A New Chance to get on the Right Side of SARS

A VOLUNTARY disclosure programme for taxpayers has been introduced as a permanent feature of the fiscal laws of SA, but more limited in scope than the previous programme. This was done via the Tax Administration Act, No 28 of 2011, promulgated on July 4 2012 and which took effect on October 1, and which contains the relevant sections, 225 to 233.

The new disclosure programme presents an opportunity for taxpayers to regularise prior violations of the fiscal laws of the country, but, unfortunately, does not grant relief on interest that would otherwise have been payable on the late payment of the tax concerned. 

Furthermore, the relief does not extend to penalties which may be imposed in terms of a tax act for the late submission of a return or the late payment of tax.

The taxpayer would need to consider seeking relief from those penalties under the particular provisions of the respective statute whereby such penalties are levied.

During the period 1 November 2010 to 31 October 2011, taxpayers could apply for relief under the Voluntary Disclosure Programme and Taxation Laws Second Amendment Act, No 8 of 2010, and, at the same time, could regularise violations of the exchange control regulations by applying for relief from the Financial Surveillance Department of the South African Reserve Bank.

For a taxpayer to successfully apply for relief under the new voluntary disclosure programme, it is necessary that the taxpayer has committed a default. 

A default is defined in section 225 of the act as meaning the submission of inaccurate or incomplete information to SARS or the failure to submit information or the adoption of a tax position which resulted in the taxpayer not being assessed for the correct amount of tax, or the correct amount of tax not being paid by the taxpayer, or an incorrect refund being made by SARS. 

The voluntary disclosure programme contained in the act applies to all taxes administered by the Commissioner: SARS other than customs and excise.

A prerequisite for applying for relief under the act is that the taxpayer is not aware of a pending audit or investigation into their affairs, or an audit or investigation that has commenced but has not yet been concluded. 

The law allows for a senior SARS official to direct that a person may still apply for voluntary disclosure relief even though an audit may be underway, having regard to the circumstances and ambit of the audit or investigation and the default which the person wishes to seek relief for would not otherwise have been detected during the audit or investigation conducted by SARS, and that the application for relief is in the interest of good management of the tax system, and the best use of SARS ’s resources.

Section 227 of the act prescribes the requirements for the voluntary disclosure to be valid: 

• The act requires that the disclosure must be voluntary, and involve a default which the taxpayer has not previously disclosed. 

• The disclosure must be full and complete in all material respects, and must involve the potential imposition of an understatement penalty in respect of the default, and not result in a refund due by SARS. 

• Finally, the act requires that the disclosure must be made in the prescribed manner.

As was the case under the previous legislation, taxpayers may apply for a non-binding private opinion as to whether that person is eligible for relief under the voluntary disclosure programme.

Where the taxpayer applies for relief under the programme, SARS will not pursue criminal prosecution for any statutory offence under a tax act, pursuant to the default committed by the taxpayer, and grant the relief in respect of any understatement penalty referred to in section 223. 

Ordinarily, where a taxpayer approaches SARS outside of the programme, SARS may impose an understatement penalty ranging from 5% to 75% where the voluntary disclosure is made after notification of an audit or where the voluntary disclosure is made before an audit, SARS can levy an understatement penalty of 5% to 10%. 

By seeking voluntary disclosure programme relief, the taxpayer will be relieved from being liable to any understatement penalty, except in the cases where the taxpayer is grossly negligent or has intentionally evaded tax.

Furthermore, the act allows for 100% relief in respect of an administrative non-compliance penalty that was or may be imposed under chapter 15 of the act, or a penalty imposed under a tax act, excluding those penalties levied for the late submission of a return or the late payment of tax.

The voluntary disclosure programme available under the new act is not as attractive as that available under the previous legislation in that the taxpayer remains liable to interest which is payable on the late payment of the tax in question.

The approval of the voluntary disclosure application and the relief available under the act must be evidenced by a written agreement concluded between SARS and the qualifying person. 

Section 230 of the act requires that the agreement must be prepared in the prescribed format, and must contain details of the facts pertaining to the default on which the voluntary disclosure relief is based, as well as the amount payable by the taxpayer, and must contain details of arrangements and dates for payment and relevant undertakings

by the taxpayer and SARS.

SARS is entitled to withdraw the voluntary disclosure relief granted where it is established that the taxpayer failed to disclose a matter that was material for purposes of making a valid voluntary disclosure as envisaged in section 227 of the act. 

The consequences of withdrawal are significant, in that any amount paid in terms of the voluntary disclosure programme constitutes part-payment of any further tax in respect of the relevant default, and SARS may pursue criminal prosecution for statutory offences under a tax act or related common law offence.

Once the voluntary disclosure agreement has been concluded between SARS and the taxpayer, an assessment or determination must be made giving effect to the agreement. 

