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1 Adapted for the LSSA - Prof Daniel N Erasmus Tax Administration Act 2011.

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Presentation on theme: "1 Adapted for the LSSA - Prof Daniel N Erasmus Tax Administration Act 2011."— Presentation transcript:

1 1 Adapted for the LSSA - Prof Daniel N Erasmus Tax Administration Act 2011

2 2 More Info – More notes & Advanced Diploma In Tax Procedural client funding Prof D N Erasmus – 083 458 8422 List of cases

3 3 BALANCE BETWEEN SARS POWERS & TAXPAYER RIGHTS TAA seeks to achieve a balance between powers & duties of SARS and rights & obligations of taxpayers thereby enhancing equity and fairness of tax administration SARS TAXPAYERS Powers & Duties Rights & Obligations

4 4 D ESIGN OF TAA: M AIN C HAPTERS - HIGHLIGHTS DESIGN OF TAB: MAIN CHAPTERS Chapter 1DefinitionsChapter 11Recovery of Taxes Chapter 2General AdministrationChapter 12 Interest Chapter 3RegistrationChapter 13Refunds Chapter 4Returns and records ChapterChapter 14Write-off or Compromise of tax debt Chapter 5Information GatheringChapter 15Non Compliance Chapter 6Confidentiality of informationChapter 16Understatement penalty Chapter 7Advance RulingsChapter 17Criminal Offence Chapter 8Assessment ChapterChapter 18Reporting of unprofessional conduct Chapter 9Dispute ResolutionChapter 19General Provisions Chapter 10Tax Liability & PaymentChapter 20Transitional Provisions


6 6 TAA: B ALANCE BETWEEN P OWERS & R IGHTS (2) INFORMATION GATHERING & ENFORCEMENT (cont.) SARSTAXPAYER RIGHTS POWERS AuditAudit selection on rational basis (random or risk) Only authorised SARS officials may audit & must produce authorisation Audit reports on stage of completion to taxpayer Notice of inconclusive audit to taxpayer Letter of audit findings to taxpayer Taxpayer may respond to findings prior to assessment CriminalSeparation between audit and criminal investigation Investigations Only authorised SARS officials may investigate Criminal investigation: Adherence to rights as suspect Taxpayer must be informed of inconclusive investigation Only senior SARS official may lay complaint with NPA Inquiry Authorised by Judge of High Court upon application Independent oversight of inquiry Confidential & protection against incriminating evidence Search & Warrant: Issued by Magistrate/Judge of High Court upon application seizure Warrantless: Narrow circumstances Carrying out: Decency & Order; Inventory; Copies/originals; Protection of privileged documents; Application for return/damages

7 7 RECOVERY SARS POWERSTAXPAYER RIGHTS Recovery Statutory limitations (e.g. TAB; Insolvency Act; Companies Act) Period of limitations reduced to 15 years Constitutional limitations (PAJA, property rights etc.) SARS Administrative Complaint Resolution / Tax Ombud / Public Protector / Court review Civil procedural rights (e.g. Rescission of judgments) Debt relief Deferment by instalment payment agreements Write off or compromise agreements Suspension pending outcome of dispute Remittance of penalties and interest Voluntary Disclosure Programme - penalty relief Personal liability Prescribed criteria in TAB before 3rd party will be held liable Normal court remedies during recovery Repatriation of Prescribed judicial procedure before Judge of High Court foreign assets Preservation of Prescribed judicial procedure before Judge of High Court assets TAA: B ALANCE BETWEEN P OWERS & R IGHTS (3)

8 8 TAA PENALTY REGIME TAA: Penalty Regime across taxes A: Administrative non-compliance Penalty Targets administrative non-compliance B:Understatement non-compliance Penalty Targets serious non- compliance & tax evasion C: Criminal Offences General offences across taxes

9 Now for a more detailed look You will need a copy of the TAA in front of you to mark up with points I make SLIDES ADAPTED FROM THE SARS PRESENTATION TO THE SELECT COMMITTEE ON FINANCE 9

10 SARS MANDATE SARS is the institution created to effect optimum revenue collection SARS objectives are the efficient and effective: Collection of revenue, and Control over the import, export, manufacture, movement, storage or use of certain goods To achieve its objectives SARS must secure the efficient and effective, and widest possible,enforcement of national Tax and Customs legislation 10

11 TAX LEGISLATION Tax legislation comprises two aspects: Tax liability provisions Tax administration provisions TAA only deals with tax administration Modern framework is required for: Administration of the collection of revenue Consolidating duplicate & aligning disparate requirements in existing law 11

12 WHY A TAX ADMINISTRATION ACT? Rationale for tax administrative review: Adapting to fast developing world Lowering Cost of Tax Administration TAB incorporates into one piece of legislation: Certain generic administrative provisions Currently duplicated in the different tax Acts Simplification of provisions > enhance clarity of law 12

13 13 REWRITE OF INCOME TAX ACT TAA is preliminary step to the re-write of the Income Tax Act & assists in re-write by dividing the work into more manageable parts – administrative part comprises about 25% of Act

14 M ODERNISATION P LATFORM The TAA seeks to provide a foundation for further modernisation in the context of: Single Registration Self Assessment Accounting Transformation 14

15 15 M ODERNISATION P LATFORM The TAA seeks to provide a foundation for further modernisation in the context of: Single registrationSelf AssessmentAccounting transformation

16 16 I NTENDED IMPACT OF TAA A simplified and harmonised TAB should benefit both taxpayers & SARS Compliance burden on taxpayers should reduce as: Taxpayers will have only one administration Act Act sets out all duties & rights with regard to all tax laws in simplified form Administrative burden on SARS should reduce as: Unnecessary & duplicate provisions simplified Inefficient or ineffective provisions removed 10

17 17 I NTERNATIONAL B EST P RACTICE IN T AX A DMINISTRATION In drafting the TAA, due regard was given to principles of international best practice in tax administration (read with ss 195 of the Constitution & 4(2) of the SARS Act, placing s 237 Constitutional obligations on SARS): Equity and fairness Certainty and simplicity Efficiency Effectiveness The impact of International Law – OECD Guidelines & eg. foreseeably relevant information

