TAX ADMINISTRATION ACT, 2011 By Johan Kotze Head of Tax Dispute Resolution

The Tax Administration Act commenced on 1 October 2012 VAT commencement – 30 September 1991 (Monday) CGT commencement – 1 October 2001 Next update: 1 October 2021/2

Understatement penalty Voluntary disclosure Third party appointments

UNDERSTATEMENT PENALTY 4

Understatement penalty - general The current open-ended discretion to impose 200% additional tax, is replaced with a framework to ensure consistent treatment of taxpayers in comparable circumstances. Different rates of an understatement penalty based on the type of behaviour or degree of culpability involve. The penalty will be determined by selecting the highest percentage from the table, on a case by case basis. 5

Understatement penalty - table 6 Item /BehaviourStandard Case If obstructive, or repeat case Voluntary disclosure after notification of audit Voluntary disclosure before notification of audit i. Substantial understatement 25%50%5%0% ii. Reasonable care not taken in completing return 50%75%25%0% iii. No reasonable grounds for ‘tax position’ taken 75%100%35%0% iv. Gross negligence 100%125%50%5% v. Intentional tax evasion 150%200%75%10%

Understatement penalty - Definitions ‘ Repeated case’ - a second or further case of any of the behaviours listed under items (i) to (v) of the table within five years of the previous case ‘Substantial Understatement’ - a case where the prejudice to SARS or the fiscus exceeds the greater of 5% of the amount of ‘tax’ properly chargeable or refundable for the relevant tax period, or R

Understatement penalty - Definitions ‘ Understatement’ - any prejudice to SARS or the fiscus in respect of a tax period as a result of: (a)a default in rendering a return; (b) an omission from a return; (c) an incorrect statement in a return; or (d)if no return is required, the failure to pay the correct amount of ‘tax’. 8

Understatement penalty - Remittance SARS must remit a ‘substantial understatement’ penalty, if satisfied that: -full disclosure was made prior to the date that the relevant return was due; -the taxpayer was in possession of a registered tax practitioner’s opinion, which; -was issued no later that the date that the relevant return was due; -based on full disclosure of facts and circumstances -confirmed that a court is likely to upheld 9

Understatement penalty – Remittance – Full disclosure of facts and circumstances As per the Tax Administration Laws Amendment Bill: was based upon full disclosure of the specific facts and circumstances of the arrangement and, in the case of : -Substance over form doctrine -Anti-avoidance provisions This requirement cannot be met unless the taxpayer is able to demonstrate that all the steps in or parts of the arrangement were fully disclosed to the tax practitioner, whether or not the taxpayer was a direct party to the steps or parts in question 10

Understatement penalty – Remittance, objection & appeal A decision by SARS not to remit an understatement penalty is subject to: -objection and -appeal The same procedures concerning objection, appeal, and alternative dispute resolution apply to the understatement penalty. 11

VOLUNTARY DISCLOSURE PROGRAMME 12

Voluntary Disclosure Programme An interim voluntary disclosure programme expired in October 2011, but a permanent legislative framework for voluntary disclosure that applies to all tax types is included in TAAct. 13

Voluntary Disclosure Programme The provisions to give effect to the VDP: -introduce the concept of voluntary disclosure; -prescribe the relief that may be provided under the VDP; -state who qualifies to may make a disclosure; and -prescribe when, where and how to apply for the VDP. 14

Voluntary Disclosure Programme – Relief granted to defaulting taxpayer A defaulting taxpayer will be granted relief under the programme, provided: -the disclosure is complete; -SARS was not aware of the default; and -an administrative non-compliance penalty or understatement penalty would have been imposed had SARS discovered the default in the normal course of business. 15

Voluntary Disclosure Programme – Extent of relief No relief: -Interest -exchange control -penalties imposed for the late submission of returns or -for the late payment of tax A person cannot qualify for VDP relief if this will result in a refund being payable to the person. 16

Voluntary Disclosure Programme – Extent of relief Permanent relief: -Administrative non-compliance penalty: 100% -Understatement penalty, as determined in the applicable column in the understatement penalty table -SARS’ criminal prosecution. 17

Voluntary Disclosure Programme – No name basis A mechanism available to apply for relief on an anonymous basis. It involves SARS providing a non-binding private opinion on the applicants eligibility. The application must clearly contain sufficient information to enable an opinion to be formed. 18

THIRD PARTY APPOINTMENT 19

Third party appointments – 179(1) Senior SARS official - The Commissioner - SARS official who has specific written authority from the Commissioner - SARS official occupying a post designated by the Commissioner of this purpose 20

Third party appointments – 179(2) Unable to comply with requirement: - must advise the senior SARS official - with reasons - within period specified Thus: - contact details of senior SARS official - reasonable timeperiod 21

Third party appointments – 179(3) Agents personal liability if parting with funds, contrary to the notice, 22

Third party appointments – 179(4) On request by an affected person, SARS may amend request to be spread over a period, To allow for ‘basic living expenses of the taxpayer and his or her dependants’ 23

Thank you