Clearly the assessment issued pursuant to the voluntary disclosure agreement is not subject to objection and appeal.

New disclosure programme again allows taxpayers to regularise any transgressions, 

but no relief is provided for interest owing

Under the previous programme, applicants could apply for relief for tax defaults from SARS and relief from the Financial Surveillance Department of the South African Reserve Bank for violations of exchange control regulations. 

In its Guide to the Tax Administration Act, SARS indicates that the voluntary disclosure  programme will not provide relief on interest payable to SARS, or exchange control, and that the programme contained in the act will only deal with tax matters. 

Thus, at this stage, it would appear that there are no  plans for a permanent exchange control voluntary disclosure programme.

Those persons who have contravened the exchange control regulations, and did not utilise the previous voluntary disclosure programme, would be required to approach their authorised dealer to assist them with an application to regularise their exchange control affairs. 

The levy payable in regularising breaches of the exchange control regulations could range from 20% to 40% of the amount of the contravention in question. 

The quantum of the levy finally payable to the South African Reserve Bank will, amongst other things, depend on whether the applicant chooses to retain the funds abroad or return the funds to SA.

■ Dr Beric Croome is a tax executive at Edward Nathan Sonnenbergs. This article first appeared in Business Day, Business Law and Tax Review (November 2012) Free image from ClipArt

The Tax Administration Act takes effect

INTRODUCTION

The Tax Administration Act, No 28 of 2011 (‘TAA’), which was promulgated on 4^th July 2012, took effect on 1^st October 2012, except for certain specific provisions dealing with the imposition of interest payable to the Commissioner: South African Revenue Service by taxpayers, and, also, by the Commissioner to taxpayers.  The rules regulating the payment of interest will be changing, such that, in future, interest will be compounded on a monthly basis, both in respect of interest payable by a taxpayer on the late payment of tax, and, also, in respect of refunds payable by SARS to taxpayers.

TRANSITIONAL RULES

Chapter 20 of the TAA contains a number of transitional provisions seeking to ensure the smooth transition from actions which were commenced under the administrative provisions of various fiscal statutes, but which had not yet been completed by 30^th September 2012.  

Chapter 20 of the TAA provides that any tax number allocated to a taxpayer prior to the TAA taking effect will continue to be applicable until SARS allocates a new number to the taxpayer under the TAA.

Section 259 of the TAA provides that the Minister of Finance must appoint a person as a Tax Ombud within one year of the commencement date of the TAA, namely 1^st October 2012.  

The National Treasury has indicated that it is intended to appoint a Tax Ombud before the end of this year.

All SARS officials are required to subscribe to an oath or solemn declaration of secrecy, which was previously contained in section 4 of the Income Tax Act, No 58 of 1962 (‘the Act’), or section 6 of the Value-Added Tax Act, No 89 of 1991, as amended.  The fact that those officials may have been administered the oath under another fiscal statute will be regarded as having taken the required oath under section 67(2) of the TAA.

Section 261 of the TAA confirms that those persons appointed as the public officer under a tax act, who held office immediately prior to the commencement of the TAA, will be regarded as the public officer appointed under the TAA.

Those persons who were appointed as chairpersons of the Tax Board or members of the Tax Court will continue in office until their appointment is terminated or lapses.

Section 264 of the TAA confirms that those rules of the Tax Court issued under another tax act prior to the commencement of the TAA, will continue in force as if they were issued under section 103 of the TAA.  It is envisaged that the rules governing objections and appeals will be reviewed after SARS has followed a consultative process, where after those rules will be promulgated under the TAA.

SARS officials who were authorised to conduct audits under a tax act before the commencement of the TAA, will be regarded as the official envisaged in section 41 of the TAA, which allows for a senior SARS official to grant a SARS official written authorisation to conduct a field audit or criminal investigation.

Section 269 of the TAA provides that those forms issued under the authority of any tax act prior to the commencement of the TAA, and in use before the date of commencement of that Act, will be considered to have been prescribed under the authority of the TAA to the extent consistent with that Act.  Similarly, any rulings and opinions issued under the provisions of a tax act repealed by the TAA, and enforced prior to the commencement of the TAA, which have not been revoked, will be regarded as having been issued under the authority of the TAA. 

Section 270 of the TAA provides that the TAA applies to an act, omission or proceeding taken, occurring or instituted before the commencement date of the TAA, but without prejudice to the action taken or proceedings conducted before the commencement date of the comparable provisions of the TAA.  This section, therefore, seeks to ensure that those actions commenced prior to the TAA and not yet completed by the date of its commencement, must be continued and concluded under the provisions of the TAA as if taken or instituted under the TAA itself.

PUBLIC NOTICES

The TAA envisages various notices being published in the Government Gazette dealing with certain aspects of the TAA.  Thus far, four public notices have been gazetted under the provisions of the TAA.