18 18 T AX COMPLIANCE The TAA recognises: Majority of taxpayers who are compliant & want a more modern & responsive revenue administration. Minority who seek to evade tax or defraud the government Tax evasion undermines compliant taxpayers morale and places an unfair burden on them if not countered SARS must actively pursue tax evaders to maintain confidence in integrity of tax system Stricter enforcement powers therefore required to target increasingly sophisticated tax evaders 11

19 19 T ARGETED POWERS UNDER TAA Tax Evaders Generally Compliant Taxpayers Compliant Taxpayers Stricter enforcement, assessment & collection powers Less strict powers Better service

20 CONSTITUTIONAL COMPLIANCE TAA designed with due regard to constitutional rights of taxpayers & constitutional obligations of SARS For example, to ensure consistent treatment and greater equity & fairness, certain discretionary powers linked to objective criteria. Constitutionality of TAA reviewed by external constitutional experts TAA does not seek to re-codify basic rights of taxpayers as they apply in any event, e.g. right to administrative justice 20

21 21 I NTERNATIONAL B ENCHMARKING Drafting of TAA was informed by international best practice A comparative evaluation of tax administration laws of other countries Countries evaluated have practical experience with tax administrative laws over long period Countries evaluated: Australia, Botswana, Canada, New Zealand, UK, USA BUT also consider OECD Guidelines

22 22 TAA PRE-INTRODUCTION CONSULTATION PROCESS SARS was assisted during drafting by: International tax experts from IMF Local constitutional experts Internal SARS stakeholders & National Treasury Closed workshop with external tax experts May09 First draft for public comment: period 29 Oct09 to 28 Feb10 & external workshop on first draft in Mar10 Constitutional review by external constitutional experts & pre-certification by State Law Advisers Workshop with Economic Sectors Cluster in Aug10 Cabinet approval for introduction in Parliament 1 Sep10 Second draft for public comment Oct10 to Dec10 & external workshops Jan11 & Feb11 Final certification Mar11

23 23 C ONSULTATION PROCESS : S IGNIFICANT CHANGES Significant changes following public comments: Introduction of Tax Ombud Removal of advance notice of leaving South Africa Limitation of information request to available records Reasonable specificity limitation on information requests Protection of legal professional privilege during seizure Right to claim damages arising from search & seizure Reportable arrangement failure no longer an offence Estimated assessments – burden of proof on SARS Interest neutrality & remittance of interest Security for audited refund Permanent VDP

24 24 TAA I SSUES General reception of TAA positive However, during the extended consultative process mainly the following have triggered debate: Tax Ombud Ambit of information gathering powers Search and seizure without warrant No legal professional privilege for tax practitioners who are not lawyers Secrecy disclosure extension Collection powers extension

25 25 D ESIGN OF TAA - G ENERAL A PPROACH The core provisions required for the administration of the tax system were identified and incorporated A step by step methodology followed to align the structure of the TAB to the administrative life cycle of taxpayers Organisation in functional categories will accentuate understanding Taxpayers & SARS will know which step applies to issue at hand The legislative style followed is a new simplified manner of legislative writing, i.e. shorter sentences, shorter sections and less formalistic language.

26 26 INTERPRETATION Interpretation Terms used in the TAA which are defined in the tax Acts retain tax Acts defined meaning in the TAA unless context indicates otherwise orspecifically defined in TAA Terms defined in the TAA apply to tax Acts unless the context in the tax Act indicates otherwise, or if they are specifically defined in the relevant tax Act Each tax Act will be amended to provide that: Any administrative requirement and procedure for purposes of the performance of any duty, power or obligation or the exercise of any right in terms of a tax Act is, to the extent not regulated in this Act, regulated by the Tax Administration Act Inconsistency between TAA & tax Act > tax Act prevails NB: Administrative provisions that are specific to a tax Act or the relevant tax type remain in that Act 20

27 27 CHAPTER 1: DEFINITIONS New defined concepts: Assessment > now includes self-assessment & excludes decision Biometric information > provides for less intrusive data Date of assessment > now means date of issue of assessment and not due date for payment Effective date > determines date from which interest accrues Official publication > clarity on what constitutes SARS practice generally prevailing i.e. applicable to whole of SARS Relevant material > means information forseeably relevant & determineswhat SARS may obtain by using its information gathering powers Self-assessment > determination by taxpayer of tax payable Serious tax offence > relevant for referral of audit for separate criminal investigation Taxable event > means occurrence affecting liability for tax Tax > defined for purposes of the administration of the TAA & includes penalties & interest

28 28 CHAPTER 2: GENERAL ADMINISTRATION (1) Purpose of Act Effective and efficient collection of tax Alignment of the administration provisions of tax Acts Consolidation thereof into one piece of legislation Administration of the Act SARS is responsible for the administration of the Act Under the control or direction of the Commissioner Includes administrative assistance to foreign governments under DTA i.e. information exchange, recovery and service of documents Application of the Act > applies to every person liable to comply with a provision of a tax Act Practice generally prevailing - sources: General ruling Interpretation note Practice note Public notice issued by senior SARS official / C:SARS

29 29 CHAPTER 2: GENERAL ADMINISTRATION (2) Limitation of administrative powers Exercise of powers or obligations by SARS must be related to & within ambit of administration of tax Acts Three tier decision making levels (more serious powers reserved for C:SARS or delegated senior SARS officials) Conflict of interest provisions > prohibit involvement in matters with personal, family, financial etc. relationships Identity Cards > All SARS officials who administer tax Acts Withdrawal or amendment of decisions > request driven & limited if retrospective Delegations must be in writing with defined mandate Authority to act in legal proceedings > only certain officials Powers and duties of the Minister May be delegated except for power to issue regulations under TAA or appoint Tax Ombud

