lawyer of the Year" for 2010 in the tax category, due to the particularly high ratings he received from his peers. For three years in a row, since Best Lawyers was first published in SA, he has been designated as a "Best Lawyer" for tax.

Croome says that there is no doubt that the constitution has changed the face of taxation in SA. "Taxpayers need to be aware of the rights that they have in their dealings with the South African Revenue Service (SARS) so that they may be treated fairly and properly.''

He says that taxpayers are also unfortunately unaware of the fact that rights contained in the constitution may be limited by laws of general application where it is reasonable necessary to do so in a democracy. “I am often consulted by clients who believe that their rights have been violated by SARS but upon further investigation it is established that the limitation of rights contained in section 36 of the constitution allows for that limitation to take place.”

Taxpayers in SA currently also do not have a cost-effective remedy in seeking redress when SARS abuses its powers unduly and this is a matter that should be addressed.

Croome is a non-executive director of the Taxpayers Movement of SA which, among other things, intends to increase taxpayers' awareness of the rights that they have with SARS and is also calling for the creation of the tax ombudsman as a separate independent office to deal with taxpayers' complaints where SARS has abused its powers.

Croome's chosen career path was not initially that of a lawyer. He wanted to become a chartered accountant and, after finishing school, he commenced his undergraduate studies at the University of Pretoria for a BCom degree, which he completed at the University of Cape Town in 1980. He received his Certificate in the Theory of Accountancy in 1981. After successfully completing the final qualifying examination in I992, he began articles as a trainee accountant. In lieu of national service, he worked at the Johannesburg Receiver of Revenue (as it was then known) for a period of four years. “I so enjoyed working in the tax arena that I completed my Higher Diploma in Tax law at the University of Witwatersrand during that period, passing cum laude and garnering the Edward Nathan Friedland prize for the top student.”

It was during these studies that Croome decided that tax was a legal subject and decided to expand on his knowledge of law, and tax law in particular. As he was already working fulltime, he became a part-time student at the University of South Africa and completed the BProc and LLb degrees. “Studying constitutional law, in particular the bill of rights, whetted my appetite for taxpayers’ rights in SA and how the bill of rights affects South Africans taxpayers in their dealings with the Commissioner of SARS."

During 1994 he started to write articles about the constitution, which came into effect on April 27 1994 and the effect it had on the manner in which the revenue authority deals with taxpayers. Subsequently, he started researching the protection of taxpayers' rights in various countries, particularly Australia, Canada, the UK and the US, collecting articles and materials relating thereto. This came in handy during 2001 when Professor Richard Jooste of the University of Cape Town requested that he author an article dealing with taxpayers' rights in SA for publication in the UCT law journal 'Acta Juridica'' which was published n 2002. "My passion for the subject led to an article twice as long as was required by the university. I didn't want to lose the additional material, so when Professor Jooste suggested that I consider applying for admission to the PhD (Doctor of Philosophy) degree at the University of Cape Town, with taxpayers' rights in SA as my topic, I was drawn to the challenge,” says Croome.

He commenced studies under the supervision of professors Richard Jooste and Hugh Corder, then dean at the faculty of law at the University of Cape Town, in 2003. His topic focused on taxpayers’ rights in SA, concentrating on the rights to property, privacy, access to information, administrative justice and access to courts. He received his PhD degree in June 2008.

The University of Cape Town put his thesis forward for the 2009 Deneys Reitz National Tax Thesis Competition. Croome was subsequently advised that his thesis had been given the award in the doctoral category.

The thesis was published by Jutas as the book “Taxpayers' Rights in South Africa” in May this year.

Croome is currently working with two leading overseas tax specialists in the field of taxpayers' rights, co-authoring a book dealing with international taxpayer protection. Publication of this book is aimed at 2011 or 2012.

For many, years he has taken a great interest in the powers of SARS and how it treats taxpayers in light of the rights conferred on taxpayers under the provisions of the bill of rights.

Hopefully, when the process of converting the technical text of “Taxpayers' Rights in South Africa” into a more accessible guide for taxpaying citizens has been completed, this version of the book will give the man-in-the-street the knowledge he requires to understand his rights as a taxpayer.

"I hope that, in the not too distant future, there will be significant developments in the area of taxpayers’ rights in SA, enhancing the protection of taxpayers’ rights in the country," he says.

This article was written by Sanchia Temkin and first appeared in the October 2010 issue of Business Day's "Business Law & tax Review"

Interest paid to non-residents is to be taxed

In the Draft Taxation Laws Amendment Bill released for comment during May it was indicated that provisions would be introduced that interest paid by residents to non-residents would, in certain circumstances, become liable to tax in SA.