Section 1 of the TAA defines “this Act” as including the regulations and the public notice issued under the TAA.  Thus, the public notices issued pursuant to the TAA, are to be regarded as part and parcel of the Act itself.  The four public notices which have been issued deal with specific aspects of the TAA. 

RECORD KEEPING

Section 30 of the TAA sets out the manner in which records, books and account documents referred to in section 29 of the Act, must be kept or retained.  

The TAA requires that records are kept in the original form, in an orderly fashion, and in a safe place, or, where retained in electronic form, in the manner to be prescribed by the Commissioner in a public notice, or in a form specifically authorised by a senior SARS official in terms of section 30(2) of the Act.  

Government Notice No 787 contained the public notice issued pursuant to section 30(1)(b) of the TAA.  The public notice in question allows taxpayers to keep records in terms of section 29 in an electronic form, so long as the rules contained in the public notice are adhered to.  

Rule 3.2 of the public notice defines an “acceptable electronic form” as a form in which the integrity of the electronic record satisfies the standard contained in section 14 of the Electronic Communications and Transactions Act.  

Furthermore, it is required that the person required to keep records is able to, within a reasonable period when called on by SARS, to provide SARS with an electronic copy of the records, in a format that SARS is able to readily access, read and analyse, or to send the records to SARS in an electronic form that is readily accessible by SARS, or to provide SARS with a paper copy of those records.

Rule 4 of the public notice requires that the records retained in electronic form must be kept and maintained at a place physically located in South Africa.  Thus, the electronic documents may not be retained outside of the country without SARS’ consent.  

The notice states that a senior SARS official may authorise a person to keep records in an electronic form outside of South Africa where that official is satisfied that the electronic system used by that person will be accessible from the person’s physical address in South Africa for the duration of the period that the person is obliged to keep and retain records under the TAA.  Furthermore, the locality where the records are proposed to be kept will not affect access to the electronic records themselves.  

In addition, the rules require that there is an international tax agreement for reciprocal assistance in the administration of taxes in place between the country in which the person proposes to keep the electronic records and South Africa.  

Furthermore, the form in which the records are to be kept satisfies all the requirements of the rules contained in the public notice, apart from the issue of the physical locality of the storage of those records, and, importantly, that the person concerned will be able to provide SARS with an acceptable electronic form of the records on request, within a reasonable period.  

The public notice also deals with documentation required to be retained regarding the system utilised by the taxpayer.  Where the computer software used by the taxpayer is commonly recognised, the taxpayer is not required to retain systems documentation relating thereto.  Where, however, the software used by the taxpayer is not commonly recognised in South Africa, or has been adapted for the taxpayer’s particular environment, it is necessary to retain the systems documentation set out in rule 5 of the public notice.

Rule 6 of the public notice places a requirement on persons who keep records in an electronic format to ensure that measures are taken for the adequate storage of the electronic records for the duration of the period referred to in section 29 of the Act.  It is necessary to store all electronic signatures, login codes, keys, passwords or certificates required to access the electronic records, and the procedures to obtain full access to any electronic records that are encrypted.

Rule 7 of the public notice requires persons to retain electronic records to have the records available for inspection by SARS in terms of section 31 of the TAA at all reasonable times, and at premises physically located within the country, or accessible from such premises if authority in terms of rule 4.2 has been granted.  Under rule 8 of the notice, the electronic records must be able to be made available for purposes of an audit or investigation conducted by SARS in terms of section 48 of the TAA.

Finally, rule 9 of the public notice provides that any person who keeps records in electronic form, must be able to comply with the provisions of the rules contained in the public notice throughout the period that the person is required to keep the records, in order to comply with section 29 of the TAA.

SARS AUDITS AND TAXPAYER FEEDBACK

Government Notice No 788, also issued on 1^st October 2012, sets out the form and manner of a report to be submitted by SARS to a taxpayer on the stage of completion of an audit, in terms of section 42(1) of the TAA.  It must be remembered that, in accordance with the TAA, a taxpayer is required to be advised as to the status or progress in an audit conducted on their affairs by SARS, which is an improvement in that the Act did not contain any such provision.  

Under rule 2 of this public notice, a SARS official responsible for an audit instituted before but not completed by the commencement date of the TAA, or instituted on or after its commencement date, must provide the taxpayer subject to audit with a report indicating the stage of completion of the audit. 

Where the audit started before the commencement date of the TAA, SARS must provide feedback within 90 days of the TAA’s commencement and within 90 day intervals thereafter.  

Where SARS instituted an audit on or after the TAA commencement date, the report must be submitted within 90 days of the start of the audit and within 90 day intervals thereafter, until the audit is concluded by SARS.

In terms of rule 3, SARS must advise the taxpayer as to the current scope of the audit, the stage of completion of the audit, and relevant materials still outstanding from the taxpayer.