30 30 C HAPTER 2: T AX O MBUD : B ACKGROUND The creation of an independent and effective recourse for taxpayers is in line with the objective of TAB to balance powers & rights Background to creation of Tax Ombud: Tax Ombudsman on lines of UK Adjudicator recommended by Katz Commission Joint Standing Committee on Finances response was to suggest tax unit in Public Protector SARS Service Monitoring Office (SSMO) was intended as first step in improvement Creation of Tax Ombud was foreshadowed at launch of SSMO

31 31 C HAPTER 2: T AX O MBUD : R OLE Tax Ombud is a mechanism to address service failures & failures to respect taxpayer rights Two kinds of disputes with SARS: Disagreement on interpretation of law: normal dispute resolution steps i.e. Objection & Appeal> ADR> Tax Board> Tax Court> Normal Court system Disagreement on administration of law: administrative issue resolution steps i.e. internal service issue resolution> SSMO> Tax Ombud > Public Protector/normal Court system Taxpayer protection & remedies: specific in clauses dealing with SARS powers PLUS general e.g. request to review decisions & Tax Ombud 25

32 32 C HAPTER 2: T AX O MBUD : S TRUCTURE & M ANDATE Appointment: Minister of Finance & Minister determines terms of office Staffing: Seconded SARS staff Funding: SARS Budget Mandate: Review complaints regarding service, procedural or administrative matters Powers: Review and mediatory Reporting: Directly to Minister of Finance

33 33 CHAPTER 3: REGISTRATION Registration requirements regulated for all taxes Platform for single registration Registration period of 21 business days across most taxes Biometric information may be required e.g. VAT registration > to counteract identity & other fraud Obligation to inform SARS of changes in registered particulars to ensure SARS has current information e.g. Change in address (including physical, postal & electronic), banking details & representative taxpayer Commissioner may prescribe additional information by notice Taxpayer reference number SARS may allocate in respect of one or more taxes Use of number compulsory in all correspondence to enable SARS to process taxpayer information more efficiently SARS may disregard correspondence without allocated reference number

34 34 CHAPTER 4: RETURNS AND RECORDS Submission of return Obligation imposed by relevant tax Act If imposed, form and manner of return regulated by TAB Taxpayer may submit amended return before original assessment to correct errors Third party returns Prescribing types of information required from third parties in tax Act inflexible & voluminous Information required & periods now required by public notice by C:SARS Further or more detailed returns > may be required by SARS Statement required regarding extent of examination reflected in accounts / financial statements submitted Record retention TAB general record requirement + record requirements in tax Acts Manner of record keeping prescribed Audit or dispute: Records must be retained until concluded 28

35 REGISTRATION & COMPLIANCE ISSUES Sections 22 to 39 Biometric registration Registration number for all taxes registered s24(4) SARS may consider a return or other document submitted by a taxpayer to be invalid if it does not contain the reference number referred to in subsection (3) 35

36 REGISTRATION & COMPLIANCE ISSUES CONTINUED Filing various tax returns & keeping records – 5 years except always for periods no returns submitted – s29(3) Reportable arrangements – listed tax benefits 36

37 REGISTRATION & COMPLIANCE ISSUES CONTINUED Reportable arrangement penalty s 212 (1) Aparticipant who fails to disclose … a reportable arrangement … is liable to a penalty, for each month that the failure continues (up to 12 months), in the amount of 37

38 REGISTRATION & COMPLIANCE ISSUES CONTINUED ( a)R50 000, in the case of a participant other than thepromoter; or (b)R100 000, in the case of the promoter. (2) The amount of penalty determined under subsection (1) is doubled if the amount of anticipated tax benefit for theparticipant by reason of the arrangement (within the meaning of section 35) exceeds R5 000 000, and is tripled if the benefit exceeds R10 000 000. 38

39 39 CHAPTER 5: INFORMATION GATHERING (1) Information gathering powers are substantially supplemented / extended to address protracted information entitlement disputes & waste of resources Powers more aligned with international practice: Rationale for wide tax information gathering powers = to achieve equitable levying of taxes & discharge duties to correctly assess taxable income, revenue authority should have access to all information which might affect liability to tax Information is the lifeblood of a revenue authoritys audit activities Whole burden of taxation would fall only on honest taxpayers if revenue authority had no power to obtain information about taxpayers who may be negligent or non-compliant Concerns about tax fishing expeditions – see foreseeably relevant and OECD meaning: Concept applies in criminal cases > fishing to see if case exists, BUT tax audits can convert Tax audits > impossible to audit all taxpayers thus random or risk based selection of taxpayers for audit, BUT does random ever really exist?

40 40 CHAPTER 5: INFORMATION GATHERING (2) New / extended powers: Inspections > To determine identity of the person occupying business premises & whether registered for tax Requests for information - ambit extended to: Identifiable taxpayers (e.g. taxable event indicates existence of person liable for tax but name unknown) Classes of taxpayers (e.g. taxpayers involved in certain potential tax avoidance structures) Information required for revenue estimation > SARS may request this information but failure to submit does not constitute a criminal offence (specifically excluded in Chapter 17) Informal examination / interview at SARS office > aim = to clarifyissues of concern to render further audit unnecessary Search & seizure without warrant > narrow exception to warrant requirement – should inter alia assist in tax fraud investigations

41 41 CHAPTER 5: AUDIT SELECTION (1) Audit selection basis > now specified in TAA and may be on random (Constitutional?) or risk assessment basis Random basis: Regarded as perfectly rational basis for audit in most countries Inevitably, there will be a random aspect to those who are selected Often it will be impossible to determine from the face of the return whether any impropriety has occurred in its preparation. A spot check or a system of random monitoring may be the only way in which the integrity of the tax system can be maintained. [Supreme Court of Canada - R v McKinlay Transport 47 CRR 151 (SCC) at 168] In the USA, the IRS is known to have a program that randomly targets taxpayers for audit on a statistical basis – BUT a statistical basis is still a basis for selection, not entirely random