Initially, those proposals would have resulted in interest paid to non-residents becoming liable to tax at the rate applicable to branches carrying on business in SA, namely, 33%. The rules were deficient in that they did not deal properly with the manner in which the tax would be collected or administered. In the response document published by the Treasury and the South African Revenue Service (SARS) on submissions received in response to the bill, it was indicated that the initial proposals would be replaced by the introduction of a comprehensive non-residents’ tax on interest.

During August the minister introduced the Taxation Laws Amendment Bill 2010 that contains enabling provisions to implement a withholding tax on interest in SA. Previously, SA levied a withholding tax on interest, which was repealed during 1988.The government has now taken the view that it is appropriate to reintroduce a withholding tax on interest paid by South African residents to non-residents. The rules governing the imposition of the withholding tax on interest are contained at clause 58 of the 2010 Taxation Laws Amendment Bill, which proposes introducing sections 37I to M into the Income Tax Act 1962.

Section 37I contains various definitions that will apply to the withholding tax rules.

"Interest" is defined in section 37I as consisting of interest as defined in section 24J(1) of the act, as well as deemed interest as contemplated in section 8E(2).

It has been proposed that a “listed debt instrument” means any debt instrument that is listed on a recognised exchange as defined in paragraph 1 of the eighth schedule to the act, which includes an exchange licensed under the Securities Services Act, 2004 or an exchange in a country other than SA.

Section 37J provides that the withholding tax on interest must be calculated at the rate of 10% of the amount of any interest received by or accrued to any foreign person that is not a controlled foreign company (CFC). "Foreign person” has, in turn, been defined as any person other than a resident as envisaged in section 1 of the act. It has been provided that any foreign person that is not a CFC that receives any interest, or to which any interest accrues, will be liable to the withholding tax on interest.

The proposals contain a number of exemptions that will apply, thereby reducing the scope of application of the withholding tax on interest.

It has been proposed at section 37K that the following amounts of interest will be exempt from the withholding tax on interest:

• Received by or accrued to any foreign person during any year of assessment:

o In respect of any government debt instrument;

o In respect of any listed debt letter of credit on similar instrument ;

o In respect of any debt owed by any bank or the Reserve Bank;

o In respect of any bill of exchange, letter of credit on similar instrument to the extent that the interest is payable in respect of the purchase price of goods imported into SA, and if an authorised dealer as envisaged under the exchange control regulations has certified on the instrument that a bill of lading or other document covering the importation of the goods has been exhibited to it;

o In respect of any other debt owed by a foreign person unless the foreign person consists of a natural person who is physically present in the country for a period exceeding 183 days in aggregate during that year, or at any time during that year, carried on business through a permanent establishment in the country; or

o If that interest is paid or payable by a headquarter company and in respect of financial assistance that is not subject to section 31, as a result of the application of section 31(4) of the act.

A foreign person will not be subject to the withholding tax on interest when the recipient is a natural person who was physically present in SA for a period exceeding 183 days or at any time carried on business through a permanent establishment in the country.

Section 37L creates the legal obligation whereby any person making payments of interest to the benefit of a foreign person must withhold an amount equal to 10% of the amount of interest due to that foreign person. Once the withholding tax on interest comes into force the amount withheld must be paid over to SARS within 14 days after the end of the month during which the amount is withheld.

When the foreign person resides in a country with which SA has concluded a double taxation agreement, and that treaty provides for the reduction in the ate of the withholding tax in interest, a declaration in the form prescribed by the Commissioner must be submitted to the person paying the interest reflecting the rate of tax applicable.

Left: Waiting. Countries that have a double-taxation agreement with SA could slow down the whole process

The Taxation Laws Amendment Bill provides that the withholding tax on interest will come into operation on January 1 2013 and will apply in respect of any interest that accrues on or after January 1. Therefore, where interest is payable by a South African company to its holding company, withholding tax on interest will be payable at the rate of 10%, unless the rate of tax is reduced by virtue of the provisions of a double-tax agreement concluded with the state in which the parent company resides.

At present, interest received by domestic trusts may be awarded to non-resident beneficiaries without such interest attracting tax in SA. Once the withholding tax on interest takes effect the trust paying interest to non-resident beneficiaries will be required to pay over the withholding tax on interest on such awards, subject to the applicability of a double-taxation agreement.

The Treasury has indicated that SA will renegotiate certain double-tax treaties to ensure that the country can levy the withholding tax on interest.

This will take time, as has been borne out by the process in moving from the secondary tax on companies to the dividends tax, which has been delayed, partly, because of the process required to give effect to changes to double taxation agreements to allow for the introduction of the dividends tax system.

It is, therefore, debatable whether SA will be ready to implement the withholding tax on interest on January1 2013, taking account of the lengthy processes required to amend the treaties concluded by SA and its various trading parties.

 Dr Beric Croome is a tax executive at ENS. This article first appeared in the October 2010 issue of the Business Day "Business Law & Tax  Review".

Free image from ClipArt