Unfortunately, in the past, it happened too often that taxpayers were subjected to an audit and would hear nothing from SARS for a long period of time, and then, suddenly, be requested to supply information within a very short period.  

The new provisions contained in the TAA should alleviate this from happening in future. 

INTERVIEWS BY SARS AND TRAVELLING DISTANCE

Government Notice No 789 was issued pursuant to section 47(4) of the TAA, which deals with the distance to be taken account of in determining whether a person may lawfully decline to attend an interview with SARS.  

This public notice prescribes that a person other than a person described in section 211(3)(a),(b) and (c) of the TAA may decline to attend an interview where that person is required to travel more than 200kms between the place designated in the notice and their usual place of business or residence and back.

Where the person described falls within section 211(3)(a),(b) and (c)of the Act, the distance is increased to 2500kms, and that relates to companies listed on a recognised stock exchange, a company whose gross receipts or accruals for the preceding tax year exceed R500 million, or a company that forms part of a group of companies of either of the aforementioned entities. 

FIXED AMOUNT PENALTIES

Government Notice No 790 was issued pursuant to section 210(2) of the TAA, which deals with the imposition of a fixed-amount penalty under the TAA.  Rule 2 of that public notice provides that failure by a natural person to submit an income tax return as and when required under the Income Tax Act, for years of assessment commencing on or after 1^st march 2006, where that person has two or more outstanding income tax returns for such year of assessment, will be liable to the fixed-amount penalty as envisaged in section 211 of the TAA.

OUTSTANDING PUBLIC NOTICES

From a review of the TAA, it would appear that other public notices remain to be issued, particularly those dealing with the following sections: 

·         section 81(1), regarding fees for advanced rulings

·         section 103, dealing with rules for dispute resolution

·         section 166(2) and (3), dealing with allocation of payments

·         section 167, pertaining to rules regarding instalment payment agreements

·         section 245, regarding dates for submission of returns and payment of tax

·         section 255, dealing with rules regarding the submission of returns in electronic format

CONCLUSION

The TAA introduces significant changes in the administrative provisions regulating the fiscal statutes in South Africa, and it is going to take time for both taxpayers and SARS to become accustomed thereto.  SARS has published various documents dealing with the introduction of the Act, particularly the SARS Short Guide to the Tax Administration Act, 2011, as well as various other documents dealing with frequently asked questions, and penalties administration and dispute administration.  

Taxpayers will need to familiarise themselves with the provisions of the TAA and the documents published by SARS to obtain a better understanding of how the TAA impacts on their obligations so as to comply with the fiscal statutes of the country.

This article first appeared in Tax ENSight, October 2012

a Lamp at Midday

My wife Judy Croome has recently added to her publications with a collection of poetry called a Lamp at Midday, available from Loot or Take a Lot as a paper book, and from Amazon and other international on-line stores as both paper book and eBook.  

Her short story THE LAST SACRIFICE has been published in the USA (2012) as part of the anthology THE FALL: Tales from the Apocalypse.

"One story I believe is sure to cause a bit of a stir is by South African writer Judy Croome. It’s called THE LAST SACRIFICE, and it depicts a tribal high priest whose faith to his gods is total, despite many disappointments when the gods seem to disapprove of the sacrifices that have been made. I think readers are going to either love or hate that one. There won’t be much middle ground. It’s very intense," says Matt Sinclair, editor-in-chief of Elephant's Bookshelf Press.

Containing a wide selection of poems, a Lamp at Midday gives voice to the contrasts and contradictions of modern life. As they challenge complex emotions and explore timeless themes, these poems also have relevance for the reader’s own life. This personal collection of poems is a vivid celebration of one woman's spiritual questioning and earthly existence, speaking with a haunting intensity of life, loss and love. 
Read reviews on GoodReads and buy from Loot or Take a Lot in South Africa or internationally from Amazon, Barnes & Noble, Kobo 

Other books available:

Lyrical & atmospheric,this compelling spiritual story 

explores the sacrifices people make in pursuit of their dreams.

                           Read reviews on GoodReads or buy your copy from

Amazon.com

Remember you can read an eBook without an eReader! 

Download your free KINDLE reading application

Taxman relents on investment allowance

DURING 1996, exchange control regulations were relaxed so that private individuals could invest certain sums of money abroad, subject to the requirement of obtaining a tax clearance certificate from the Commissioner: South African Revenue Service (SARS).

The amount which could be invested has been increased fairly regularly, and the so-called foreign investment allowance, whereby natural persons may invest offshore, is R4m per person per calendar year for taxpayers in good standing and over 18.

On June 28 this year, the financial surveillance department of the South African Reserve Bank (SARB) released Exchange Control Circular No. 8/2012, dealing with foreign investments which may be approved in respect of natural persons in excess of R4m.

