Minimum Standards for Tax Practice: Where Should We Draw the Line?
26 March 2013
Posted by: Author: Sharon Smulders
Source: Sharon Smulders
The Tax Administration Laws Amendment Act, 2012 (‘TALAA’) brought about the formal regulation of the tax profession in South Africa, eﬀective 1 July 2013. Although the international focus on the work of tax professionals commenced when the OECD initiated a study into the role of tax intermediaries vis-à-vis tax avoidance practices in 2006, other developed countries such as Australia already commenced a form of regulation in the late 90’s.
Prior to the TALAA introduced in December 2012, the Tax Administration Act, 2011 already introduced signiﬁcant powers to SARS in reporting and laying complaints against tax practitioners to their ‘controlling bodies’.
In terms of section 241(1) of the Tax Administration Act 28 of 2011 (TAAct), a senior SARS oﬃcial may lodge a complaint with a controlling and recognised controlling body if a person (the tax practitioner) did or omitted to do anything with respect to the aﬀairs of a taxpayer. Speciﬁcally it authorises a Senior SARS oﬃcial to lay a complaint with the controlling body if the registered tax practitioner:
•intentionally or by negligence assisted the taxpayer to avoid or unduly postpone the performance of any obligation under a tax Act; or
• contravened a rule or code of conduct of his/her controlling body;
•acted, without exercising due diligence, in preparing, approving or submitting a return, aﬃdavit or other document relating to matters aﬀecting the application of a tax Act;
•unreasonably delayed the ﬁnalisation of any matter before SARS;
•gave an opinion contrary to clear law, whether recklessly or through gross incompetence;
•has been grossly negligent;
•knowingly gave false or misleading information in connection with matters aﬀecting the application of a tax Act or participated in such activity; or
•directly or indirectly attempted to inﬂuence a SARS oﬃcial with regard to any matter relating to a tax Act by the use of threats, false accusations, duress, or coercion, or by oﬀering gratiﬁcation as deﬁned in the Prevention and Combating of Corrupt Activities Act, 2004 (Act No. 12 of 2004).
It is clear that the legislature’s intention behind extending the above additional and speciﬁc "reporting powers” to senior SARS oﬃcials, without falling foul of the secrecy provisions, is to ensure that tax practitioners are held accountable, protecting both taxpayers and SARS. Aﬅer all, tax practitioners receive a fee for their service, and hiding behind the excuse that the taxpayer is ultimately responsible for the tax return is no longer applicable. The most recent case where a taxpayer blamed her accountant for failing to comply with tax laws, was the high proﬁle matter of Ms Shauwn Mpisane and the Zikhulise Cleaning Maintenance and Transport CC v CSARS  ZAGPPHC 91.
What are the practical implications?
The powers extended to SARS are thus far reaching, but as yet no guidance as to who these senior SARS oﬃcials are has been provided by SARS to the controlling bodies in order for them to verify that any complaint received is in fact a valid one in terms of the TAAct.
Various other issues in section 241 also lack clarity, such as the time that a controlling body has to respond to SARS on these allegations and what exactly would be regarded as "unreasonably delayed”, "due diligence”, "negligence” and "grossly negligent” on the part of a tax practitioner.
It is these ‘undeﬁned’ terms (in the TAAct) that has one wondering: Against what standards should a tax practitioner be measured to ensure that s/he is diligent and not (grossly) negligent and how would a tax practitioner prove that s/he has been diligent and not (grossly) negligent?
It is evident that the professional bodies’ code of conduct and standards need to incorporate guidelines dealing with these issues, but questions such as:
•Will a signed engagement letter and relying on audited ﬁnancial statements (although veriﬁed using materiality in their preparation) to prepare a tax return be suﬃcient to prove that a tax practitioner was diligent and not (grossly) negligent in his conduct?
•How much detail in relation to the underlying accounting records should a tax practitioner delve into to prevent the tax practitioner from falling foul of the requirements laid out in terms of section 241.
•Should materiality feature in providing assistance with the preparation of tax return?
Tax standards required?
It is submitted that there is a clear need for taxation standards, similar to those issued by the Independent Regulatory Board for Auditors in respect of the attest function, against which a tax practitioner can assess him/herself to ensure that s/he meets the minimum professional requirements as a registered tax practitioner. Minimum standards are the foundation of any profession, and the tax profession is no diﬀerent. Industry wide standards will aid tax professionals in fulﬁlling their ethical responsibilities by instituting and maintaining standards against which their professional performance can be measured.
SAIT has engaged with SARS on this issue and SAIT has proposed that the following minimum industry standards be issued in this regard. A tax practitioner must:
•obtain an understanding of the taxpayer;
•perform a minimum due diligence review/veriﬁcation on tax records supplied by a taxpayer, i.e. applying professional judgement;
•refrain from using materiality as a benchmark when dealing with and submitting documents (as deﬁned in the TAAct) to SARS;
•apply the principles of practice generally prevailing and the doctrine of legitimate expectation;
•comply with the necessary legal actions and duties when detecting non-compliance with laws and regulations by a taxpayer;
•comply with the necessary legal actions and duties when tax positions change subsequent to submitting a document (as deﬁned) to SARS, including amendments to legislation retrospectively;
•adhere to the policy with regard to continuing professional education;
•maintain and retain working papers and documentation as evidence of all the above.
Professionals should welcome the regulation of tax practitioners as there is anecdotal evidence from Japan, the UK and the USA that this regulation has signiﬁcantly contributed to enhancing the public trust in tax practitioners and in positively inﬂuencing the tax practitioner’s behaviour.
Tax practitioners are, however, clearly exposed to signiﬁcant exposure and are advised to revisit their practice management, working papers, review and risk assessment procedures.
It is anticipated that an industry wide "good practice standards” will be detailed but wide enough to provide for an appropriate range of behaviour that recognises the need for interpretations to meet a broad range of personal and professional situations. Discharging a tax practitioner’s liability under section 241 is a serious matter and clarity on the acceptable taxation standards is imminent.