42 42 CHAPTER 5: AUDIT SELECTION (2) Risk assessment audit selection basis Involves assessing the risk profile of taxpayers (risk assessment) and then allocating resources in accordance with the risk profiles (resourceto risk allocation) Benefits of risk assessment: More targeted audits and efficient use of SARS and taxpayers resources SARS able to address emerging tax risks in real-time & provide tax certainty to taxpayers sooner Quicker guidance on tax matters Reduces need for protracted audits (typically some years after targeted transactions occurred) Limit disputes Reduces the incidence of tax underpayments, administrative penalties and interest Obtaining real-time relevant information from taxpayers is key to effective risk management

43 43 C HAPTER 5: A UDIT V C RIMINAL I NVESTIGATIONS (1) If during an audit it appears that a person may have committed a serious tax offence then:- case must be referred to a SSO for a decision whether to conduct a criminal investigation; investigation proceeds with due adherence to rights of taxpayer as suspect; and from date of referral audit must keep audit and investigation material separately Use of audit material Relevant material obtained by audit - before referral > may be used in an investigation after referral > may not be used in criminal proceedings, BUT may be used to further criminal investigation Use of information obtained via an investigation may be used for audit or prosecutorial purposes

44 44 CHAPTER 5: AUDIT V CRIMINAL INVESTIGATIONS (2) Audit > prima facie serious offences Audit Criminal Investigation Information flow No information flow ??? Split

45 45 CHAPTER 5: SEARCH & SEIZURE WITHOUT WARRANT (1) This power may only be invoked if a senior SARS official on reasonable grounds is satisfied that: There may be an imminent removal or destruction of relevant material likely to be found on the premises; If SARS applies for a search warrant, a search warrant will be issued; and The delay in obtaining a warrant will defeat the object of the search and seizure. Power is a very narrow exception to requirement that searches & seizures occur pursuant to warrant Does not apply to private dwelling except for part used for trade or if occupant consents Courts have held that there are instances where warrantless search and seizure may be justified

46 46 C HAPTER 5: S EARCH & S EIZURE W ITHOUT W ARRANT (2) This power is consistent with that found in more than 15 other pieces of legislation in South Africa SA organs of state / officials with similar powers: Competition Tribunal; fire protection officers; forest officers; FSB; immigration officers; SAPS OECD tax authorities with similar or greater powers: Tax authorities with warrantless search & seizure powers: Austria; Belgium; Chile; Czech Republic; Denmark; Greece; Hungary; Iceland; Ireland; New Zealand; Norway; Poland; Portugal; Slovenia Tax authorities that may enter business premises & private dwellings without a warrant: Australia; Canada; Finland; Turkey

47 47 CHAPTER 5: Taxpayers new rights & obligations SARS official must demonstrate authority to conduct audit Prior notice of field audit at least 10 business days before audit Taxpayers obliged to give SARS reasonable assistance during field audits & search and seizure Report on the progress of on going audit Notification of conclusion of audit that revealed no adjustments Taxpayer entitled to audit findings letter & respond in writing before assessment if audit revealed material adjustments Search & seizure: In conduct of search SARS must have strict regard to decency and order Taxpayer entitled to inventory of seized material SARS may remove copies and not originals where possible Taxpayer may claim for unjustified physical damage caused during search Protection of material if legal professional privilege asserted

48 48 CHAPTER 5: LEGAL PROFESSIONAL PRIVILEGE (LPP) LPP is a legal principle that certain information shared between client and lawyer may not be disclosed without clients consent TAA recognises LPP but does not extend it to non-lawyers Inherent differences between professions, including lawyers oversight by and duty to Courts Internationally: Australia regulates tax practitioners but does not extend privilege to non-lawyers (currently under discussion) Canada does not regulate tax practitioners or extend privilege to non-lawyers New Zealand does not regulate tax practitioners but extends limited privilege to non-lawyers UK does not regulate tax practitioners and Court of Appeal confirmed in the Prudential case that privilege is not extended to non-lawyers stating; Parliament's failure to change the law in this respect is not an accident (case is on appeal) USA regulates tax practitioners and extends limited privilege to non-lawyers, BUT see Kovell case extended to third parties under attorney

49 49 C HAPTER 6: C ONFIDENTIALITY (1) Rationale for tax secrecy: Constitutional rationale: protects taxpayers right to privacy Tax policy rationale: to encourage taxpayers to make full & voluntary disclosure of all relevant information for purposes of assessing tax liability In TAA secrecy & confidentiality provisions are: Aligned across taxes More explicit as to who is subject thereto Extended to include SARS confidential information

50 50 CHAPTER 6: CONFIDENTIALITY (2) General prohibition of disclosure: Secrecy specifically applicable to C:SARS & former or current SARS employee or person contracted by SARS SARS employees and persons contracted by SARS obliged to take oath of secrecy before commencing duties Information unlawfully disclosed may not be further disclosed or published, including by the media C:SARS may personally disclose information to counter / rebut false allegations in media in very narrow circumstances SARS confidential information Includes, for example, confidential information such as internal policies, privileged legal opinions, informant information & information that could prejudice the economic interests or financial welfare of the Republic Disclosure regulated > only permitted if public information, authorised by C:SARS, access has been granted under PAIA or by order of a High Court Unauthorised disclosure criminalised

51 51 C HAPTER 6: C ONFIDENTIALITY (3) The current secrecy and disclosure proposals seek to balance the rationale for tax secrecy with information needs of government to meet law enforcement & integrity provisions Disclosure justified where the public benefit/interest outweighs concerns about individuals right to privacy Disclosure of information subject to secrecy: In the course of performance of duties under a tax Act By High Court & criteria to consider prescribed Aspects where disclosure is clarified or widened: Information needed to enable third party to provide information to SARS Verification of basic non-financial information Financial regulatory agencies

52 AUDITS Sections 40 to 74 Sections 234 to 238 criminal matters Serious tax offence 52

53 AUDITS CONTINUED s40 SARS may select a person for inspection, verification or audit on the basis of any consideration relevant for the proper administration of a tax Act, including on a random or a risk assessment basis s41(3) If the official does not produce the authorisation as required under subsection (2), a member of the public is entitled to assume that the person is not a SARS official so authorised s42 (1) A SARS official involved in or responsible for an audit under this Part must, in the form and in the manner as may be prescribed by the Commissioner by public notice, provide the taxpayer with a report indicating the stage of completion of the audit 53