The SARB has advised that private individuals wishing to invest more than R4m a year abroad must first approach the Commissioner for a tax clearance certificate in the prescribed format, which must then be submitted with their application to the financial surveillance department via their authorised dealer for consideration.

Natural persons wishing to diversify their investments by investing offshore
can now apply to invest amounts offshore without limit

Thus, those natural persons who wish to diversify their investments by investing offshore, are now entitled to apply for consent to invest amounts offshore without limit. It must be noted that the documentation released by SARB only refers to natural persons, and thus, it would appear that it is not possible for a South African trust to apply for permission to invest offshore.

At one stage, those persons who chose to emigrate from SA were allowed to remit certain amounts of capital from SA, and were required to pay a levy of 10% of the assets in excess of the specified threshold which they wished to export from SA. Under the new dispensation, SA residents can invest offshore without limit and without being required to pay any levy to the SARB.

It would appear that there is no limit for which an individual may apply to invest offshore, but that the SARB has a mandate to authorize transfers of up to R200m, and amounts in excess thereof will need to be approved by the National Treasury itself.

It must be remembered that those persons who utilise the dispensation to invest offshore may not utilise the funds transferred from South Africa to directly or indirectly acquire shares or other interests in a company located in the Common Monetary Area (CMA) or any other assets in the CMA. 

Furthermore, the funds transferred from SA may not be reintroduced from offshore as a loan to a resident in the CMA. If the funds are utilised in such a manner, that would be regarded as a so-called “loop”, which constitutes a violation of the exchange control regulations.

Residents who travel offshore may not use the unutilised portion of travel foreign allowances for foreign investment purposes. Such funds are required to be brought back to SA, and offered for sale to an authorized dealer in accordance with current regulations.

Thus, SA resident individuals may now invest unlimited amounts offshore, but are required to obtain a tax clearance certificate before applying for authorisation to remit the funds abroad. 

The applicant would need to apply for a tax clearance certificate at their local Receiver of Revenue, and, depending on the amount of the foreign investment, the application for the tax clearance certificate may be referred to the office of the Commissioner: SARS in Pretoria for approval. 

If the decision is made to utilize the dispensation to invest offshore, it is necessary to consider the nature of investment to be made abroad, as well as the tax consequences flowing therefrom.

Where the South African investor acquires income-producing assets abroad, it must be remembered that the income generated from those assets acquired under the foreign investment allowance remain taxable in SA, on the basis that SA now taxes its residents on a worldwide basis.

Thus, should the decision be made to acquire, for example, listed shares, the dividends received on those shares will, from April 1 2012, attract tax, but such tax will be restricted to the rate of 15%, in accordance with section 10B of the Income Tax Act.

As and when foreign shares are disposed of, the capital gains tax consequences relating thereto must not be overlooked, and the capital gain will attract tax in SA.

Furthermore, the assets acquired by the South African investor will form part of that person’s estate upon their death, and will be liable to estate duty.

Investors may wish to place the funds transferred from SA into an offshore structure, and it is important to take account of the fiscal consequences. South African residents who donate assets to, for example, a foreign trust, remain liable to donations tax at the rate of 20%. 

Thus, it is unattractive for a South African investor to utilise the foreign investment allowance and to donate those funds to a foreign trust.

Alternatively, where the South African resident advances the funds invested abroad to a foreign trust, a market-related interest must be charged on that loan, failing which the resident will be in violation of the transfer pricing rules contained in section 31, which has the effect of imputing interest received by the resident on the loan receivable from the foreign trust where a market related rate of interest is not charged.

If a decision is made to advance funds, for example, to a foreign trust, it is important that the trust is, in fact, managed from abroad, and that it cannot be said that the trust’s place of effective management is located in SA, which would result in the foreign trust becoming a South African taxpayer. 

The risk of a foreign trust becoming a tax resident of SA arises where the South African investor decides to become a trustee of the foreign trust, or exercises other powers which could result in the trust’s place of effective management being regarded as being located within SA. Caution therefore needs to be exercised when creating a foreign trust and the manner in which that trust is managed.

SA recently conducted a voluntary disclosure programme from 1 November 2010 31 to October 2011, whereby South African residents could regularise violations of the exchange control regulations with SARB and regularise defaults under the tax system with SARS. The Tax Administration Act contains a provision which, once that statute becomes operational, introduces a permanent voluntary disclosure programme, allowing for South African taxpayers to regularise their tax affairs where necessary.

Unfortunately, that legislation is not yet in place, and it remains to be seen when it will take effect. However, where South African residents have removed funds from SA in contravention of the exchange control regulations, and may have violated the tax laws of South Africa, they will, once the voluntary disclosure programme and the Tax Administration Act take effect, be entitled to approach the authorities to regularise their previous transgressions.

