A new chance to get on the right side of SARS

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - Beric Croome

New dis­clo­sure pro­gramme again al­lows tax­pay­ers to reg­u­larise any trans­gres­sions, but no re­lief is pro­vided for in­ter­est ow­ing

AVOLUNTARY 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 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, 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.

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, among 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 ENS.

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