54 AUDITS CONTINUED S42(2) Upon conclusion of the audit…provide the taxpayer with a document containing the outcome of the audit, including the grounds for the proposed assessment or decision referred to in section 104(2); (3) Upon receipt of the document described in subsection (2)(b), the taxpayer must within 21 business days of delivery of the document, or the further period requested by the taxpayer that may be allowed by SARS based on the complexities of the audit, 15 respond in writing to the facts and conclusions set out in the document; (4) The taxpayer may waive the right to receive the document – DONT! 54

55 AUDITS CONTINUED s43(2) Any relevant material gathered during an audit after the referral, must be kept separate from the criminal investigation and may not be used in any criminal proceedings instituted in respect of the offence s44 (1) During a criminal investigation, SARS must apply the information gathering powers in terms of this Chapter with due recognition of the taxpayers constitutional rights as a suspect in a criminal investigation 55

56 AUDITS CONTINUED Production of relevant material- s46(1) SARS may, for the purposes of the administration of a tax Act in relation to a taxpayer, whether identified by name or otherwise objectively identifiable, require the taxpayer or another person to, within a reasonable period, submit relevant material (whether orally or in writing) that SARS requires – expand on ss 46 to 49 Relevant material - means any information, document or thing that is forseeably relevant for tax risk assessment, assessing tax, collecting tax, showing non-compliance with an obligation under a tax Act or showing that a tax offence was committed; 56

57 AUDITS CONTINUED s49(2) No person may without just cause (a)obstruct a SARS official from carrying out the audit or investigation; or (b)refuse to give the access or assistance as may be required under subsection (1). s50(1) Conduct an inquiry for the purposes of the administration of a tax Act s50(2) A judge may, on application made ex parte by the Commissioner or a senior SARS official grant an order in terms of which a person described in section 51(3) is designated to act as presiding officer at the inquiry contemplated in this section – NB conflict example! 57

58 AUDITS CONTINUED s51 reasonable grounds to believe that (a) a person has - (i) failed to comply with an obligation imposed under a tax Act; or(ii)committed a tax offence; and (b) relevant material is likely to be revealed during the inquiry which may provide proof of the failure to comply or of the commission of the offence – Ferreira v Levin 1996 1 BCLR ! (CC) & R v Jarvis [2002] 3 S.C.R. 757, 2002 SCC 73 ? s57(2) Incriminating evidence obtained under this section is not admissible in criminal proceedings against the person giving the evidence, unless the proceedings relate to(a) the administering or taking of an oath or the administering or making of a solemn declaration; (b) the giving of false evidence or the making of a false statement; or (c) the failure to answer questions lawfully put to the person, fully and satisfactorily Similar provisions for search & seizure warrants 58

59 AUDITS CONTINUED Breaching secrecy – s67(5) The Commissioner may, for purposes of protecting the integrity and reputation of SARS as an organisation and after giving the taxpayer at least 24 hours notice, disclose taxpayer information to the extent necessary to counter or rebut false allegations or information disclosed by the taxpayer, the taxpayers duly authorised representative or other person acting under the instructions of the taxpayer and published in the media or in any other manner However – s68(1)(e) information related to the operations of SARS, including an opinion, advice, report, recommendation or an account of a consultation, discussion or deliberation that has occurred, if (i) the information was given, obtained or prepared by or for SARS for the purpose of assisting to formulate a policy or take a decision in the exercise of a power or performance of a duty conferred or imposed by law 59

60 AUDITS CONTINUED Self-incrimination s 72 An admission by the taxpayer of the commission of an offence under a tax Act (a) contained in a return, application, or other document submitted to SARS by a taxpayer; or (b) obtained from a taxpayer under Chapter 5, is XXX admissible in criminal proceedings against the taxpayer, unless a competent court directs otherwise THERE IS A MISTAKE YOUR PRINTED NOTES 60

61 61 C HAPTER 7: A DVANCE R ULINGS The advance ruling system currently regulated in the Income Tax Act and the VAT Act now incorporated in the TAB TAB provisions establish framework for the system and set out basic rules regarding: Application process & fees Exclusions and refusals Effect of rulings Impact of subsequent law changes Retrospectivity Publication of rulings Provisions also provide for specific rules in respect of: Binding general rulings Binding private rulings Binding class rulings

62 62 CHAPTER 8: ASSESSMENT New provisions: Original assessment: Defined term that includes 1st assessment by SARS & return which incorporates the taxpayers determination of the amount of a tax liability Additional assessment: New simplified grounds on which additional assessments may be issued to achieve alignment across taxes Reduced assessment: Clarity that reduced assessment will also be issued if taxpayer made undisputed errors in return Jeopardy assessment: May be issued before end of tax period to secure early collection of tax at risk e.g. in case of dissipation Estimation of assessment: Concept of estimated assessment replaced with provision that original, additional, reduced or jeopardy assessment may be based on an estimation Notice of assessment: If contrary to return must include grounds Period of limitations for issuance of assessment: Normal assessment 3 years & self- assessment 5 years Finality of assessment: Consolidated

63 63 CHAPTER 9: DISPUTE RESOLUTION New provisions: Burden of proof: Aligned & SARS bears burden in case of assessment based on jeopardy and estimation & additional tax re: understatement Decision on objection: If disallowed must include grounds Decision of Tax Board: Time period within which decision must be given prescribed – 60 business days Conflict of interest: Chairperson of Tax Board / Member of Tax Court must withdraw in case of conflict that may give rise to bias Sittings of Tax Court: Generally not public, but Court has a discretion to order sitting to be public on application by any person & if exceptional circumstances exist Order for costs in favour of SARS : Constitutes funds of SARS Publication of Tax Court judgments: All must be published to ensure not only SARS has benefit of unreported judgments Settlement of dispute: Only possible if dispute arises after issue of assessment New Test Case provision