Those residents who chose to utilise the foreign investment allowance must remember that the income from the assets invested offshore remains fully taxable in SA, and must be properly disclosed for tax purposes in their tax return.

The fact that private individuals can now invest unlimited amounts offshore, means that exchange control has, for all practical purposes, largely been removed, insofar as natural persons resident in SA are concerned. It is unfortunate that South African trusts cannot currently also invest in assets located offshore.

■ Dr Beric Croome is a tax executive at Edward Nathan Sonnenbergs. This article first appeared in Business Day, Business Law and Tax Review (October 2012) Free image from ClipArt

SARS can recover taxes from offshore assets

Taxpayers need to be aware that the South African Revenue Service (SARS) can recover South African taxes from assets located in another country where SA has concluded a double taxation agreement, which contains an article dealing with mutual assistance in the recovery of tax debts.

Similarly, SARS would be obliged to assist foreign revenue authorities in the collection of tax debts due to those countries where the double taxation agreement with the country concerned allows that.

Where the taxpayer does not have assets located within SA, the question arises as to how SARS may seek to recover South African tax out of assets owned by the taxpayer, but which are located in another country.

There is a principle of international law that the judicial authority of one country will not enforce the revenue laws of another country.  This rule has become known as “The Revenue Rule” and in COT v McFarland, 27 SATC 15, it was decided that the courts in South Africa will not enforce any claim by a foreign state for taxes due and payable in another country. 

The Revenue Rule is founded on the principle that the imposition of taxation constitutes the exercise of sovereignty by a state and the enforcement thereof in another state would constitute an infringement of the sovereignty rights of that state.  Thus, in the absence of a custom or convention agreeing to reciprocal assistance in the recovery of taxation, SARS cannot recover taxes due by a taxpayer from assets located in a foreign country. 

In terms of section 108 of the Act, parliament may enter into any agreement with the government of any other country, whereby arrangements are made with such government to prevent or mitigate the levying of taxes both in SA and the foreign state or to render reciprocal assistance in the administration of and the collection of taxes under the laws of SA or such other foreign country. 

Section 93 of the Act sets out the procedure that SARS must follow where a foreign government requires assistance from SARS to assist with the collection of taxes due to a foreign revenue authority in respect of assets located in South Africa. 

From a review of the double taxation agreements concluded by South Africa with foreign countries, it appears that African countries lead the way in concluding agreements containing provisions allowing for the assistance in the collection of taxes.

The double taxation agreements concluded with our neighbouring states, namely, Botswana, Namibia, Swaziland, Lesotho and Mozambique, all contain articles providing for assistance in the collection of taxes.  Similar provisions are found in the double taxation agreements concluded with Uganda, Tanzania, Ghana and Nigeria.

Agreements concluded with Australia, the Netherlands and more recently the UK allow for the reciprocal assistance in the collection of taxes.  Article 25A was inserted into the double taxation agreement concluded between SA and the UK by way of Government Notice 52 on 2 February 2012.  

Article 25A of the agreement concluded between SA and the UK requires that the two states assist each other in the collection of revenue claims, and that the competent authorities of the respective states will settle the manner in which the article will be applied.  In the case of SA, the competent authority is the SARS and in the UK it is Her Majesty’s Revenue and Customs (HMRC).  

The article provides that any revenue claim of the one state, which is enforceable in accordance with the laws of that country and is owed by a person who cannot, under the laws of that country, prevent its collection, that revenue claim shall, at the request of the competent authority of that country, be accepted for purposes of collection by the competent authority of the other state. 

It is furthermore provided that the revenue claim shall be collected by the other country in accordance with the provisions of its own laws applicable to the enforcement and collection of its own taxes as if the tax debt where a debt of that state. 

A double taxation agreement which contains an article
dealing with mutual assistance in the recovery of tax
debts must be concluded.

The agreement also provides that where a tax claim of one of the country’s in respect of which that country, under domestic law, may take measures of conservancy to ensure the collection of the tax in issue, that country shall on the request of the competent authority of that state, be accepted for purposes of taking measures of conservancy by the competent authority of the other country. 

In addition, the agreement provides that legal proceedings in respect of the existence, validity of the amount of the revenue claim of one country shall not be brought before the courts or administrative bodies of the other country.  Thus, a taxpayer who is indebted to SARS cannot challenge the validity thereof in the English Courts.

Paragraph 8 of Article 25A of the agreement provides that the provisions of the article cannot be construed as imposing on the United Kingdom, the obligation:

* to carry out administrative measures which conflict with the laws and administrative practice of the United Kingdom;

*to carry out measures which would be contrary to public policy;

*to provide assistance if South Africa has not pursued all reasonable measures of collection or conservancy available under its laws or administrative practice;

*to provide assistance in those cases where the administrative burden for the United Kingdom is disproportionate to the benefit to be derived by South Africa;

*to provide assistance if the United Kingdom considers that the taxes with respect of which the assistance is requested are imposed contrary to generally accepted taxation principles. 