64 DISPUTES Section 12 right of appearance Sections 101 to 150 64

65 DISPUTES CONTINUED Burden of proof s 102 (1) A taxpayer bears the burden of proving (a) that an amount, transaction, event or item is exempt or otherwise not taxable; (b) that an amount or item is deductible or may be set-off; (c) the rate of tax applicable to a transaction, event, item or class of taxpayer; (d) that an amount qualifies as a reduction of tax payable; (e) that a valuation is correct; or (f) whether a decision that is subject to objection and appeal under a tax Act, is incorrect. (2) The burden of proving whether an estimate under section 95 is reasonable or the facts on which SARS based the imposition of an understatement penalty under Chapter 16, is upon SARS. 65

66 DISPUTES CONTINUED Forum for dispute of assessment or decision s 105 A taxpayer may not dispute an assessment or decision as described in section 104 in any court or other proceedings, except in proceedings under this Chapter or by application to the High Court for review. Usual objection & appeal balanced against High court proceedings on procedural issues Settlement of disputes s 142 - In this Part, unless the context indicates otherwise, the following terms, if in single quotation marks, have the following meanings: 66

67 DISPUTES CONTINUED dispute means a disagreement on the interpretation of either the relevant facts involved or the law applicable thereto, or of both the facts and the law, which arises pursuant to the issue of an assessment or the making of adecision; and settle means, after the lodging of an appeal under this Chapter, to resolve a dispute by compromising a disputed liability, otherwise than by way of either SARS or the person concerned accepting the other partys interpretation of the facts or the law applicable to those facts or of both the facts and the law, and settlement must be construed accordingly. 67

68 DISPUTES CONTINUED Purpose of part s 143 - (1) A basic principle in tax law is that it is the duty of SARS to assess and collect tax according to the laws enacted by Parliament and not to forgo a tax which is properly chargeable and payable. (2) Circumstances may require that the strictness and rigidity of this basic principle be tempered, if such flexibility is to the best advantage of the State. (3) The purpose of this Part is to prescribe the circumstances in which it is appropriate for SARS to temper the basic principle and settle adispute – Glenister v RSA CCT 48/10 [2011] 68

69 69 CHAPTER 10: TAX LIABILITY & PAYMENT (1) New provisions: Categories of persons liable to tax: To simplify & clarify which persons are liable to tax and in which capacity. Taxpayers: Persons (primary) chargeable to tax Representative taxpayers Withholding agents Responsible third parties Person who is the subject of a request to provide assistance under DTA Security: SARS may require security to safeguard collection of tax e.g. in case of withholding agent who repeatedly failed to withhold / pay tax due Security may also be required from any or all of members, shareholders or trustees who controls / manage the taxpayer Preservation of assets order: Common law remedy codified in TAA for tax administrative purposes Order by High Court & SARS may seize assets in anticipation of order Power available as conservancy measure for purposes of mutual assistance in the recovery of tax on behalf of foreign governments

70 70 CHAPTER 10: TAX LIABILITY & PAYMENT (2) New provisions: Pay now argue later: Rule that dispute (objection & appeal) does not automatically suspend obligation to pay clarified in Taxation Laws Second Amendment Act, 18 of 2009. TAA additionally provides that: Collection steps by SARS are prohibited during consideration of suspension request and 10 days after revocation notice, except in narrow circumstances Leave of Court is required for institution of sequestration or liquidation if disputed tax is not paid and did not get a suspension of payment obligation Taxpayer account & allocation of payment: TAA creates Framework for single taxpayer account with rolling balance Framework for first in first out payment allocation rule i.e. payment may be applied to oldest debt first despite taxpayer designation Instalment payment agreement: Administrative debt relief mechanism now included in law

71 71

72 TAX LIABILITY & PAYMENT Liability of representative taxpayer s154(1) A representative taxpayer is, as regards (a) the income to which the representative taxpayer is entitled;(b) moneys to which the representative taxpayer is entitled or has the management or control; (c) transactions concluded by the representative taxpayer; and (d) anything else done by the representative taxpayer, in such capacity - (i) subject to the duties, responsibilities and liabilities of the taxpayer represented; (ii) entitled to any abatement, deduction, exemption, right to set off a loss, and other items that could be claimed by the person represented; and (iii) liable for the amount of tax specified by a tax Act. (2) A representative taxpayer may be assessed in respect of any tax under sub- section (1), but such assessment is regarded as made upon the representative taxpayer in such capacity only. 72

73 TAX LIABILITY & PAYMENT CONTINUED Personal liability of representative taxpayer s155 A representative taxpayer is personally liable for tax payable in the representative taxpayers representative capacity, if, while it remains unpaid (a) the representative taxpayer alienates, charges or disposes of amounts in respect of which the tax is chargeable; or (b) the representative taxpayer disposes of or parts with funds or moneys, which are in the representative taxpayers possession or come to the representativetaxpayer after the tax is payable, if the tax could legally have been paid from or out of the funds or moneys. 73

74 TAX LIABILITY & PAYMENT CONTINUED Payment of tax pending objection or appeal s164 (1) Unless a senior SARS official otherwise directs in terms of subsection (3) (a) the obligation to pay tax chargeable under a tax Act; and (b) the right of SARS to receive and recover tax chargeable under a tax Act, will not be suspended by an objection or appeal or pending the decision of a court of law pursuant to an appeal under section 133. (2) A taxpayer may request a senior SARS official to suspend the payment of any tax or a portion thereof due under an assessment if the taxpayer intends to dispute or disputes the liability to pay that tax under Chapter 9. (3) A senior SARS official may suspend payment of the disputed tax having regard to 74

75 TAX LIABILITY & PAYMENT CONTINUED the compliance history of the taxpayer; the amount of tax involved; the risk of dissipation of assets by the taxpayer concerned during the period of suspension; whether the taxpayer is able to provide adequate security for the payment of the amount involved; whether payment of the amount involved would result in irreparable financial hardship to the taxpayer; whether sequestration or liquidation proceedings are imminent; whether fraud is involved in the origin of the dispute; or whether the taxpayer has failed to furnish any information requested under this Act for purposes of a decision under this section. 75