Article 25A of the double taxation agreement concluded by South Africa and United Kingdom was considered by the High Court of Justice, Chancery Division in the United Kingdom in the case of Commissioners for Her Majesty’s Revenue and Customs and Another v  Ben Nevis (Holdings) Ltd and others, [2012] EWHC 1807 (Ch).

SARS requested assistance from HMRC to assist in collecting taxes due by Ben Nevis to SARS in the amount of R2.6 billion.  Ben Nevis is a company associated with Mr David King who has featured in the press over a number of years regarding taxes payable in SA.  Article 25A was inserted into the 2002 agreement concluded by SA and the UK which originally came into force on 17 December 2002.

Ben Nevis argued that the provisions of Article 25 A can only apply to South African taxes for tax years ending on or after 1 January 2003.  It was therefore argued by Ben Nevis that Article 25A could not by utilised by SARS in seeking to recover taxes from assets owned by it in the UK and thus the attempt to recover the taxes due by Ben Nevis to SARS violates the Revenue Rule.

Pelling J referred to Article 27 of the OECD Model Tax Convention on Income and Capital and the Commentary thereon which provides that:

“Nothing in the convention prevents the application of the provision to revenue claims that arise before the convention enters into force, as long as assistance with respect to these claims is provided after the treaty has entered into force and the provisions of the article have become effective.”

The court therefore reached the conclusion that, even though the agreement came into force on 17 December 2002, the provisions dealing with the assistance in the recovery of tax debts applied in respect of taxes which may have arisen prior to that date.  An important factor was that the mutual assistance was only provided after article 25A took effect.

Pelling J reached the conclusion that there was no objectionable retrospective element that arises regarding Article 25A and thus decided that HMRC was authorised to assist SARS in recovering taxes due to SARS in respect of assets owned by Ben Nevis in the United Kingdom. 

The fact that the UK double taxation agreement was only amended recently does not preclude the tax authorities from seeking assistance in respect of tax debts which may have arisen prior to the insertion of Article 25A into the agreement in question. 

·     Dr Beric Croome is a tax executive at Edward Nathan Sonnenbergs Inc. An abridged version of this article first appeared in Business Day's Business Law and Tax Review September2012. Free image from ClipArt

Harmonising the administration of all taxes

The Tax Administration Bill was promulgated last month, but aside from two issues that have taken effect already, none of the provisions have taken effect.

The Tax Administration Bill, No 11 of 2011, was promulgated on July 4. The Act shall come into operation on a date to be determined by the president.  It must be pointed out that the date on which the act will come into operation has not yet been proclaimed in the Gazette either.  Section 272(2) of the act provides that the president may determine different dates on which different provisions of the legislation come into operation. 

Paragraph 78 of schedule 1 to the Tax Administration Act is deemed to have come into operation on January 1, 2011 and applies in respect of premiums incurred on or after that date. 

This amendment relates to premiums paid by an employer for an employee regarding the loss of income arising as a result of illness, injury or disability and has the result that such premiums may be deducted from remuneration paid by the employer in determining the amount of PAYE or Employees’ Tax that is payable.

Furthermore, paragraph 184 of schedule 1 is deemed to have come into operation on March 1, 2011 and applies in respect of a mineral resource transferred on or after March 1, 2010.  That paragraph relates to section 4 of the Mineral and Petroleum Resources Royalty (Administration) Act, 2008.

Legislation creates a framework
to facilitate greater access
by SARS to third party data.

In addition, certain amendments made to section 66 of the Income Tax Act, 1962, which section deals with a notice by the Commissioner requiring returns for assessment of taxes under the act, and the manner in which those returns are to be furnished, came into operation on April 1, 2012, that is, the date on which Dividends Tax took effect.

Except for the above, none of the specific provisions contained in the Tax Administration Act have yet taken effect.  The South African Revenue Service (SARS) issued a media release on July 5, indicating that SARS’ preparations for the implementation of the Tax Administration Act are at an advanced stage, and that it is anticipated that the act will come into operation within the next three months.

The Tax Administration Act provides that the Tax Ombud must be appointed within a year from the date on which the act takes effect.  It must be noted that the Minister of Finance indicated in his 2012 budget speech that the Tax Ombud will be appointed during the course of 2012.

The purpose of enacting the Tax Administration Act is to harmonise the administrative provisions of all taxes, other than customs and excise, in South Africa. 

The legislation creates a framework to facilitate greater access by SARS to third party data, to enhance SARS’ initiatives regarding the pre-population of individual tax returns.

Furthermore, the act creates clarity on SARS’ powers of gathering information, and allows for SARS to visit business premises without prior notice to establish if the premises are being used for purposes of conducting a business, and, more importantly, to establish whether that business is, in fact, registered for tax purposes. 

The legislation allows for SARS to conduct a search and seizure operation without a warrant where it is anticipated that the time taken to secure a warrant would result in the destruction of the documents required by SARS. 

On the one hand, SARS must administer the tax laws of South Africa and is entitled to obtain the information to meet its mandate.  On the other hand, taxpayers are entitled to a right to privacy, as enshrined in the Constitution of the Republic of South Africa. 

There is, therefore, tension between the powers of SARS and the right of taxpayers to privacy.  The power to conduct search and seizure operations without a warrant is controversial, and it is hoped that this power will only be used in those instances where it is warranted, and that it is not abused.

The legislation contains requirements and time frames for the issue of tax clearance certificates, which was not previously contained in the Income Tax Act.

Furthermore, SARS will, once the Tax Administration Act takes effect, be compelled to advise taxpayers as to the status of audits being undertaken on their affairs, which was previously not specifically required. 

The legislation contains a permanent voluntary disclosure program similar to that which commenced on November 1, 2010 and ended on October 31, 2011. 

It appears that a number of taxpayers regret not having taken advantage of the voluntary disclosure program, and are waiting for the date on which the permanent voluntary disclosure program will take effect.  Based on the media release published by SARS, it is anticipated that the new voluntary disclosure program should commence within three months.

On July 6, the Treasury released various draft amendment bills. Included in those, was the draft Taxation Administration Amendment Bill 2012, which already seeks to amend certain of the provisions contained in the Tax Administration Act. 

Some of those amendments are refining the definitions contained in that legislation and clarify certain provisions contained in the legislation.  The draft bill seeks to amend certain of the provisions regulating the issue of tax clearance certificates and provides that SARS may withdraw a tax clearance certificate with effect from the date on which the taxpayer no longer complies with their obligations under the fiscal statutes administered by the Commissioner.  Previously, a tax clearance certificate could only be withdrawn from the date of issue thereof, where the certificate was issued in error or was obtained on the basis of fraud, misrepresentation or non-disclosure of material facts.

In addition, the draft bill seeks to commence the process in regulating tax practitioners in South Africa.  The explanatory memorandum on the Taxation Administration Amendment Bill indicates that it is proposed that the regulation of tax practitioners be divided into two distinct phases. 

The first phase will require all tax practitioners to register with a recognised controlling body. 

The second phase will entail the establishment of an independent regulatory board for tax practitioners, and will only commence after the first phase has run its course. 

SARS will review the minimum qualifications and experience requirements, continuing professional education requirements, codes of ethics and conduct and disciplinary procedures of any professional association seeking recognition by SARS.

Furthermore, SARS will ensure that members of the body concerned are required to have tax knowledge that is kept up to date and that the professional body has an effective disciplinary mechanism to discipline members who contravene the codes of ethics and conduct. 

The bill proposes recognising statutory regulators automatically, whereas professional bodies would need to be recognised by SARS so long as those professional bodies are approved in terms of section 30B of the Income Tax Act for purposes of section 10(1)(d)(iv) of the act. 

The bill proposes inserting section 241(2) into the Tax Administration Act, whereby a senior SARS official may lodge a complaint with a recognised controlling body if a registered tax practitioner has, in the opinion of the Commissioner unreasonably delayed the finalisation of any matter before SARS, been grossly negligent with regard to any work performed as a registered tax practitioner, or has committed any one of the other defaults listed in the draft Bill. 

Therefore, SARS wishes to be placed in a position that it can initiate disciplinary proceedings against a registered tax practitioner. This is necessary in order to protect the public where a registered tax practitioner fails to adhere to accepted levels of service that would be expected from a professional person. 

However, a question arises as to what taxpayers can do where a SARS official fails to finalise matters within a reasonable time, or acts negligently and causes undue costs to be incurred by the taxpayer.  The taxpayer would, probably, be entitled to lodge a complaint with the Tax Ombud, once that office has been created. It would be preferable if the legislation dealt with the levels of conduct taxpayers should be able to expect from SARS officials, and what recourse is available where such standards are not complied with, similar to those which SARS is seeking from registered tax practitioners.

The Tax Administration Act clarifies the legislation dealing with tax administration, by removing anomalies which existed in the various pieces of fiscal legislation.  

Thus, it is important that taxpayers, their advisors and the SARS undertake a study of the provisions of the Tax Administration Act, so that they become familiar therewith, as those provisions will affect the manner in which tax is administered in the future.

DR BERIC CROOME is a Tax Executive at Edward Nathan Sonnenbergs Inc. An edited version of this article first appeared in Business Day, Business Law & Tax Review, August 2012. Image purchased from iStock