76 TAX LIABILITY & PAYMENT CONTINUED (4) If the payment of tax which the taxpayer intended to dispute was suspended under subsection (3) and subsequently no objection is lodged; an objection is disallowed and no appeal is lodged; or an appeal to the Tax Board or Court is unsuccessful and no further appeal is noted, the suspension is revoked with immediate effect from the date of the expiry of the relevant prescribed time period or any extension of the relevant time period under this Act. 76

77 TAX LIABILITY & PAYMENT CONTINUED (5) A senior SARS official may deny a request in terms of subsection (2) or revoke a decision to suspend payment in terms of that subsection with immediate effect if satisfied that(a) after the lodging of the objection or appeal, the objection or appeal is frivolous or vexatious; (b) the taxpayer is employing dilatory tactics in conducting the objection or appeal; (c) on further consideration of the factors contemplated in subsection (3), the suspension should not have been given; or (d) there is a material change in any of the factors described in subsection (3), upon which the decision to suspend the amount involved was based. (6) During the period commencing on the day that (a) SARS receives a request for suspension under subsection (2); or (b)a suspension is revoked under subsection (5), and ending 10 business days after notice of SARS decision or revocation has been issued to the taxpayer, no recovery proceedings may be taken unless SARS has a reasonable belief that there is a risk of dissipation of assets by the person concerned. (7) If an assessment or a decision referred to in section 104(2) is altered in accordance with 77

78 TAX LIABILITY & PAYMENT CONTINUED an objection or appeal; a decision of a court of law pursuant to an appeal under section 133; or a decision by SARS to concede the appeal to the tax board or the tax court or other court of law,a due adjustment must be made, amounts paid in excess refunded with interest at the prescribed rate, the interest being calculated from the date that excess was received by SARS to the date the refunded tax is paid, and amounts short-paid are recoverable with interest calculated as provided in section 187(1). (8) The provisions of section 191 apply with the necessary changes in respect of any amount refundable and any interest payable by SARS under this section. 78

79 79 CHAPTER 11: RECOVERY OF TAX SARS collection powers have been strengthened: In respect of repatriation of offshore assets to satisfy tax debts In respect of personal liability of third parties who: Assist in dissipation of assets Receive property from tax debtor for below fair market value Benefit from asset stripping of tax debtor e.g. shareholders Part with / dispose of the assets or money of a tax debtor contrary to a notice by SARS to transfer the assets or money to SARS Period of limitation on collection of outstanding tax debts Current 30 year prescription period for tax reduced to 15 years Benefits SARS: more practical approach to debt management Benefits taxpayer: Finality achieved within more reasonable period Appointment of third party to satisfy tax debts Person required to transfer money held, including pension or remuneration,owed to tax debtor SARS may revise notice to enable taxpayer to pay basic living expenses including those of dependants

80 RECOVERY OF TAX Liability of shareholders for tax debts s181 (1) This section applies where a company is wound up other than by means of an involuntary liquidation without having satisfied its tax debt, including its liability as a responsible third party, withholding agent, or a representative taxpayer, employer or vendor. (2) The persons who are shareholders of the company within one year prior to its winding up are jointly and severally liable to pay the unpaid tax to the extent that 80

81 RECOVERY OF TAX CONTINUED (a)they receive assets of the company in their capacity as shareholders within one year prior to its winding-up; and (b) the tax debt existed at the time of the receipt of the assets or would have existed had the company complied with its obligations under a tax Act. (3) The liability of the shareholders is secondary to the liability of the company. (4) Persons who are liable for tax of a company under this section may avail themselves of any rights against SARS as would have been available to the company. 81

82 RECOVERY OF TAX CONTINUED (5) This section does not apply (a) in respect of a listed company within the meaning of the Income Tax Act; or (b)in respect of a shareholder of a company referred to in paragraph (a). 82

83 83 CHAPTER 12: INTEREST TAA creates framework for: Alignment of interest provisions across taxes Compounded interest General rule: Interest accrues from effective date, i.e. normally the date that tax is payable under a tax Act, to date of payment Interest rate is the prescribed interest rate except in respect of overpayments of provisional tax (4% points below) Remittance of interest discretion retained - limited to specified circumstances beyond the taxpayers control Refund interest payable by SARS: Interest calculated from the later of the effective date or date that theexcess payment received by SARS Taxpayer thus normally entitled to refund interest from same date that SARS would have been entitled to interest on unpaid tax Some exceptions in tax Act e.g. VAT Act where interest on refund only payable after 21 days of claim

84 INTEREST 187. (1) If a tax debt or refund payable by SARS is not paid in full by the effective date, interest accrues on the amount of the outstanding balance of the tax debt or refund (a) at the rate provided under section 189; and (b) for the period provided under section 188. (4) The effective date in relation to an additional assessment or reduced assessment is the effective date in relation to the tax payable under the original assessment. (5) If a senior SARS official is satisfied that interest payable by a taxpayer under subsection (1) is payable as a result of circumstances beyond the taxpayers control, the official may, unless prohibited by a tax Act, direct that so much of the interest as is attributable to the circumstances is not payable by the taxpayer. 84

85 85 CHAPTER 13: REFUNDS New provisions: Refund paid into a wrong account by SARS may be collected as if it is tax> otherwise SARS only able to recover amount through protracted common law remedies such as enrichment A refund need not be authorised by SARS until such time that a verification, inspection or audit of the refund has been finalised SARS issues assessments on expedited basis, so issue of assessment reflecting refund amount does not mean payment is authorised Most taxpayers will get refunds shortly after assessment but some may be selected for audit Refund need not be paid during audit but must be paid if security is given Taxpayer will remain entitled to interest from the later of effective date / date that the overpayment was made, to date of payment of the refund by SARS Set-off of refunds against existing tax debts prohibited in the case of instalment payment agreements & suspended disputed tax Limitation of payment of refunds if taxpayer has outstanding returns limited to income tax & VAT

86 REFUNDS s190(2) SARS need not authorise a refund as referred to in subsection (1) until such time that a verification, inspection or audit of the refund in accordance with Chapter 5 has been finalised. (3) SARS must authorise the payment of a refund before the finalisation of the verification, inspection or audit referred to in subsection (2) if security in a form acceptable to a senior SARS official is provided by the taxpayer. (4) A person is entitled to a refund under subsection (1)(b) only if the refund is 15 claimed by the person within three years, in the case of an assessment by SARS, or five years, in the case of self-assessment, from the date of the assessment. 86

87 87 C HAPTER 14: W RITE OFF / W AIVER OF T AX D EBTS Provisions are essentially: A form of tax debt relief May be afforded to taxpayers under certain prescribed circumstances No major changes were made to current law, except: Circumstances where it is appropriate to compromise a tax debt were made less restrictive Some of the factors that disqualify the tax debtor from a compromise agreement removed from current law include: Compromise based solely on a claim of hardship in paying the tax debt, including the need to sell a home or business Compromise to assist a debtor who has become overcommitted Compromise to save a business from failure or closure Compromise to alleviate harsh or unfair operation of a tax law in particular circumstances

88 88 CHAPTER 15: PENALTIES The administrative penalties imposed under the Income Tax Act now included in TAA & apply across taxes These penalties target non-compliance with administrative obligation under a tax Act New provisions: Imposition of penalty mandatory (currently discretionary) > per international models as certainty of penalty enhances compliance Targeted non-compliance will be listed in public notice by C:SARS > in order to only target impactful / more serious non-compliance Percentage based penalties imposed in TAB but % of penalty (e.g. 10%)determined by relevant tax Act Administrative penalty for failure to report a reportable arrangement > included in this Chapter & imposed on a more proportionate basis

89 89 C HAPTER 16: U NDERSTATEMENT P ENALTY The current open-ended discretion to impose additional tax (understatement penalty under TAA) up to 200% now limited by new structure whereby percentage of additional tax will be determined by : Taxpayers behaviour (e.g. gross negligence), and Other objective criteria (e.g. voluntary disclosure) in a Table New provisions: Imposition triggered by an understatement (defined term) If understatement is substantial (defined) behaviour irrelevant Methodology for calculation of tax shortfall prescribed Onus to prove grounds for alleged behaviour on SARS Administrative & understatement penalty double jeopardy avoided Permanent Voluntary Disclosure Programme > administrative penalty, understatement penalty & criminal charges relief but not interest

90 90 C HAPTER 17: C RIMINAL O FFENCES (1) General statutory offences now included in TAA but tax type specific offences may remain in the other tax Acts, and include: Non-compliance offences Tax evasion Contravention of secrecy provisions Filing returns without authority New provisions: Tax evasion reverse onus: Reverse onus on taxpayer under current law has been removed Replaced with evidentiary burden i.e. taxpayer needs to prove that there is a reasonable possibility that he / she was ignorant of the falsity of fraudulent statement & ignorance was not due to negligence Decision to lay a complaint of statutory tax evasion: May only be taken by a senior SARS official

91 91 C HAPTER 18: U NPROFESSIONAL C ONDUCT No major changes to current law except one additional requirement to be registered as a tax practitioner A person may not be registered as a tax practitioner if during the five years before his or her application for registration he or she has: Been removed from a related profession or professional body for dishonesty, or Been convicted of: theft, fraud, forgery or uttering a forged document, perjury or statutory offence of corrupt activities, or any other crime involving dishonesty with a sentence of two years imprisonment or equivalent fine

92 92 CHAPTER 19: GENERAL PROVISIONS Provisions are predominantly based on current law, and provides for: Deadlines for payments, submission and other action Power of Commissioner to determine date for submission of returns and payment of tax, interest and penalties Appointment of public officers & default in appointment Address, authentication and delivery of documents Electronic communication rules (to be issued in regulations) New provision which caters for non-material defects in procedural requirements for the issue of documents > defects do not affect the validity of procedure provided taxpayer has effective knowledge of the notice / and of its content The procedures and the requirements for the issue of a tax clearance certificate are now regulated in the TAA under this Chapter

93 93 C HAPTER 20: T RANSITIONAL P ROVISIONS Provisions aimed at ensuring a smooth transition from current law to the Tax Administration Act, upon commencement Essential rule followed: Deleted provisions only apply until TAA commencement date Thereafter TAA applies (i.e. including ongoing audits, investigations, disputes & debt recovery) – idea is to avoid two systems going forward Exception: Criminal Prosecutions

94 94 S CHEDULE 1 TO TAA (1) Most administrative provisions removed from the various tax Acts and now housed in the TAA Provisions that are unavoidably tax type specific remain in the various tax Acts In some cases specific tax Act requirements apply in addition to TAA requirements e.g. VAT returns Some substantive changes also proposed

95 95 S CHEDULE 1 TO TAA (2) Amendments to paragraph 19 of Fourth Schedule: Estimates of taxable income (IRP6s) need only be submitted when required by the Commissioner (e.g. when an amount of provisional tax is payable) In the case of a first provisional tax payment the basic amount will not be increased by 8 per cent p.a. if an assessment has been raised for a year of assessment ending within 18 months before payment is due An assessment issued by the Commissioner up to 14 days before the date a provisional tax estimate is made, may be used to determine the basic amount Estimates made by the Commissioner in terms of paragraph 19(2) and (3) are no longer final and conclusive

96 96 S CHEDULE 1 TO TAA (3) Amendments to section 17 of VAT Act: Proposed amendment provides that SARS will only approve an alternative method for the calculation of apportionment of input tax with regard to current or future tax periods and not past tax periods Amendments to section 28 of VAT Act: To achieve a consistent filing date for VAT but retain the incentive to e-file, vendors who e-file and make payment via e-filing must submit returns by 25 th (as is the case for others) but need only pay by month-end

97 97 More Info – Advanced Diploma In Tax Procedural - client Prof D N Erasmus – 083 458 8422 I start with a quick overview of the Tax Administration Act

98 QUESTIONS Address questions to: Prof D N Erasmus [] 083 458 8422 98

99 99 Thank You

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